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2018 (3) TMI 786

f M. Venkateswara Rao (2015 (3) TMI 153 - ANDHRA PRADESH HIGH COURT) deleted the addition made in the hands of the firm. - Unexplained unsecured loans - Held that:- From the above confirmation letters issued by the loan creditors, it is very clear that all the loan creditors have given their addresses and PAN numbers, and payments were received through cheques and also repaid through a cheque, except an amount of ₹ 6,00,000/- yet to be paid. The assessee filed confirmation letters from the loan creditors with complete details, all payments and repayments were made through cheques. Under these facts and circumstances of the case, we are of the opinion that assessee has discharged his burden casted upon him. If at all Assessing Officer is having any doubt with regard to creditworthiness of the creditors, he has to summon the loan creditors and examine them. All the payments received through banking channels and repayments also through banking channels. Finding given by the ld. CIT(A) that the assessee failed to discharge his burden, is not correct. The assessee has discharged burden in respect of loan received from four creditors and Assessing Officer failed to make enquiri .....

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effort to demonstrate that the assessee had incurred the expenditure in excess of ₹ 20,000/- in aggregating party-wise also. Therefore, we are unable to sustain the addition made by the Assessing Officer in respect of construction material account under section 40A(3) of the Act. Accordingly, we set aside the order passed by the ld. CIT(A) and allow this ground of appeal raised by the assessee. - In respect of remaining payment of ₹ 9,36,009/- (Rs.43,72,498 ₹ 34,36,489/-), the Assessing Officer has brought on record the details clearly, hence, we uphold the order of the ld. CIT(A) and the appeal of the assessee is partly allowed. - Unexplained deposits in the bank account - Held that:- Assessee received the amount in question through cheque, but failed to explain on what purpose this amount is received and whether the creditor Mr. Subbirama Reddy has creditworthiness or not. Therefore, in the interest of justice, this issue has to be remitted back to the file of the Assessing Officer for fresh adjudication. We therefore, set aside the order passed by the ld. CIT(A) and direct the Assessing Officer to re-adjudicate this ground afresh in accordance with la .....

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to explain the source for the amounts brought into the business by the partners towards capital contribution and current account contribution. The Assessing Officer also called for identity and creditworthiness of the partners as well as genuineness of these transactions. The Assessing Officer after careful consideration of the assessee s explanation, partners income tax returns copies and their affidavits and other details, came to a conclusion that the above mentioned partners did not have sufficient source for introducing amounts into the business towards their capital contribution and current account contribution. The Assessing Officer also examined the Manager Partner of the assessee and his recorded sworn statement. Accordingly, the Assessing Officer added a sum of ₹ 73,30,000/- towards unsubstantiated cash credits under section 68 of the Act to the total income of the assessee by observing as under:- Introduction of capital by the partners:It is noticed from the balance sheet furnished that an aggregate of ₹ 63,55,999/- has been introduced as partners capital during the financial year relevant to the asst. Year under consideration. When it was asked, vide this of .....

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rds the sources for the introduction of such huge capitals is not acceptable in view of the following reasons. All the partners in their affidavits have stated that alleged capitals introduced have been received from their debtors, who are due to them. Neither the assessee firm nor its partners have given any details of the debtors from when the said amounts have been received, the date of receipt and the mode of receipt They have not given any proof in support of their contention that the partners have received amounts from their debtors. It is also noticed from the copies of returns of income filed by all the partners except Sri Lathi Rarnakrishna Reddy, that the returns for the Asst. Year 2010-11 and 2011-12 have been filed by them 30-03-2012 subsequent to the survey action carried out in the assessee firm's business premises on 27-01-2012. None of the partners or the Firm have produced individual books of the partners in order to verify the assessee firm's contention that the amounts withdrawn from the regular books maintained by the said partners. The assessee firm has not filed any information evidencing the filing of returns of income of the partners before the Asst. .....

