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2016 (8) TMI 866 - ITAT VISAKHAPATNAM

2016 (8) TMI 866 - ITAT VISAKHAPATNAM - TMI - Computation of interest u/s 234B and adjustment of seized cash towards tax liability - Adjustment of seized cash towards the tax liability aroused on account of filing of revised returns u/s 153A - Held that:- Charging of interest without adjusting the seized cash is unjustified when the funds of the assessee are already with the department and the assessee had not enjoyed these funds from the date of search. We find force in the arguments of the ass .....

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rds adjustment of seized cash towards the tax liability aroused on account of filing of revised returns u/s 153A of the Act. The A.O. without adjusting the seized cash computed the interest up to the date of assessment. As per the provisions of section 234B of the Act, interest is required to be charged up to the date of filing of return u/s 153A of the Act. It is due to the fact that in the returns of income, the assessee had clearly made a request to adjust the seized amount towards the liabil .....

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ned income, up to the date of filing return of income in response to notice u/s 153A after adjusting the seized cash, and wherever there is a tax liability on account of additions made to assessed income, the interest is to be charged up to the date of assessment. We do not see any error or infirmity in the order passed by the CIT(A). Therefore, we are inclined to uphold the CIT(A) order and reject the ground raised by the revenue. - The assessee has filed cross objections for all the years .....

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GA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER Appellant by : Shri P. Hariprasada Rao,DR Respondent by : Shri C.P. Ramaswamy,AR ORDER PER BENCH These are six appeals filed by the revenue and six cross objections filed by the assessee are directed against the common order passed by the CIT(A)-I, Hyderabad dated 22.3.2012 for the assessment years 2004-05 to 2009-10. Since, the facts are identical and issues are common, they are clubbed, heard together and disposed off, by way of .....

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he assessee on 22.11.2008. During the course of search proceedings, a document was seized vide annexure - DRR/A/1 which contain a list of 37 names grouped into 4 branches of the Saptagiri Grameena Bank (SGB) against which certain figures have been mentioned and the aggregate of such figure was at Rs. 11.40 crores. During the course of search proceedings, in response to statement recorded u/s 132(4) of the Act on 22.11.2008, the assessee stated that the above list represents his unaccounted incom .....

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008, the department has found cash amounting to Rs. 4,34,00,000/- from the residential premises of one Mr. M. Harinath who was the cashier of the assessee. On examination, Mr. M. Harinath confessed that the said cash was belonged to his employer Shri Dhanekula Rama Rao. When the said statement was confronted to the assessee, the assessee admitted that the cash found from the possession of Shri M. Harinath belongs to him and stated that cash represents closure proceeds of certain recurring deposi .....

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r the assessment years 2004-05 to 2009-10. In response to the notices u/s 153A of the Act, the assessee has filed revised returns on 11.5.2009 for all the assessment years from 2004-05 to 2009-10 and declared the undisclosed income declared in the statement recorded u/s 132(4) of the Act. The case has been selected for scrutiny and accordingly, notice u/s 143(2) of the Act dated 14.9.2009 along with detailed questionnaire was issued to the assessee. In response to the notices, the authorized rep .....

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erned branch managers and modus operandi of the assessee came to the light when incriminating materials in the form of loose sheets was found and also huge cash was seized from the residence of one of his employee. The A.O. further observed that the post search enquiries conducted by the department reveals that the assessee has operated more fictitious recurring deposit accounts over and above the recurring deposits disclosed during the course of search proceedings while recording statement u/s .....

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aggregated the sum for all the branches and reworked the net peak credit for all the years. With these observations, issued a show cause notice and asked to explain why the peak credit worked out as per the details furnished by the branch managers shall not be adopted as undisclosed income for the period. 5. In response to show cause notice, the assessee submitted that the net peak credit arrived by you based on the statements of the bank managers is totally incorrect. The assessee further submi .....

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ers between the 4 branches of SGB. It was further submitted that though the bank managers admitted that there are few more deposits which belong to me, the branch managers have failed to establish that those deposits are belonging to me. Therefore, the net peak credit worked out by you based on the statement given by the bank managers without any seized materials is not correct. The assessee further submitted that while arriving at the peak credit, you are failed to consider the fact that the fu .....

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hich is evident from the statement given by the branch managers. Under these circumstances, taking peak credit of individual branch is not correct. 6. The A.O. after considering the explanations furnished by the assessee held that the assessee has not contradicted the statement given by the bank managers with any material evidence to prove that the disowned deposits are not belonging to him. The A.O. further held that the information gathered by the department during the course of search and als .....

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F.Ds. The A.O. stated that he has enough materials to interlink the denied recurring deposits. The A.O. further held that the assessee has not proved denial of 4 recurring deposits at Patamata branch and also Vellaturu branch of SGB. The material gathered by the department indicates that these deposits are belonging to the assessee. With these observations made additions to the income towards 4 denied deposits. While doing so, the A.O. has relied upon the ratios of the decision of Hon ble Supre .....

