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N. Parvatha Vardhani Versus Income Tax Officer, Ward-11 (2) , Hyderabad

2018 (2) TMI 861 - ITAT HYDERABAD

Reopening of assessment - addition on account of unexplained investment - addition on the basis of non-appearance of some of the persons before the AO - Held that:- Observation of CIT(A) indeed does not state that the sources are totally bogus and AO was in fact, asked to make further enquiries. Prima-facie the report of the Inspector does indicate that many of the people are existing and they have lands. Even though the Inspector seems to have issued summons to them to appear, the verification .....

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have lands in their name. Some of the persons also reported to have been died by the time enquiries were conducted. 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. Revenue wrongly relied on the reports in the case of company and on the order of CIT(A), Bhubaneswar and has not made any serious enquiry in assessee case to disprove the credits claimed. Thus direct the AO to accept the credits .....

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the directions of Hon'ble Supreme Court in the case of GKN Drive Shaft [2002 (11) TMI 7 - SUPREME Court] - Decided in favour of assessee - I.T.A. No. 830/HYD/2013 - Dated:- 20-1-2018 - SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER For The Assessee : Shri K.C. Devdas, AR For The Revenue : Shri K.J. Rao, DR ORDER This is an appeal by assessee against the order of the Commissioner of Income Tax (Appeals)-18, Mumbai, dated 06-03-2013, holding concurrent jurisdiction of CIT(A)-VI, Hyderabad dated 06-03-2013 .....

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rming the addition of ₹ 18,00,100/- brought to tax as unexplained investment under section 69. 4. While the Assessing Officer brought to tax the amount of ₹ 18,00,100/- as unexplained investment under section 69, the CIT(A) erroneously confirmed the same as unexplained cash credit considering it as an addition under section 68; and without appreciating the fact that the assessee discharged the onus cast under section 68. 5. Crave Leave to urge/raise any ground that might be necessary .....

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18,00,100/-. AO noted that assessee has invested an amount of ₹ 21,50,100/- in M/s. Sankhya Infotech Ltd., and the source of investment was ₹ 3,50,000/- out of savings and ₹ 18,00,000/- from the loans raised. AO also acknowledges that assessee while fining the return of income has enclosed confirmation letters and all of them were obtained from agriculturists. AO also records that the notices could not be served on assessee but assessee acknowledged vide letter dt. 26-07-2005 t .....

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issuance of notice u/s. 148 and reopening of assessment is bad in law and other was the addition of ₹ 18,00,100/- on account of unexplained investment. It was the contention of assessee that the reopening was at the instance of report of JCIT, Bhubaneswar, 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. .....

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nce was drawn. Assessee also furnished affidavits from all the loan creditors before CIT(A)-2, Hyderabad which was however, not mentioned by the Ld.CIT(A)-VI, Hyderabad in his order. As seen from the paper book, there was a report of Inspector about the verification done on the additional grounds raised by the assessee which was forwarded by the ITO, Ward4 11(2), Hyderabad on 30-08-2011 with further forwarding letter of Addl. CIT, Range-11, on 05-09-2011. 5. Ld.CIT(A), however, relying on the pr .....

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he original return filed and the same were as under: Note: During the year I have invested in Sankhya Infotech Limited Some are Out of Savings 3,50,000 Loans raised 18,00,100 21,50,100 6.1. It was submitted that assessee has borrowed from the following persons: Sl.No. Name of the Creditor Amount (Rs) 1 Bala Raju 82,000 2 Bapuji 90,000 3 Bhoji 50,000 4 Chandraiah 82,000 5 Chinnappa 50,000 6 Chittemma 92,000 7 Eeswara Rao 50,000 8 50,000 9 Jaya Raju 90,000 10 Jayamma 95,000 11 Jaya Raju 90,000 12 .....

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s 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 provided. Assessees filed detailed replies in the case of company s appeal and Ld.CIT(A) deleted the additions so made. Anticipating an adverse order, the JCIT, Bhubaneswar has written a letter to the officers in .....

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l proceedings recently. 6.4. On merits, referring to the order of Ld.CIT(A), Bhubaneswar in the company s appeal, it was submitted that there are enquiries in the case of assessee and even in the enquiries conducted in the other cases, there was no denial of investment. Even though assessee submitted affidavits in all the cases, no enquiries were caused. Ld.CIT(A) wrongly relied on the order of the CIT(A), Bhubaneswar which clearly states that the credits are not bogus and Assessing Officers are .....

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t these notes, evidences and the letter received from Addln. CIT, Bhuvaneshwar, to take action u/s. 147 there is no tangible material that income has escaped assessment. Relied on judgment 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 .....

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informed that the same was extracted in the order of the CIT(A) and so, the argument that the same were not communicated is not correct. 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. 8. I have considered the rival contentions and perused the orders and documents placed on record and .....

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ar and enquiries were conducted in some promoter s cases; 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. Paravathavardhini, (iii) Smt. N. Gayatri and (iv) Smt. N. Indira Ramani. The AO has reli .....

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m the same report to contend that Shri G. Kanakaiah together with his family members have given money to Shri Babu Rao, who has given the money to 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 .....

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although the veracity of 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 .....

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her 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 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 .....