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discussed above as neither the assessee firm nor the respective partners viz. Smt. S. Narasayamma and Smt. S.Venkayamma have explained the sources towards amounts introduced through their current accounts aggregating ₹ 16,75,000/- though the current account, in the written submission or in the affidavits filed by them, the same has been treated assessee firm's unexplained Investment and brought to tax. 4. On appeal before the ld. CIT(A), it was submitted that the partners of the firm have brought in a sum of ₹ 56,55,000/- through their capital account and ₹ 16,75,00/- through their current account. Partners also filed their affidavits before the Assessing Officer by stating that all partners are assessed to income tax and PAN numbers have been allotted to them. Further, all the partners are confirmed the fact that they have invested in the capital of the firm. Such being the case, addition if any in this regard has to be made in the hands of the partners of the firm and as far as the firm is concerned the capital brought in by the partners cannot be treated as unexplained. The ld. CIT(A) after considering the explanation given by the assessee and also by foll .....

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g Officer to examine and consider these amounts in the respective partners. The relevant portion of the order is extracted as under:- 7.3 I have carefully considered the above submissions I have also gone through the assessment order, statement of facts and other details Even though the business is carried out in the name of the firm the entire business is owned, managed and run by the partners When the partners confirm that they contributed to capital account and current account it is not correct to assess these amounts in the hands of the firm. It would be more appropriate to consider these amounts in the hands of the respective partner. On identical facts, the Hon'ble Andhra Pradesh High Court in the case of CIT Vs Venkateswara Rao (232 Taxmann 123) held that the amounts received by the firm from its partners cannot be assessed in the hands of the firm though they may be assessed in the hands of the individual partners. The relevant extract of the decision of the Hon'ble High Court is reproduced hereunder:- Section 68 of the Act no doubt directs that if assessee fails to explain the nature and source of credit entered In the books of account of any previous year, the sam .....

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e name of partners of the assessee firm relying on the decision of Hon'ble High Court of Andhra Pradesh reported in 232 Taxmann 123 in the case of CIT vs. Venkateswara Rao. 12. In view of our decision in the Assessment Year 2010-11 shall apply mutatis mutandis to this appeal also. Thus, this appeal filed by the Revenue is also dismissed. ITA No. 247/VIZ/2016 13. The assessee has raised the following grounds:- 1. The order of the learned Commissioner of income Tax(Appeals) is contrary to the facts and also the law applicable to the facts of the case. 2. The learned Commissioner of income Tax (Appeals) is not justified in sustaining the addition of ₹ 19,00,000/- made towards unexplained unsecured loans in spite of the confirmations given by the loan creditors. 3. The learned Commissioner of Income Tax (Appeals) is not justified in confirming the disallowances of ₹ 1,90,000/- and ₹ 1,04,865/- made by the assessing officer u/s 40A(3) of the Act. 4. The learned Commissioner of Income Tax (Appeals) is not justified in allowing deduction of only 5% towards difference in CPWD rates and local rates as against 15% to 20% consistently allowed by the Hon'ble Income Ta .....

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Accordingly vide this office letter dated 07-03-2014 the assessee firm was requested to file its objections for the same along with necessary supporting evidences In response to the same the assessee firm has submitted a letter on 18-03-14 submitting that the amounts due to the land owners viz Sri Sathi Ram -Krishna Reedy and Sri Sathi Sybbi -Reddy- from whom the firm has taken their site for development, aggregating ₹ 1,49,99,450/- has been by mistake shown as unsecured loans and submitted the copies of confirmation letters stated to be issued by the following lenders towards the balance amount of ₹ 19,00,000/-. The firm has also submitted that since -the parties are away from vizag they could not submit further evidence and they it will submit the necessary explanation from them within a week. G. Syam, Visakhapatnam ₹ 2,00,000 Kota Ayyappa Gupta, Visakhapatnam. ₹ 1,00,000/- Tetali Subbirami Reddy, Rayaaram ₹ 15,00,000/- Datla Sitarama Raju, Visakhapatnam ₹ 1,00,000/- Though, the assessee firm has submitted that it will: file explanation from the respective parties within one week on 18-02-14, till today no explanation has been furnished Therefo .....

