Shri Pujala Mahesh Babu Vs ACIT (ITAT Hyderabad)
ITAT Hyderabad held that addition towards unexplained investment sustained as assessee couldn’t explain the source of investment. Onus is on the assessee to explain the source of investment.
Facts-
A search and seizure operation u/s 132 of the I.T. Act was conducted in the Mansani group of cases on 20.11.2014 and the case of the assessee was also covered during which certain incriminating materials were seized. A survey operation u/s 133A of the I.T. Act, 1961 was also conducted in the business premises of the assessee on 20.11.2014 during which certain documents were also impounded. In response to the notice u/s 153A, dated 22.12.2015, the assessee filed his return of income on 20.11.2016 declaring total income at Rs.3,85,860/-. AO completed the assessment u/s 143(3) r.w.s. 153A of the Act on 29.12.2016 determining the total income at Rs.2,86,82,100/-.
In appeal, CIT(A), partly allowed the appeal filed by the assessee. Aggrieved with such order of the CIT (A), the assessee is in appeal before the Tribunal.
Conclusion-
Admittedly, the assessee could not explain the source of such investment. Further, as mentioned earlier, this land was purchased during the year itself and the onus was on the assessee to explain the source of such investment. Merely stating that the assessee has sufficient funds will not absolve the assessee from his responsibilities especially when no cash flow statement was filed to explain the availability of funds and the assessee is also not maintaining any books of account. In this view of the matter and in view of the detailed reason given by the CIT (A) while sustaining the addition made by the Assessing Officer, we do not find any infirmity in the order of the learned CIT (A) on this issue.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
These batch of four appeals filed by the assessee and one appeal filed by the Revenue are directed against the separate orders dated 6.11.2018 of the learned CIT (A)-12, Hyderabad relating to A.Ys. 2012-13 to 2015-16 as mentioned above. For the sake of convenience, all these appeals were heard together and are being disposed of by this common order.
2. There is a delay of 5 days in filing of these appeals by the assessee for which the assessee has filed a condonation application along with an affidavit explaining the reasons for such delay which is due to medical reasons. After considering the contents of the condonation petition and after hearing the learned DR, the delay in filing of these appeals by the assessee are condoned and the appeals are admitted for adjudication.
ITA No.132/Hyd/2018-A.Y 2012-13 (By Assessee)
3. Fact of the case, in brief, are that the assessee is an individual and derives income as an agent of real estate activities. He filed his original return of income on 20.06.2012 declaring total income of Rs.4,29,940/-. A search and seizure operation u/s 132 of the I.T. Act was conducted in the Mansani group of cases on 20.11.2014 and the case of the assessee was also covered during which certain incriminating materials were seized. A survey operation u/s 133A of the I.T. Act, 1961 was also conducted in the business premises of the assessee on 20.11.2014 during which certain documents were also impounded. In response to the notice u/s 153A, dated 22.12.2015, the assessee filed his return of income on 20.11.2016 declaring total income at Rs.3,85,860/-. The Assessing Officer completed the assessment u/s 143(3) r.w.s. 153A of the Act on 29.12.2016 determining the total income at Rs.2,86,82,100/-.
4. In appeal, the learned CIT (A), partly allowed the appeal filed by the assessee. Aggrieved with such order of the CIT (A), the assessee is in appeal before the Tribunal by raising the following grounds of appeal:
“The order of the learned Commissioner of Income-Tax (Appeals) is erroneous to the extent it is prejudicial to the appellant.
2. The learned Commissioner of Income-Tax (Appeals) erred in confirming the action of the Assessing officer in initiating the proceedings u/s 153A of the I.T. Act inspite of the fact that search was not contemplated in the case of the appellant.
3. The learned Commissioner of Income-Tax (Appeals) ought to have accepted the explanations furnished in respect of each receipt and expenditure without relying on the statement recorded at the time of search.
4. The learned Commissioner of Income-Tax (Appeals) erred in confirming the addition of Rs.1,07,35,000/-holding that the cash receipt to the said extent was not properly explained.
5. The learned Commissioner of Income-Tax (Appeals) erred in confirming the action of the Assessing officer in considering the receipt of Rs.51,80,000/- as unexplained receipt.
