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Mr. N. Sridhar Versus Jt. Commissioner of Income Tax, Hyderabad

2018 (2) TMI 860 - ITAT HYDERABAD

Reopening of assessment - Unexplained investment - guinity of credits - Held that:- Observation of CIT(A) does not state that the sources are totally bogus and AO was in fact, asked to make further enquiries. Since no enquiries worth were made, the order of CIT(A) Bhubaneswar cannot be relied on, for denying the genuineness of the credits. Since so much time has lapsed and the affidavits furnished dt. 25-10-2007 have not been disproved, the contentions of assessee in this regard has merit. Reven .....

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he acceptance of issue of credits on merit, it is to be placed on record that the contentions on the issue have merit. First of all, assessee has disclosed the investment and enclosed the confirmations to the original return which was accepted. There was a direction by Addl. CIT, Range-12 to reopen the assessment. Another offer (whose jurisdiction is not examined) has issued the notices, even though assessee was assessed earlier. The reasons for reopening were not communicated violating the dire .....

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the Commissioner of Income Tax (Appeals)-II, Hyderabad, dated 09-07-2012. 2. Assessee filed appeal on 10-09-2012 with 20 grounds which include submission and case law. Assessee filed revised Form 36 on 24-08-2017, revising some columns and grounds as well. The revised grounds are as under: Revised Grounds of Appeal: 1. The order of the Commissioner of Income tax, (Appeals) is erroneous both on facts and in law. 2. The CIT(A) failed to appreciate that reopening of assessment under section 147 wa .....

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f the Income Tax Act [Act] has been issued dt. 18-03-2005 on the reason that the income has escaped assessment. The Assessing Officer (AO) has completed the assessment u/s. 143(3) r.w.s. 147 vide order dt. 31-03-2006 by making the following additions and raising the demand. i. Unexplained investment : ₹ 22,30,000/- ii. Unexplained investment said to be from sale of gold and saving : ₹ 10,13,000/- 3.1. Assessee had filed a rectification application u/s. 154 dt. 12-04-2006 stating that .....

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rt of JCIT, Bhuvaneswar, that the reasons for reopening were not communicated, that the notices were not served properly. No enquiries were made and those reports of enquiry which were relied were not furnished to assessee and no cross-examination was provided. Further, reliance of enquiries conducted in the company s case does not establish the unaccounted nature of amounts involved and no fresh material was available. It was further contended that assessee had disclosed the investments and sou .....

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) has invested in a company (M/s Sankhya Infotech Ltd, Bhubaneswar) promoted by them and the investment by assessee was to the tune of ₹ 22,30,000/-. The sources of the amounts were disclosed in the original return filed and the same were as under: Note: 1. During the year ending 31.3.1998 I have invested in Sankhya Infotech Limited ₹ 22.30 Lakhs Source: Rs. In Lakhs Savings & Sale of Gold 8.80 Add: Loans from friends 13.50 Total 22.30 5.1. It was submitted that there was no enqu .....

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arasimha Rao 50,000 13 Venkateswara Rao 2,00,000 14 Vijaya Ramakrishna 50,000 Total 13,50,000 5.3. It was further submitted that the enquiries were originally caused in the case of company and there, the promoters investment was enquired but the addition was made as unexplained investment in Machinery. During the assessment proceedings, the DDIT, Vijayawada made enquiries of sources of source and that too behind the back of assessee s promoters after a lapse of time and no cross-examination was .....

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e earlier reports and completed the assessment. 5.4. Referring to the order of Ld.CIT(A), it was submitted that the fact is that the reasons for reopening were not communicated by AO and communicated only during the present appeal proceedings recently, that too in the form of paper book filed before this forum and referred to the letter of AO given to CIT(A) that no satisfaction was recorded. 5.5. On merits, referring to the order of Ld.CIT(A), Bhubaneswar in the company s appeal, it was submitt .....

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owed in FY. 1997-98 and the cyclone of 1999 has no effect on the fact of borrowals. The said statement in fact supports the assessee that there was prawn culture and the persons have sources to invest. Subsequently, they may have suffered financial losses and migrated, but the statement does not deny the borrowals in FY. 1997-98. The order of Ld.CIT(A) is therefore devoid of facts and should be set aside. 5.6. Regarding the issue of reopening, the summary of contentions are as under: No tangible .....

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ment of Delhi High Court in the case of CIT Vs. Atul Kumar Swami where reference to notes filed along with original return of income are made. The entire reasons recorded for reopening of assessment is BORROWED SATISFACTION and not that of the Assessing Officer. Reasons for re-opening not communicated in any of the cases - Fatal to re-assessment - Not furnishing of reasons or its non-communication is fatal to reassessment proceedings. Pls. see case law relied upon as under - Sr. No. Case Law ITR .....

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ded to assessee recently (in pg.17, in the form of paper book filed), it was submitted that the enquiries were conducted and assessee is aware of all the proceedings and there was non-co-operation from assessee. He referred to various orders- that of Ld.CIT(A), Bhubaneswar, the order of AO and CIT(A)- to support the AO s action. 7. I have considered the rival contentions and perused the orders and documents placed on record and precedents relied. Before adverting to the adjudication of issues, t .....

