TMI Blog2014 (6) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... ted for in the note books seized - no amounts were advanced against 11 pronotes, but, they are taken in the total gross assets, the claim of Assessee for exclusion is proper – Decided against Revenue. Disallowance of time barred pronotes – Held that:- There was no reason to interfere with the order of the learned CIT(A) as the non-recovery of the amounts against the time barred pronotes is a valid claim as bad debt when the entire amount advanced is considered in gross assets in the computation of income made by Assessee on the basis of note books and there is no such allegation that Assessee has collected the amounts outside the books of account, since all the transactions are found entered in the books of account - Non-recovery of the amounts on these pronotes has resulted in loss to Assessee – thus, the claim made by Assessee as deduction is to be upheld – Decided against Revenue. Disallowance on time barred cheques – Held that:- There was no reason to defer from the finding of the CIT(A) - The issue is similar to the earlier two claims of pronotes found but not advanced and time barred pronotes - In the case of time barred cheques also the claim is allowable as the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 132 of the Act in the residential premises of Sri Ranga Chennappa at Door No.7-119, Madhav Nagar, Dharmavaram on 07-11-2001. Accordingly, notices u/s 158BC of the IT Act, 1961 were issued to Assessee on 18-04-2002, in response to which, Assessee filed return of income on 10-06-2002 declaring undisclosed income of Rs.11,47,100/-. In the said return, Assessee had shown gross total income at Rs.2,47,21,185/- and claimed deduction amounting to Rs.2,35,74,090/- thereby resulting in a net income of Rs.11,47,100/-. This net income had been broken up into assessment years 1996-97 to 2001-02 and also the broken period ending on 7.11.2001. The AO had taken up enquiries with the creditors, verification of seized material and called for explanations from the assessee during the course of assessment. After finalizing all his enquiries, the AO has made additions to an extent of Rs.1,76,32,050/- under various heads as given below: S.No. Head Addition (Rs.) 1 Amounts claimed as due to the so called business associates 1,31,21,950/- 2 Pronotes available but claimed as not advanced 11,93,000/- 3 Time barred p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to rehear the appeals. Therefore, we do not see any merit in the contention raised by the learned CIT-DR, since the issues were examined after giving due opportunity to the AO in the form of remand report and the entire material was considered by the learned CIT(A). Hence, we do not find any reason to accept the contention of the CIT-DR. Accordingly, preliminary objection raised by the learned CIT-DR is, therefore, rejected. 10. The grounds are considered issue-wise and decided as under: 11. Ground No. 1 pertains to claim of amounts due to business associates. As briefly stated above, Assessee has arrived at his gross assets on the date of search by including various assets in the form of FDRs, postal RD, bank deposits, pronotes, cheques, movable and immovable properties of not only in his name but also in the name of his family members totaling to Rs.2,47,21,185/-. Out of this, based on the seized material alone, he has claimed deduction towards business associates at Rs. 1,31,21,950/- on the reason that the principle amount of Rs. 99,58,900/- was payable to 93 persons from whom assessee has taken funds for circulation in the money lending activity. As per the understanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered specially in the light of the fact that such statements have been recorded by the AO and his Inspectors in the village without the presence of the assessee or his authorized representative to cross examine the statements. Such individuals who have denied the investment with the assessee before the AO have been subjected to cross examination on request by the appellant's AR and in all 27 out of 31 of them had confirmed during the cross examination and nothing has been done by the AO in this regard. Consequently, the finding during the cross examination withstands to the benefit of the assessee as per the principles of rule of evidence. Accordingly, the disallowance made by the AO on this count is based on suspicion and surmises which have not been put to proper process of enquiry for gathering material evidence in support thereof. The remand report also could not cure this defect as the enquiries conducted with the business associates have not brought out any material evidence against the assessee. Hence, it cannot be stated that the suspicious features cannot become the weighty evidence in favour of the Revenue. Thus, the addition made on this account is directed to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 in number as given below: Pronote No. Name of the Party Amount (Rs.) 151 G.Harichandra Prasad 75000 152 G. Harichandra Prasad 50000 176 Ajay Ankam 150000 177 J Ranganayakulu 8000 178 AS Rayudu 10000 179 G. Harichandra Prasad 75000 225 A Saikrishna 400000 226 C Srinivasulu 100000 227 C Srinivasulu 100000 228 K Nagaraju 100000 229 K Nagaraju 125000 Total 1193000 17. Before the learned