6. The learned Commissioner of Income-Tax (Appeals) erred in confirming the addition of Rs.25,87,000 made by the Assessing officer and in holding that the said amount represents unexplained investment in acquisition of the land.
7. The learned Commissioner of Income-Tax (Appeals) erred in Confirming levy of interest u/s 234A(3) and 234B(3) of the I.T. Act. Any other ground that may be urged at the time of hearing.
8. Any other ground that may be urged at the time of hearing”.
5. Grounds of Appeal No.1, 3 & 8 being general in nature are dismissed.
6. So far as Ground No.2 is concerned, the same relates to the validity of the proceedings u/s 153A of the I.T. Act. The learned Counsel for the assessee submitted that the search was not contemplated in the case of the assessee and therefore, the initiation of proceedings u/s 153A are not valid.
6.1 After hearing both the sides, we do not find any merit in the above ground raised by the assessee. A perusal of the warrant of authorization dated 19.11.2014, copy of which is placed at page 25 of the Paper Book, clearly shows the name of the assessee as Pujala Mahesh Babu. Similarly, the copy of the Panchnama also clearly mentions the name of the assessee Shri Pujala Mahesh Babu. Therefore, once the name of the assessee is mentioned in the copy of the search warrant and in the copy of the Panchnama, the argument of the learned Counsel for the assessee that the CIT (A) is not justified in confirming the action of the Assessing Officer in initiating proceedings u/s 153A of the Act is misconceived and therefor, the same is liable to be dismissed. We accordingly dismiss the ground raised by the assessee on this issue.
7. Ground of Appeal No.4 relates to the order of the learned CIT (A) in confirming the addition of Rs.1,07,35,000/-made by the Assessing Officer on account of cash receipts.
7.1 Fact of the case in brief are that the Assessing Officer during the course of assessment proceedings noted that Annexure A/PMB/04 is a blue SBI Life Insurance diary 2009 impounded u/s 133A from the PMB premises of the assessee. As per Written Page No 8 of Annexure A/PMB/04, an amount of Rs.1,07,35,000/- was received by the assessee from Turbo Company towards sale of 5 acres 21 guntas @Rs 34,00,000/- per acre totaling to Rs 1,87,85,000/- out of which Rs.1,07,35,000/- is received by the assessee on 7-9-2011& 9-11-2011. He, therefore, asked the assessee to show cause as to why the said cash receipts should not be brought to tax in his hand for the A.Y 2012-13. The assessee stated that sale proceeds of Rs 1,00,23,970/- is on a/c of sale of 7 acres and 34 guntas agricultural land which has been offered as exempted income. However, the Assessing Officer noted that the cash receipts and the area of land do not match with the seized material. He noted that the assessee during the course of search action had declared Rs 15 crores as additional income for different A.Ys vide his statement recorded u/s 132(4) on 20.11.2014 and resumed on 21.11.2014. The above additional income of Rs.1,07,35,000/- was once again admitted by the assessee vide his explanation submitted to the DDIT (Inv.) Unit.II(1) Hyderabad which is specifically mentioned at para 11.5 of the said explanation. Since the assessee failed to offer any convincing reply during the assessment proceedings, the Assessing Officer treated the cash receipts of Rs.1,07,35,000/- as his undisclosed income and brought the same to tax.
8. Before the learned CIT (A), the assessee submitted that he along with another co-owner Shri K.Narasimhulu executed the sale deed on 8.12.2011 in favour of Turbovent Industries Private Limited. It was submitted that the entire land is agricultural land situated beyond 8 kms from Hyderabad Municipal Corporation limits. The lands were not converted into non-agriculture. Revenue records also show that the lands are agriculture in nature. The assessee and the co-owner have carried on agricultural operations on the said land and therefore, the asset sold is not a capital asset within the meaning of section 2(14) of the I.T. Act.