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stating that except disowning the benami deposits, the assessee could not produce the details of real owners of accounts, nor produced any evidence to show that those deposits are not belonging to him. The assessee further submitted that the A.O. erred in not giving the benefit of inter branch telescoping for recurring deposits of SGB though rightly claimed by the assessee. The A.O. failed to follow the normal practice of allowing the inter branch telescoping inspite of the fact that he gave ma .....

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years by taking into account the inter branch transfers of funds wherever the deposits are belonging to him. The remaining deposits considered by the A.O. are not based on any materials found during the course of search and which are based on the statements given by the bank managers alone. Therefore, the A.O. was not correct in reworking the peak credit without allowing inter branch transfer of funds and also considered the denied deposits in the hands of the assessee. The assessee further sub .....

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correct in working out the branchwise net peak credit to arrive at the undisclosed income. Alternatively, the assessee submitted that in case the net peak credit worked out by the assessee by taking into account inter branch transfers is considered, he would accept the denied deposits are belonging to him. Similarly, as regards the computation of interest under sec. 234B, the assessee submitted that the assessing officer was erred in charging interest u/s 234B of the Act up to the date of asses .....

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the other hand narrated a number of instances where nexus between the owned up deposits with denied deposits of all these branches. Therefore, the direct nexus among these deposits held at various branches has established in clear terms. The CIT(A) further held that the bank managers while deposing before the A.O. have clearly accepted that those denied deposits are belonging to the assessee. With these observations, held that the action of the A.O. in taxing the denied deposits held at Vellatur .....

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peak credit, as the assessee is one person and all the deposits have been held as belonging to him. The CIT(A) further held that working out peak credit for each branch independently without allowing telescoping benefit of inter branch transfers is not correct. Unless the cash balance of closure proceeds of accounts are utilized by the assessee elsewhere, the credit for available cash balance in a particular period should be telescoped against the further deposits either maintained at same bran .....

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at very reachable distances and it is not the case that they are located in different towns and stations and a person cannot reach another branch in a day. In fact in a single day, a person can reach all these 5 branches without any difficulty and transact business in those branches. The CIT(A) further held that it is important to note that the bank managers in the statement recorded before the A.O. has said that there are few accounts for which money has been transferred from one branch to ano .....

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accordingly directed to re-compute the income for all the assessment years. 10. As regards the levy of interest u/s 234B of the Act, the CIT(A) held that interest u/s 234B of the Act is required to be charged up to the date of filing of return in response to notice u/s 153A of the Act. It is due to the fact that in the return of income the assessee had clearly made a request to adjust the seized amount towards the liability of self assessment tax. Once return is filed, any tax due on account of .....

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f assessment tax and then calculate interest. Accordingly, the A.O. is directed to rework the levy of interest u/s 234B of the Act up to the date of filing of the return, wherever there was a liability on account of self assessment tax and up to the date of assessment wherever demand is raised by making additions to returned income for all the years under appeal. Aggrieved by the CIT(A) order, the revenue is in appeal before us. 11. The Ld. D.R. submitted that the CIT(A) is erred in directing th .....

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accounts have either been paid in cash or credited to savings bank account. Nowhere the fund has been adjusted against instalments of another recurring deposit account or transferred between one branchs to another branch. The D.R. further submitted that the assessee has generally recycled the funds deposited in R.D. accounts in that branch only. This method is followed by the assessee to have better control over the funds deposited in various branches and also not to show transfer of money from .....

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rted the order of the CIT(A). The A.R. further submitted that the A.O. was completely erred in working out the branch wise net peak of recurring deposits without allowing telescoping benefit of inter branch transfers, when evidences clearly established the link between transfer of funds between one branch to another branch. The A.R. further submitted that the branch managers in their statement given before the A.O. clearly stated that the assessee has made transfer of funds from one branch to an .....

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ring deposits and the aggregate total peak credit of all the branches has been considered as undisclosed income of the assessee for the relevant period. The A.O. was of the opinion that the modus operandi followed by the assessee clearly establishes that there are no funds transferred between one branches to another branch. Therefore, working out branch wise peak credit gives clear picture of undisclosed income of each year. It is the contention of the assessee that he has operated recurring dep .....

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e arguments of the assessee for the reason that in a case of single operator and common pool of funds, the possibility of transfer of funds between one branch to another branch is quite possible. The branch managers in their statement given before the A.O. accepted that the assessee has transferred funds between one branch to another branch to repay the instalment of recurring deposit accounts. As pointed out by the Ld. CIT(A) all the branches are located in a same place and which can be reached .....

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f Saptagiri Grarneena Bank located in and around Vijayawada. Action u/s.132 of the I.T.Act initiated against the assessee on 22-11-2008. Consequent to the search the Department laid their hands on a number of recurring deposit accounts in the names of various persons in the Saptagiri Grameena Bank, Vijayawada at 5 branches as follows. 1. Patamata, 2. Governorpet, 3. Yenamalakuduru, 4.Eedupugallu and 5. Vellaturu branch. In the course of search and seizure proceedings, the appellant owned up a nu .....

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of the appellant on the ground that the branch managers of all branches have categorically stated that the RD accounts held at Vellaturu branch and other branches were also belonging to the appellant as well as proceeds of deposits held-at that branch are subsequently re-invested as part of the instalments of RD account in other branches. The AO has narrated in detail the reasons and discussed facts for her conclusions. Accordingly, the AO held that these deposits are also belonging to the asse .....