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2005; E) The reopening by the AO, Asst. Commissioner of Income Tax(OSD), Range-11, was consequential to the above letter and AO recorded the satisfaction as under: The assessee admitted an income of ₹ 91,900/- being amount received towards income from House Property and income from Other Sources. The return of income was processed u/s. 143(1) on 11-11-1999. In the computation of total income it was mentioned that during the year under consideration, the assessee has invested ₹ 21,50, .....

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e DCIT, Circle-I, Bhuvaneshwar. During the course of pendency of the assessment proceedings in the case of Sankhya Infotech Ltd., for the Asst. Year 1998-99 the Assessing Officer noticed that cash credits found in the books of the company on account of introduction of share application money by the promotors do not have adequate means to introduce such money and also the alleged transactions of unsecured loans obtained by the promotors from various farmers of Krishna District of Andhra Pradesh w .....

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reason to believe that income chargeable to tax for the Asst. Year 1998-99 has escaped assessment within the meaning of Section 147 of the I.T. Act, 1961. I request the Addl. CIT, Range-11, Hyderabad to accord permission to issue notice u/s. 148 of the I.T. Act for the A.Y. 1998-99 . F) Assessee was issued notice u/s. 148 dt. 18-03-2005, but the reasons recorded were not communicated either during assessment proceedings or during appeal proceedings, inspite of requesting the same. G) The Addl. .....

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present land holding and other aspects at random. 1. I have met the people who are present at the time of my visit in the villages ie., Pedapatnam, Kaanuru, Tallapalem, Janjeru. On prima-facie it appears that they are very small farmers earning income of hand to mouth. As directed, I have served the summons on the following persons, to examine the creditworthiness of the farmers: Sl.No. Name of the persons S/Sri/Smt. In the case of 1 Bunga Padma, Pedapatnam N. Parvathavardhini 2 Moodugumadi Nag .....

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thi W/O Ramudu, Tallapalem Vanka N. Gayatri 14 P. Gopi Tallapalem N. Gayatri 15 Y. Eswar Rao, Pedapatnam N. Indira Ramani 16 Y. Eswar Rao, Pedapatnam N. Gayatri 17 Y. Eswar Rao, Pedapatnam N. Parvathavardhini 18 Lella Joji, Padapatnam N. Indira Ramani 19 Lella Joji, Padapatnam N. Gayatri 20 Lella Joji, Padapatnam N. Parvathavardhini 21 G. Yesupadam, Pedapatnam N. Indira Ramani 22 G. Yesupadam, Pedapatnam N. Parvathavardhini 23 G. Chinnappa, Pedapatnam N. Parvathavardhini 24 G. Chinnappa, Pedapat .....

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o, Pedapatnam N. Indira Ramani 37 D. Mangathayaru, Kanuru N. Parvathavardhini 38 D. Mangathayaru, Kanuru N. Indira Ramani 39 Munidra Rao, Janjeru N. Indira Ramani 40 Munidra Rao, Janjeru N. Parvathavardhini 41 G. Veera Koteswara Rao, Kaanuru N. Parvathavardhini 42 G. Veera Koteswara Rao, Kaanuru N. Indira Ramani 2. I have obtained certificate of residence as proof of their stay in the village in the following cases at random: Sl.No. Name of the persons S/Sri/Smt. Name of the village 1 G. Venkate .....

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u -do- 24 V. Subba Rao Tallapalem 25 V. Vakallaiah -do- 26 V. Rama swamy -do- 27 P. Gopi -do- 3. I have visited the respective VRO s office and personally verified the Pahanis/Hadangals and obtained the copies of Pahanis/Hadangals, as a proof of land holding, in the following persons at random: Sl.No. Name of the persons S/Sri/Smt. Name of the village 1 G. Venkateswara Rao Kaanuru 2 Ramalingeswara Rao Kaanuru 3 G. Chittemma Kaanuru 4 G. Kanakayya Kaanuru 5 G. Yesupadam Pedapatnam 6 Y. Venkateswa .....

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. Sl.No. Name of the persons S/Sri/Smt. 1 Jayapal, Pedapatnam 2 Jayaraju, Pedapatnam 3 Mariyanna, Pedapatnam 4 Bunga Raju, Pedapatnam 5 Ramappa, Pedapatnam 6 Krishna Murthy, Kaanuru 7 Venkata Narasimha Rao, Kaanuru 5. It was also came to know that some of the persons have migrated to some other places on their personal grounds. Submitted for information, please. Encl: As above Sd/- (MD. SAYED BAJI) ITI :: RANGE-11 H) Ld. CIT(A) relied on the enquiry reports of year 2001 in the company s case, ev .....

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ly 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 genuineness of the transactions and complete creditworthiness of the farmers was not conclusively established. These matters nevertheless require further enquiry as only sixteen out of seventy five farmer-creditors, who have advanced loans to the four share holders have been examined. No enquiry has been conducted in respect of loans ava .....

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Therefore, the AO is free to conduct further enquiries in the case of individual shareholders as per the extant provisions of law and consider these amounts in their hands in view of the discussions in para 4.1 and 4.2 and the judicial decisions cited supra . Thus, the observation of CIT(A) indeed does not state that the sources are totally bogus and AO was in fact, asked to make further enquiries. Prima-facie the report of the Inspector does indicate that many of the people are existing and th .....

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