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rough Indian Bank, Visakhapatnam by Cheque No. 3357201. In his confirmation letter, complete address is available. He also submitted that he is an income tax assessee. When the assessee has filed confirmation letter by giving all the details of the loan creditors, the Assessing Officer without making any enquiry, simply addition cannot be made. In the case of loan creditor of Tetali Subbirami Reddy, in his confirmation letter he has stated that he has given advance of ₹ 15,00,000/- i.e. ₹ 9,00,000/- on 09/10/2009 through Andhra Bank vie DD No. 67788 and ₹ 6,00,000/- on 09/10/2009 through Andhra Bank vide DD No. 169787 to M/s. Gowthami Builders, Kakinada. He also given his PAN number and also stated that ₹ 9,00,000/- was repaid on 04/10/2010 through Indian Bank, Visakhapatnam Cheque No. 335723 and the balance amount of ₹ 6,00,000/- was not paid. Another loan creditor Kota Ayyappa Gupta has stated that he has advanced an amount of ₹ 1,00,000/- to the assessee on 21/12/2009 through ING Vysya Bank Cheque No. 938741, the same is repaid on 29/09/2010 through Indian Bank, Visakhapatnam Cheque No. 335720. He also stated that he is Income tax assessee and .....

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sing Officer from the DVO s report, arrived at the cost of construction incurred during the previous year relevant to the Assessment Year 2010-11 at ₹ 29,89,272/-. However, the assessee has shown construction expenditure for the year at ₹ 23,77,410/-. Thus as per the Assessing Officer, the assessee incurred unexplained cost, during the previous to the tune of ₹ 6,11,862/-. The explanation submitted by the assessee with regard to excess expenditure incurred of ₹ 6,11,862/- was not accepted by the Assessing Officer and accordingly the Assessing Officer treated the impugned amount of ₹ 6,11,862/- as unexplained expenditure under section 69C of the Act and added the same to the total income of the assessee. 25. On appeal before the ld. CIT(A), it was submitted that the Assessing Officer has not considered the claim in respect of deduction towards different between CPWD and local rates and therefore, deduction of 20% may be given. The ld. CIT(A) has allowed the claim of deduction at 5% between the CPWD rates and the local rates. 26. On appeal before us, ld. counsel for the assessee has submitted that the coordinate bench of the tribunal has considered the d .....

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purchase of flat. It was also submitted that the said person had withdrawn the proposal and received back money on 15/12/2010. The Assessing Officer noted that the assessee firm had not filed any proof in support of the said claim. The Assessing Officer, thus, treated the impugned amount of ₹ 9,75,000/- as unexplained cash credit under section 68 of the Act. 31. On appeal before the ld. CIT(A), ld. counsel has reiterated the submissions which he was made before the Assessing Officer but, no evidence is filed. Therefore, ld. CIT(A) confirmed the order of the Assessing Officer. Even before us also, no evidence with reference to the advance received from Sri W. Raju for purchase of flat. Therefore, we find no infirmity in the order passed by the ld. CIT(A). Thus, this ground of appeal raised by the assessee is dismissed. 32. Ground No.6 relating to addition of ₹ 9,00,000/- & ₹ 45,000/- on account of cash credits in the bank account. 33. In the assessment order, the Assessing Officer has noted that the assessee has not explained the credits in the bank account held with Indian Bank of ₹ 9,00,000/-. The Assessing Officer, thus, treated the said credit as unex .....