9. On the basis of the arguments advanced by the assessee, the learned CIT (A) called for a remand report from the Assessing Officer. After considering the remand report from the Assessing Officer and the rejoinder of the assessee to such remand report, the learned CIT (A) sustained the addition made by the Assessing Officer. While doing so, he noted that during the search & seizure proceedings, the assessee had admitted Rs.15.00 crores as additional income in the statement recorded u/s 132(4) of the Act. He had filed an affidavit to this effect before the Investigation Wing and he had even submitted how he had arrived at the additional income with reference to the seized material. Although the search was conducted on 20.11.2014, the return was filed on 21.11.2016 and no proper explanations were made before the Assessing Officer who made the addition on the basis of seized material. Thus, the assessee even after 2 years did not furnish any explanation before the Assessing Officer during the course of assessment proceedings. Further, the amount was also worked out by the assessee himself as his undisclosed income in the written submission filed before the DDIT. In view of the above and relying on various decisions to the proposition that retraction should be within reasonable time, the learned CIT (A) upheld the addition made by the Assessing Officer.
9.1 Aggrieved with such order of the learned CIT (A), the assessee is in appeal before the Tribunal.
10. The learned Counsel for the assessee submitted that the assessee does not maintain any books of account and therefore, provisions of section 68 are not attracted. Referring to the provisions of section 68, he submitted that as per the said provision, the amount credited into the books of account maintained in the previous year are only required to be charged. Referring to the following decisions, he submitted that since the assessee does not maintain any books of account, the provisions of section 68 have no application:
a) [2011] 12 com 306 (Delhi) – Ms. Mayawati
b) Hon’ble ITAT Delhi Bench-A order dt.08.06.2018 in ITA.No.5430 & 5431/Del/2017 in the case of Smt. Babbal Bhatia Vs. ITO
c) Hon’ble ITAT Delhi SMC Bench order dt.11.01.2019 in ITA.No.7309/Del/2018 & Ors. in the case of M/s Nitin Agarwal (HUF) & Ors Vs. ITO
11. He submitted that all the receipts cannot be treated as the income of the assessee except when such receipt is falling under any particular head of income as provided under the I. T. Act. The Assessing Officer did not consider the nature of the receipt and the head of income under which the amount is assessable. Therefore, the said amount cannot be brought to tax. He submitted that before the Assessing Officer as well as the learned CIT (A), the assessee has stated that he sold the land along with one Shri K. Narsimhulu to Turbovent Industries Ltd vide sale deed dated 8.12.2011 and his part of sale consideration was already admitted as capital gain which was claimed as exempt. He accordingly submitted that the addition made by the Assessing Officer and sustained by the learned CIT (A) is not called for. Referring to various decisions he submitted that an admission is an extremely important piece of evidence but it cannot be said that it is conclusive. In his alternate contention, he submitted that due indexation benefit be given for computing the capital gain.
12. The learned DR, on the other hand, heavily relied on the order of the learned CIT (A). He submitted that even after a period of 2 years from the date of search, the assessee was unable to submit satisfactory explanation before the Assessing Officer. The assessee himself had admitted undisclosed income of Rs.15 crores in his statement recorded during the course of search and he himself has computed the manner of such additional income. Therefore, the order of the learned CIT (A) is unjustified on this issue.
13. We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the AO in the instant case made addition of Rs.1,07,35,000/-being the amount received by the assessee from Turbovent Industries Ltd towards sale of 5 acres 24 guntas @ Rs.34,00,000/- per acre totaling to Rs.1,87,85,000/- out of which an amount of Rs.1,07,35,000/- was received by the assessee on 7.9.2011 and 9.11.2011. Since the cash receipts and the area of the land did not match with the seized material and since the assessee during the course of search had declared Rs.15.00 crores as undisclosed income for different A.Ys in the statement recorded u/s 132(4) of the Act, the Assessing Officer made addition of Rs.1,07,35,000/- to the total income of the assessee. We find in appeal, the learned CIT (A) sustained the addition on the ground that despite a period of 2 years from the date of search till the date of completion of assessment proceedings, the assessee could not offer any satisfactory explanation and the assessee during the course of search had himself declared additional income of Rs.15.00 crores. It is the submission of the learned Counsel for the assessee that it is not an un-accounted receipt but the same is on account of sale of land and the assessee has claimed such receipt as exempt income. Further, in absence of maintenance of any books of account by the assessee no addition u/s 68 can be made. It is also his submission that although admission is an important piece of evidence but the same is not conclusive.