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ers cases, but not in assessee case; C) In the company appeal, Ld.CIT(A), Bhubaneswar has deleted the addition with the following observations/findings: In this case, the AO has made certain enquiries through the DDTI (lnv.), Hyderabad and Vijayawada regarding the sources of investment towards share capital contributed by four shareholders namely, (i) Shri N. Ramakrishna Rao, (ii) Smt N. Paravathavarhini, (iii) Smt. N. Gayatri and (iv) Smt. N. Indira Ramani. The AO has relied upon the report of .....

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tend that Shri G. Kanakaiah together with his family members have given money to Shri Babu Rao, who has given the money 10 the appellant-company and that the farmer-creditors have Stated that they have signed the loan confirmation letters. The AO has relied upon the said report to question the creditworthiness of the farmers on the ground that, the land was drought prone area for the last five to six years and sufficient income was not generated. The appellant-company has quoted from the same re .....

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the allegation has been admitted in few cases. The difference regarding the extant of land area was attributed to causes like sale/gift or sharing of land subsequently. But, be that as it may, the enquiry report does not indicate that the sources of source, i.e., the loans advanced by the farmers to the Directors/shareholders; were totally bogus or that they completely lack creditworthiness. But, there appears to be some substance in the assertion of the AO/Jt.CIT that certain elements like the .....

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s found that the loans given by the farmers were neither credible nor genuine; the additions could be made in the hands of the shareholders who have subscribed to the shares of the appellant-company. The sources of funds in such cases can be tackled by the AO in the hands of the subscribers to the equity shares who have availed the loans. Therefore, the AO is free to conduct further enquiries in the case of individual sharesholders as per the extant provisions of law and consider these amounts i .....

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2005; E) The reopening by the AO, Asst. Commissioner of Income Tax, Circle-12(1), was consequential to the above letter and AO recorded the satisfaction as under: ORDER SHEET A.Y. 1998-99 In this case the information has been received from the JCIT, Range-2, Bhubaneswar, in the form of a letter dt.23.02.2005. As per the letter the gist of the information received is as under. The assessee is a promoter of the Company by name M/s Sankhya Infotech Ltd., Bhubaneswar. The assessee introduced the am .....

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mers are not genuine and they are only paper transactions and in fact that the money lenders do not own the land shown In the affidavits produced by them before the CIT(A), Bhubaneswar. Thus, the sum brought the assessee as share application money are unexplained cash credits in the hands of the assessee for the assessment year 1998-99. Therefore, I have reason to believe that the income chargeable to tax as escaped assessment within the meaning of sec.147 for the assessment year 1998-99 to the .....

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, dt. NIL filed by assessee has this noting; Office of the Asst. Commissioner of Income tax, Circle 12(1), Hyderabad PAN NO ABNPN2619N To, The Commissioner of Income Tax (Appeals-II) Hyderabad, Sir, Sub: Appellate Proceedings in the case of Sri N. Sridhar-A.Y.1998- 99 Submission of Report - Reg. Ref: CIT(Appeals-II), Hyd, Letter No. 0079&0081/CIT-(A)-II/06-07 Dt: 26-11-2007 Kind Reference is invited to the above. I have gone through the written submissions filed by the assessee and the entir .....

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creditors for crossexamination. The contents of affidavit tallies with the loan confirmation letters submitted during the course of hearing. The amount of loan taken as per record is ₹ 13.50 lakhs, but not ₹ 15.00 lakhs as stated in the assessment order dated 31.03.2006. Submitted Yours faithfully Sd/- (D. Prakash Rao) Asst. Commissioner of Income Tax, Range-12, Hyderabad G) Even though confirmation was filed earlier, no further enquiries were caused, nor the earlier reports were giv .....

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nt to AO but what enquiries were caused and what findings were arrived has not been brought on record, even though the letter of AO, extracted above, do indicate that AO has more or less accepted the affidavits; K) An addition of ₹ 15 Lakhs was made even though the loan amounts were only ₹ 13.50 Lakhs during the year; 8. Now, coming to the merits of the addition, the findings of AO and CIT(A) are not based on facts. No enquiry was conducted in assessee s case and those enquiries cond .....

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farmers could be reason for assessee s inability to get them produced before AO in the proceedings, but it does not prove that the claim of credits is not genuine. The reliance on CIT(A), Bhubaneswar order by the present CIT(A), Hyderabad is also misplaced. In fact, the order of CIT(A) has this to state: …………But, be that as it may, the enquiry report does not indicate that the sources of source, i.e., the loans advanced by the farmers to the Directors/shareholders; we .....

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oans availed by the two promoterdirectors; namely Shri N. Srinivas and Shri N. Sridhar. Therefore, the AO or the concerned AOs can conduct further enquiries and if it is found that the loans given by the farmers were neither credible nor genuine; the additions could be made in the hands of the shareholders who have subscribed to the shares of the appellant-company. The sources of funds in such cases can be tackled by the AO in the hands of the subscribers to the equity shares who have availed th .....

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