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8.0 After careful consideration of the submissions of the AO as well as appellant and also on perusal of the facts, I am of the view that these denied RD accounts held at various branches of Saptagiri Grameena Bank are also belonging to the assessee as there are number of inter-branch transactions which includes to and from these denied deposits to owned up deposits and vice versa. The Assessing Officer has narrated a number of instances where nexus between the owned up deposits with denied depo .....

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ving a common pool of funds. Branch Managers as public functionaries would not have stated these deposits are also belonging to the assessee without having knowledge of ownership of these deposits. Due to their constant and regular relations with the appellant, the managers are well aware of the owners of the deposits. Being a grameena bank, very few instances of such high net worth deposits are held in such branches. They are not a regular commercial branch and their operations are very limited .....

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assess these denied deposits held at Vellatur branch as well as other branches as belonging to the appellant for all the years under appeal i.e. AY 2004-05 to 2009-10. 09.0 Having said that these denied deposits held at Vellatur and other branches are also owned by the assessee, it is to be seen how these accounts are maintained and instalments have been paid from time to time in all these branches. It is a fact that there are a number of inter-branch transactions among these branches along with .....

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investment in respect of remittances made in the RD accounts maintained at other branches. This act of AG gives a distorted picture of the financial affairs of the assessee. When assessee is having sufficient cash in his hand which represents proceeds of some of the RD accounts, which is an admitted fact, the same assessee cannot be fastened with tax liability on account of unexplained investment in other accounts. Such treatment defies logic. Peak credit has to be worked out by taking the asses .....

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s are utilized by the assessee elsewhere, the credit for such balances has to be given for the purpose of investing in other RD accounts either maintained at the same branch or at other branches. It is not the case that the assessee has invested these cash balances elsewhere. At least to that extent, no evidences have been brought on record to suggest that the assessee had invested such cash balances in other properties or incurred some expenditure so that no benefit of such cash can be allowed .....

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are located in different towns and stations and a person from one branch cannot reach the other branch in a day. In fact, in a single day a person can visit all these S branches without any difficulty and transact business in those branches. In fact majority of such cash transfers took place between Patamata and Governorpeta branches, which are located very nearby. There is no reason to disbelieve such cash transfers among these branches of same Bank. 10.0 It is important to note that in his sw .....

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- was paid in cash on the same day. From this amount ₹ 15 lakhs was remitted towards RD instalments of Rs,5 lakhs each, for the RD account Nos. 381, 382, 388 held in the names of Y.V.Krishna Rao, Gollapudi Prasad and P. Ramakrishna respectively in Governorpet branch itself and the remaining amount of ₹ 25 lakhs was transferred to Patamata branch through Credit Advice on 30-1-2000 in the names of P.Chandrasekhara Rao, R.Satyaprasad, T.Narayana Rao, M.Nagendra and P.Chandrasekhara Rao .....

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n those accounts by a common pool of finance, it is rational and prudent to allow net peak credit by considering all deposits including denied deposits held in all 5 branches. Thereafter the difference of such net peak credit with that of income disclosed by the assessee should be treated as unaccounted income invested in those deposits for each assessment year. In the course of appellate proceedings, the Authorized Representative has stated that if peak is adopted by considering all branches, t .....

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000 4,84,80,000 Nil 2006-07 8,15,07,992 72,27,992 1137,00,000 2007-08 10,41,71,949 2,26,63,957 Nil 2008-09 15,04,47,390 4,62,75,441 3,10,00,000 2009-10 14,50,78,767 Nil 10,39,00,000 It is contended before me that the same working was also filed before the AO at the time of assessment proceedings. The above working of the assessee has been verified on random basis to find out whether the peak credit is correctly arrived at or not. The AO is directed to verify whether all deposits and instalments .....

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count the above peak credit working as well as interest income, I direct the Assessing Officer to re-compute, the total income for each assessment year as under subject to verification. 14. The CIT(A) after considering the details of inter branch transfers allowed the telescoping benefit and reworked the net peak credit. The facts remain same before us. The revenue failed to contradict the findings of the facts recorded by the CIT(A). We do not see any error or infirmity in the order passed by t .....

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the same should be adjusted against the tax liability before levy of interest u/s 234B of the Act. The Ld. A.R. submitted that at the time of search u/s 132 of the Act, the department has seized about Rs. 15.99 crores from the assessee. The assessee had requested the department to adjust the seized funds towards tax liabilities of the assessee for the above assessment years. Therefore, charging of interest without adjusting the seized cash is unjustified when the funds of the assessee are alrea .....

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ent has seized about ₹ 15.99 crores. The assessee has made several requests even before the investigation department towards adjustment of seized cash towards the tax liability aroused on account of filing of revised returns u/s 153A of the Act. The A.O. without adjusting the seized cash computed the interest up to the date of assessment. As per the provisions of section 234B of the Act, interest is required to be charged up to the date of filing of return u/s 153A of the Act. It is due to .....

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