CIT(A), it was submitted that Assessee filed confirmation letters from all 7 persons stating that they were actually standing guarantors to some others and hence as a practice have also executed the pronotes as a precaution insisted upon by the assessee and they had also confirmed that they did not actually borrow the amounts. It was contended that the AO had dismissed all such letters as self serving and the amount had been added back. It was pointed out that as Assessee had agitated before the th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount (Rs.) 164 P Somasekhar Rao 20000 166 S Venkataramaiah 50000 167 S Venkataramaiah 50000 212 P Somasekhar Rao 100000 212 P Somasekhar Rao 100000 231 K Seshappa 100000 234 P Somasekhar Rao 150000 278 AN.Silks 100000 Total 670000 22. Before the CIT(A), it was submitted that amounts in the above 8 pronotes were taken for arriving at the gross receipts in respect of Assessee and his family members and further submitted that each pronote had been properly numbered by Assessee to keep track of them. It was further stated that all this information was filed as enclosure to the return of income filed u/s 158BC of the I.T. Act, 1961. It was also demonstrated with reference to number of said pronotes as to the individual in whose gross receipts such pronotes had been accounted for. It was submitted that the pronotes had become legally unenforceable during the block period as the limitation period could not be got extended by the required endorsement and hence the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ist of such cheques as an enclosure to the return, running into 105 cheques. The AO had dismissed the claim by simply stating that the amount involved in the cheques had not been included in the gross receipts. Assessee contended that such a dismissal is not correct from the facts available in the return, the then CIT(A) had referred the matter to the AO for his remand report. The AO had mentioned that there were total 297 cheques discounted by the assessee during the block period out of which 105 were claimed to be not encashed due to limitation. He had also stated that based on the information collected, Assessee must be discounting cheques but he had not disclosed any undisclosed income by way of discounting cheques. It was also not clear at what rate the cheque had been discounted for. He had also mentioned that the assessee has not furnished the details of advances made to each borrowal in each case. It was noticed by him that most of the 105 cheques limited by time were issued by 4 concerns as listed below (i) M/s Jayaram Traders, Dharmavaram (ii) M/s Jayaram Textiles, Dharmavaram (iii) M/s Nemi Silks, Dharmavaram (iv) M/s Lakshmi Saraswati Sarees, Dharmav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the same has not been taken into consideration by the AO. For all the reasons mentioned by the AR, the AO is directed to allow the deduction claimed on this count. 28. Herein also, after considering the rival submissions, we do not find any reason to defer from the finding of the learned CIT(A). The issue is similar to the earlier two claims of pronotes found but not advanced and time barred pronotes. In the case of time barred cheques also the claim is allowable as the amounts involved in the cheques have been taken into consideration and arrived at the gross assets. Non-recovery of the amounts will certainly make a reduction in the assets availability and there is no allegation that the amounts borrowed to these cheques have been encashed, since the books of account also corroborate the working of the assessee hence, the claim of Assessee is to be allowed. Accordingly, the order of the learned CIT(A) is confirmed and the ground raised by Revenue is dismissed. 29. Ground No. 5 is pertaining to disallowance of deficit cash balance of Rs. 5,69,600/-. 30. Along with the return, Assessee had claimed that on the date of search there was actual cash on hand was less by RS.5,39 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e upheld. The AO is directed to extend deduction on this amount." 34. After considering rival submissions, we do not see any reason to interfere with the order of the learned CIT(A). Not only the present CIT(A) even his predecessor CIT(A) has deleted the amount (while confirming other amounts) by stating reason in his order dated 15-07-2005 (which order was set aside): I find much force in the arguments of the appellant. While the regular books of account shows the cash balance of Rs.5,69,600/-, the excess cash found is only Rs. 30,360/-, a deficit of Rs.5,39,240/-. The appellant has computed total income by taking gross total income which includes all the investments from where various deductions have been claimed. Since cash is an asset and is not found physically, but available in the books, the presumption will be that either it is spent or invested in assets. No findings has been made regarding unexplained expenditure, whereas unaccounted assets have been found. Since unaccounted assets have been considered as income, it is reasonable and just to accept the assessee s plea that the cash diverted has been put into assets which are part of the total income. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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