14. We find some force in the above argument of the learned Counsel for the assessee. The Hon’ble Supreme Court in the case of Pullangode Rubber Produce Co. vs State Of Kerala And Anr., reported in 91 ITR 18 has held that an admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It has been held that it is open to the person who made the admission to show that it is incorrect. We find the assessee in the instant case in the return of income filed by him, has claimed an amount of Rs.1,07,35,000/- as exempt on account of sale of agricultural land. Therefore, we find some force in the argument of the learned Counsel for the assessee that the same cannot be treated as unexplained cash receipts, However, the alternate contention of the learned Counsel for the assessee that the same can be treated as capital gain and due indexation benefit be allowed is acceptable. We, therefore, deem it proper to restore the issue to the file of the Assessing Officer with a direction to consider the amount of receipt at Rs.1,07,35,000/- by the assessee as sale proceeds of a capital asset and allow consequential indexation benefit of the cost of the asset and determine the long-term capital gain after verifying the details. Needless to say, that the Assessing Officer while deciding the issue shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. We hold and direct accordingly. The ground raised by the assessee is allowed for statistical purposes.
15. Ground of appeal No.5 relates to the unexplained cash receipts of Rs.51,80,000/-.
15.1 The facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings noted that as per written Page No 7 of Annexure A/PMB/O1 (pages I to 58) seized from the residence of the assessee, an amount of Rs 51,80,000/- is received by the assessee on 13/05/2011. He, therefore, asked the assessee to explain as to why the cash receipts of Rs.51,80,000/- should not be brought to tax in his hand for A.Y.2012-13. According to the Assessing Officer, the assessee failed to offer any satisfactory reply. He noted that the assessee during the course of search action had declared Rs 15 crores as additional income for different assessment years vide his statement recorded u/s 132(4) on 20-11-2014& resumed on 2111-2014. The above additional income of Rs 15,00,00,000/- was once again admitted by the assessee vide his explanation submitted to the DDIT(Inv) Unit l|(1), Hyderabad which is specifically mentioned at para 6.16 of the said explanation. In view of the above, the Assessing Officer made addition of the cash receipts of Rs. 51,80,000/- as his undisclosed income and brought to tax.
16. Before the learned CIT (A), the assessee submitted that no such amount was received at that point of time and further the receipts do not relate the assessee. It was submitted that this seized paper is not in handwriting of the assessee and no signature of the assessee is there on the paper. Since this is a dumb document without any real value, therefore, the Assessing Officer was not justified in making the addition. Without prejudice to the above, it was submitted that if the same is considered as a receipt and a payment, then the amount was received first as per the paper and repaid later. In those circumstances, such an amount cannot form part of the income of the assessee. It was accordingly argued that the addition of Rs.51,80,000/-is uncalled for.
16.1 However, the learned CIT (A) was not satisfied with the arguments advanced by the assessee. After obtaining a remand report from the Assessing Officer and rejoinder of the assessee to such remand report, he sustained the addition made by the Assessing Officer on the ground that after a period of two years from the date of search till the date of assessment proceedings, the assessee could not offer any satisfactory explanation and the assessee during the course of search had himself declared additional income of Rs.15.00 crores.
16.2 It is the submission of the learned Counsel for the assessee that it is not an un-accounted receipts but the same is on account of sale of land and the assessee has claimed such receipt as exempt income. Further, in absence of maintenance of any books of account by the assessee no addition u/s 68 can be made.
17. The learned Counsel for the assessee drew the attention of the Bench to Page No.2 of the Paper Book where a copy of the seized paper is placed. He submitted that a perusal of the same would show that this is the a/c of the assessee Shri Puajala Mahesh Babu as on 31.5.2011 with Shri T. Jangaiah. He submitted that the totaling of the first 3 entries comes to Rs.51,80,000/- out of which Rs.15,90,000 represents cheque receipts. The fourth entry is return of cheque against payment of cash. The balance amount of Rs.36,80,000/- after deducting the amount of Rs.15.00 lakhs received in cheque from the total of Rs.51,80,000/- was repaid on 28.06.2011 and 13.6.2011. He submitted that the assessee does not maintain any books of account and therefore, the provisions of section 68 have no application. Further, the assessee did not make any investment in any of the asset with this amount nor paid the same into bank account. Therefore, provisions of section 69 are also not applicable. He submitted that since the amount was received and repaid during the year as per the seized document, therefore, in view of the provisions of section 132(4) of the I.T. Act, the entries made in the seized documents are reliable evidence. Therefore, no addition should have made on the basis of the seized material itself. He accordingly submitted that since the loan amounts were taken and repaid during the year itself, no addition is called for. Further, there is no evidence to show that the amount represents the income of the assessee.