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7-03-2014 the assessed-firm was requested to file its objections for the same along with necessary supporting evidences. In response to the same the assessee firm submitted a letter on 18-03-14, stating that the amount was received from one Sri BS Patnaik towards advance for the flat and the same was returned as he was not interested to take the flat. However the assessee has not filed any proof in support of his explanation. He has not furnished details of the flat towards which the advance was stated to be given and the address of the party even. Therefore in the absence of any supporting evidences, the assessee's explanation is not acceptable and hence as proposed the credit of ₹ 45,000/- has been treated as assessee's unexplained credit and brought the same to tax accordingly. 34. On appeal before the ld. CIT(A), it was submitted that the cash deposits of ₹ 9,00,000/- were made by the assessee on 27/10/2009. The Assessing Officer instead of placing reliance in the bank account issued by the bank, referred to analysis of remittances prepared by the assessee firm, wherein the date was wrongly mentioned as 27/09/2009. In the absence of any deposit on 27/09/2009 .....

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eals) is contrary to the facts and also the law applicable to the facts of the case. 8. The learned Commissioner of income Tax (Appeals) is not justified in sustaining the addition of ₹ 3,03,000/- made by the Assessing Officer towards alleged unexplained advance from Sri Surya Rao. 9. The learned Commissioner of Income Tax (Appeals) is not justified in partly sustaining the addition of ₹ 43,72,498/- made by the assessing officer towards disallowance u/s 40A(3) of the Act. 10. The learned Commissioner of Income Tax (Appeals) ought to have granted deduction of 15% towards difference in CPWD rates and local rages as against 5%. 11. The learned Commissioner of Income Tax (Appeals) is not justified in partly sustaining to the extent of ₹ 9,06,000/- the addition made by the Assessing Officer towards alleged unexplained deposits in the bank account. 12. The learned Commissioner of income Tax (Appeals) is not justified in sustaining the addition of ₹ 2,70,804/- made by the Assessing Officer towards unexplained expenditure. 13. Any other ground that may be urged at the time of appeal hearing. 38. Ground Nos. 1 & 7 are general in nature, no adjudication is require .....

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re was only ₹ 18,61,355/-. 45. Even otherwise also, on verification of the construction material account, the assessee has debited the construction material account month-wise, but not item-wise or party-wise. As per the provisions of section 40A(3), the payment in excess of ₹ 20,000/- to the individual parties required to be disallowed, but not the monthly expenditure incurred for purchase of the material. In this case, the Assessing Officer failed to bring on record the details with regard to the amounts of expenditure incurred in excess of ₹ 20,000/- party-wise. The Assessing Officer has not even made the effort to demonstrate that the assessee had incurred the expenditure in excess of ₹ 20,000/- in aggregating party-wise also. Therefore, we are unable to sustain the addition made by the Assessing Officer in respect of construction material account under section 40A(3) of the Act. Accordingly, we set aside the order passed by the ld. CIT(A) and allow this ground of appeal raised by the assessee. 46. In respect of remaining payment of ₹ 9,36,009/- (Rs.43,72,498 - ₹ 34,36,489/-), the Assessing Officer has brought on record the details clearly, h .....

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on is given. Even before us the assessee has not given any explanation. Therefore, the addition made by the Assessing Officer of ₹ 3,06,000/- is hereby confirmed. Thus, this ground of appeal is dismissed. 54. Ground No.6 relating to sustenance of addition of ₹ 2,70,804/- towards unexplained expenditure. 55. In the assessment order, the Assessing Officer has noted from the balance sheet and profit & loss account that the assessee has arrived at an excess claim expenditure of ₹ 2,70,804/- in the profit & loss account for the Assessment Year 2011-12, but not able to explain the same before him. Therefore, Assessing Officer has disallowed and added back to the total income of the assessee. 56. It was submitted, on appeal, before the ld. CIT(A) that the assessee is following double entry system of accounting and hence, accounts would not tally if there was any excess amount brought into the books without correspondence outflow. The ld. CIT(A) considered the same and confirmed the order of the Assessing Officer. Even before us, the assessee is not able to explain the discrepancy pointed out by the Assessing Officer. Therefore, we find no infirmity in the order o .....

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