18. The learned DR, on the other hand, heavily relied on the order of the learned CIT (A). He submitted that even after a period of 2 years from the date of search, the assessee was unable to submit the explanation before the Assessing Officer. The assessee himself had admitted during the course of search regarding the undisclosed income of Rs.15 crores and he himself has computed the manner of such additional income. Therefore, the order of the learned CIT (A) is fully justified on this issue.
19. We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the AO in the instant case made addition of Rs.51,80,000/-on the basis of the seized documents (Page No.7 of the Annexure A/PM/01 (Pages 1 to 58) of the seized material. The reason for making the above addition is that the assessee failed to offer any satisfactory explanation and assessee himself had declared additional income of Rs.15.00 crores in the statement recorded u/s 132(4) of the I.T. Act. We find the learned CIT (A) upheld the action of the Assessing Officer. It is the submission of the learned Counsel for the assessee that as per the seized document, the assessee has received an amount of Rs.36,80,000/- in cash, Rs.15,90,000/- in cheque and amount of Rs.15,00,000/- was returned by cheque and the cash amounts were returned during the same year. Therefore, no addition is called for. We find some force in the above arguments of the learned Counsel for the assessee. As mentioned earlier in the preceding paragraphs, an admission is an importance piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect. A perusal of the seized document placed at page 2 of the Paper Book clearly shows that this is the a/c of Shri Pujala Mahesh Babu as on 31.5.2011 with Shri T. Jangaiah. The total of the first three entries i.e., Rs.15,90,000/-, Rs.30,00,000 and Rs.5,00,000/-comes to Rs.51,86,000). The first amount is again received by cheque, whereas the subsequent entries are received in cash. Further, the fourth entry shows that an amount of Rs.15,00,000 was returned by cheque and other amounts were returned by cash. Thus, the account is squared up during the year itself. Further, the assessee does not maintain any books of account. Therefore, the addition of the same u/s 68 in our opinion, is not called for. However, when the assessee is undertaking certain transactions with one Shri T. Jangaiah and he was engaged in the business of real estate therefore, he must have earned some income. Since the total amount of receipts including the cheque receipt is amounting to Rs.51,80,000/- therefore, profit @ 10% of the addition of Rs.51,80,000/- as against Rs.51,80,000/- made by the Assessing Officer and sustained by the learned CIT (A), in our opinion, will meet the ends of justice. We hold and direct accordingly. Ground of appeal No.5 raised by the assessee is accordingly partly allowed.
20. Ground of appeal No.5 relates to the order of the learned CIT (A) in confirming the addition of Rs.25,87,000/- made by the Assessing Officer.
20.1 This ground of appeal consists of two additions namely Rs.5,32,500/- and Rs.20,54,500/- respectively. So far as the addition of Rs.5,32,500/- is concerned, the Assessing Officer during the course of assessment proceedings noted that as per the Sale Deed dated 8-12-2011 mentioned at para 8 of his order, the assessee has purchased land situated at Indrakaran Village, Sangareddy Mandal, Medak Distt. vide Reg Doc No 5964/2011 dated 10-6-2011 and Reg Doc No 8097/2011 dated 30-7-2011 at cost of Rs 3.82,500/- & Rs 1,50,000/- respectively Since the source of such investments as per the sale deeds were not explained, the Assessing Officer made addition of the same to the total income of the assessee.
21. So far as the addition of Rs.20,54,000/- is concerned, the Assessing Officer noted that the assessee has purchased land situated at Indrakaran Village, Sangareddy Mandal Medak during the year; the details of which are as under:
