9911796707
TMI Blog2019 (7) TMI 1262X X X X Extracts X X X X X X X X Extracts X X X X ..... der: 2. Brief facts of the case are that a search u/s 132 was carried out in the residence of the assessee who is engaged in the business of civil contract works. The case was taken up for scrutiny, notices u/s 153A, 143(2) and 142(1) were issued and the assessments were completed u/s 143(3) r. w. s. 153A of the Act. During the search conducted in the residential premises of the assessee, incriminating material was found and the assessments were completed u/s 153A r. w. s. 143(3) by an order dated 31. 03. 2014. The year wise breakup of the returns filed in response to the Notice u/s 153A for the A. Y. 2008-09 to 2011-12 are as under: Asst. Year Date of Filing Total income admitted Agricultural income 2008-09 24. 05. 2013 23,35,550/- 7,50,000/- 2009-10 47,40,700/- 8,50,000/- 2010-11 23. 05. 2013 99,43,060/- 8,50,000/- 2011-12 89,12,370/- 9,00,000/- 2. 1. Similarly the details of the additions made to the returned income u/s 143(3) r. w. s. 153A of the Act for the A. Y. 2008-09 to 2011-12 are as under: Nature of addition 2008-09 2009-10 2010-11 2011-12 Unaccounted investment 1,80,00,000 15,00,000 -- -- Illegal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and to do the interior work themselves, hence the seller returned the entire sum of Rs. 1. 95 crores in cash to the assessee. The assessee further stated that he had decided to register the property in the name of his wife Smt. R. Sulochana Devi, hence paid Rs. 1. 10 crores by way of cheque from his wife. The assessee further stated that interior work was done by themselves and the entire transaction was recorded in the books of his wife. During the post search enquiries, the assessee did not produce any documentary evidence to support the argument put forth by the assessee. Further the assessee even failed to produce the books of accounts showing the relevant entries made in the books of accounts and nor produced any other proof. Therefore, the AO issued show the cause notice to the assessee as to why the said amount of Rs. 1. 95 crores should not be treated as undisclosed investment in his individual hands. In response to the show cause notice, the assessee filed explanation reiterating the submissions made earlier and further stated that 15. 00 lakhs was paid in 04. 04. 2008 as an advance for interior work. In his explanation, the assessee did not produce any evidence to show t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A) should not have entertained the additional evidence produced by the assessee at the appellate stage. Apart from the above, the Ld. DR argued that the Addl. CIT has given a clear observation while forwarding the remand report stating that the report of the AO should not be considered, since, the AO simply stated that the explanation of the assessee is selfserving statement without bringing any facts or evidence on record. The Ld. CIT(A) ought to have endorsed the observations of the Addl. CIT also while deciding the appeal. The Ld. DR further argued that the AO in his remand report requested the Ld. CIT(A) to consider the issue on merits. It is further argued by the Ld. DR that the AO did not make proper enquiries with regard to the genuineness of the sources while submitting the remand report. Therefore, argued that the order of the Ld. CIT(A) be set aside and the addition made by the AO to be confirmed. 5. On the other hand, the Ld. AR argued that the assessee had advanced a sum of Rs. 195 lakhs for purchase of house and the sources were clearly explained in the books of accounts produced before the AO. The Ld. AR also furnished the account copy of Sri L. Murali Krishn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies, the assessee has not furnished any explanation, explaining the sources of amount paid. The assessee neither produced the books of accounts showing relevant entries nor produced any proof explaining the sources. The assessee filed explanation stating that he intended to purchase the residential house for which he had paid Rs. 195 lakhs to Sri L. Murali Krishna and later on he changed his mind and planned to purchase a house from Sri L. Murali Krishna in a shell form and wanted to do the interior works himself. Hence Sri L. Murali Krishna returned the entire amount of Rs. 195. 00 lakhs in cash to the assessee and Rs. 1. 10 crores was paid by his wife. From the assessment order, it is seen that the assessee did not furnish any evidence with regard to the sources for payment and return of the amount paid to Murali Krishna. Hence, the AO made the addition. Subsequently, at the appellate stage, the assessee filed additional evidence, evidencing the receipt of money back from Sri L. Murali Krishna and on the basis of which the AO submitted the remand report stating that the contention of the assessee with regard to source and return of money appears to be reasonable. On the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment again to register the house in the name of Smt. Sulochana Devi. The amounts already paid during 14. 01. 2008 to 04. 04. 2008 can as well be treated as consideration for purchase of house. The reply submitted by the assessee neither sounds logical nor convincing. The AO should have examined the source of books of accounts which were not produced at the time of search / post search as well as assessment proceedings but produced later on. Apart from the above, as per the assessment order, Rs. 15 lakhs was paid to Sri L. Murali Krishna in cash and Rs. 180 lakhs was paid to Sri Srisaila Babu, GPA holder. When the amount was paid to Sri Srisaila Babu, why Sri L. Murali Krishna returned the amount, who is Sri Sailababu was also not explained. The AO neither examined Sri Murali Krishna nor examined Sri Srisaila Babu and the reasons for not producing the evidence at the time of search or post search and the assessment proceedings. Therefore, we are of the considered opinion that the issue was not properly verified by the lower authorities to find out the source and the receipt of the amount. It is incumbent upon the AO to verify the bank accounts of the assessee with matching dates of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt seized at your residence at Nellore marked as Annexure A/RV/PO/3, A/RV/PO/4, A/RV/PO/6, A/RV/PO/7, A/RV/PO/12, A/RV/PO/13, A/RV/PO/14 and also the impounded material marked as A/RVR/3, A/RVR/4 impounded from your Hyderabad office. Please go through these books of account and explain the contents? Ans : These books are seized /impounded from my residence at Nellore and my office in Hyderabad. These books are pertaining to my business receipts and payments. Q. No. 4. : In the above books, it was noticed that there were some amounts mentioned against some names. Please go through them and explain how did you account for those receipts /payments? Please explain the nature of those expenditure? Ans : An A/RV/PO/3 at page No. 50 contains brokerage expenses, page 300 to 304 contains 'Work related Expenses'; in A/RV/PO/6, page 35 to 40 and 73 to 74 contains 'Work related Expenditure', page 207 to 209 contains 'General Expenses; in A/RV/PO/7, page 14 contains 'Work Related Expenditure'; In A/RV/PO/14,, page 16 contains, 'Work related Expenditure'. All these are payments made to technically qualified people who assisted us in the execution of EPC (Engg. Procurement and Construction) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 209, A/RV/PO/07 page No. 192, the assessee has claimed deduction towards General Expenses to the extent of Rs. 63,04,108/- and the year wise breakup is as under : F. Y. A. Y. Amount (Rs. ) 2006-07 2007-08 29,74,800 2007-08 2008-09 7,63,308 2008-09 2009-10 11,71,000 2009-10 2010-11 13,95,000 Total 63,04,108 In the statement recorded on 10. 04. 2012, in question No. 6, the assessee accepted to come forward for admission of expenditure as disallowable. The AO issued show cause notice as to why the amount of Rs. 63,04,108/- should not be disallowed in the respective assessment years for want of proper evidence. The assessee submitted that the expenditure was incurred in the site and produced relevant ledger extracts, but no supportive material was filed before the AO at the time of search or post search proceedings and during the assessment proceedings. Therefore, the AO disallowed the entire amount of Rs. 63,04,108/- in the respective assessment year as per the details given below : A. Y. Amount (Rs. ) 2007-08 29,74,800 2008-09 7,63,308 2009-10 11,71,000 2010-11 13,95,000 Total 63,04,108 8. 3. EPC Expenditure. The assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guments of appellant and findings of the Assessing Officer with reference to each addition, it is a fact that the appellant has filed the Returns of Income much before the search action. The financial results are arrived only after statutory audit. In this context, the main issue before the Assessing Officer is to see or examine whether the evidence gathered in search is in accordance with the books of account or not? The Assessing Officer has accorded reasonable opportunity by issuing show-cause notices with reference to each head of account namely departmental expenses/brokerage/general expenses and EPL expenditure for all the assessment years The Authorized Representative of the appellant have produced comparative summary of expenditure as per the seized material and as per the books of account as a sample to ascertain the extent of expenditure booked or otherwise The same is produced hereunder : There are 25 ledger accounts. I have perused the contents and it is clear that there are only 10 ledger accounts namely bank charges, shed account, mess maintenance, oil account, tipper account, machinery maintenance, blasting account and salary account. Remaining 15 heads of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding the nature of payment except stating that in the absence of explanation to the show-cause notice, the expenditure is treated as 'unaccounted investment' It is not a case where the appellant has not incurred the expenditure without affecting the withdrawals from the bank. It is clear that these expenses have been loaded into the books under two heads as appearing in the P&L. account In this scenario, it is not possible to segregate as to what is allowable or otherwise in this case. If one indulges in this exercise, it may lead to recasting the books of account with reference to the expenses alone which is not possible at this state. Owing to these complex situations, a reasonable conclusion can be arrived with a reasonable nexus to the seized material and books of account. Keeping these aspects in mind; I proceed to decide ,the appeal on each addition made by the Assessing Officer as under: (i) Illegal payments/Direct work expenditure (A. Yrs. 2008-09 to 2010-I1) (ia) A search and seizure was conducted in this case both at residence as well as in the office premises. There are several documents seized during the course of search (Page 5, Para 2 of the assessment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f allowable expenditure or otherwise. In such complex situation, I am of the opinion that it serves both the parties if a reasonable percentage of such expenditure is considered for disallowance. After careful consideration of submissions and material on record, the Assessing Officer is directed to disallow 50% of expenditure in each Asst. Year. iii) Illegal payments / general expenses (A. Yrs 2008-09 to 2010-11) : (iiia) The Assessing Officer is of the view that the seized material A/RV/PO/3 (Page Nos. 122 to 129), A/RV/PO/4 (Page Nos. 124 to 127, 266, 267 & 268 to 275, 424 to 425, 392, 393, 395, 397 & 59, A/RV/P0/6 (Page Nos 207 to 220, A/RV/PO/7 (Page No. 192) represent expenditure incurred under the head 'general expenses'. The Assessing Officer has calculated such expenditure as under : F. Y. A. Y. Amount (Rs. ) 2006-07 2007-08 29,74,800 2007-08 2008-09 7,63,308 2008-09 2009-10 11,71,000 2009-10 2010-11 13,95,000 Total 63,04,108 (iiib) It is the case of the Assessing Officer that the appellant has not maintained any vouchers for such expenses which fact was confirmed in the statement recorded from the appellant The Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced with certainty. It is not certain whether such expenses are truly meant for business or otherwise The Assessing Officer has also not given such categorical finding In this factual matrix, it would render justice If the expenditure is disallowed at 50% The Assessing Officer is accordingly directed to adopt 50% of expenditure as not allowable being unexplained expenditure. The total expenditure claimed for the Asst Year 2008-09 to 2010-11 is Rs. 63,04,108/- Accordingly, 50% of it would be Rs. 31,52,054. iv) EPL Expenditure/ Illegal payments: (iva) It is the case of the Assessing Officer that there are certain expenditure which is termed as work related such as EPC expenses (Engineering Procurement and Construction) for which no supportive vouchers are available. It is also the case of the Assessing Officer that the appellant was awarded contract with MIs Engineering Projects India Ltd. The details of expenses are recorded in seized material vide Annexure-A/RV/PO/ 3 to 14 (Para 5 of the assessment order). The Assessing Officer has made the calculation as under. F. Y. A. Y. Amount (Rs. ) 2006-07 2007-08 10,52,500 2007-08 2008-09 6,88,000 2008-09 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses and EPC expenses. During the course of search, the assessee accepted that the payments were not supported by proper evidence and also agreed to come forward with disallowance. No evidences were filed with regard to the name and address of the persons to whom the amounts were paid, nature of expenses, purpose of payment etc. During the appeal proceedings also, the assessee did not produce such details, which is evident from the remand report also. No evidence whatsoever was filed by the assessee to prove the genuineness of the payment. The assessee failed to establish that the payment was made for the purpose of business. In respect of EPC payments, though the assessee stated that certain payments were made to individuals to get the work done, however, he did not furnish the names and address of the persons, nature of payment and reason for payment, services rendered by each person etc. Therefore, argued that the expenditure is in the nature of illegal payment which is not allowable u/s 37(1) of the Act. Similarly, since the assessee failed to produce any evidence to support the expenditure debited to Profit & Loss account, there is no case for allowing the expenditure as gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the persons to whom the payments were made, what was the work done by the person, nature of service rendered by the said persons was not explained by the assessee. Whether the payments were made in regular course of business or for illegal payments was also not furnished by the assessee. Though in response to question No. 5, the assessee stated that the payments were made to technically qualified people, who assisted in execution of the EPC contracts, the assessee neither furnished the names and address of the persons, nature of the payments and the nature of services rendered etc. Prima facie, from the statement of the assessee it appears that the payments were made to outsider to get some work done by the assessee either in the contract work or in the EPC. There were no proper vouchers available for the payments made by the assessee in respect of the direct expenditure, general expenses and EPC payments. Though the assessee stated that he would come forward for disallowance of expenditure, it appears that the assessee has not admitted any income on account of disallowance of expenditure under various heads. During the appeal hearing, the Ld. AR submitted that the entire paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000. 00 41,01,904. 00 The above differences show the scale of inflation of expenditure made by the assessee for which there was no explanation. In the normal course these excess expenses also required to be explained with relevant evidences and the reasons. It appears that assessee neither explained before the AO nor before the Ld. CIT(A). Though glaring differences were found by the Ld. CIT(A), the Ld. CIT(A) considered the trade practices and the explanation offered by the assessee and reasonably allowed 50% of expenditure. Considering all the facts and materials placed before us, we are of the considered opinion that it is also unreasonable to disallow the entire expenditure and restricting the disallowance to the extent of 50% is fair and reasonable. Accordingly, we uphold the order of the Ld. CIT(A) and dismiss the appeals of the revenue, cross objections filed by the assessee as well as the cross appeals filed by the assessee for the A. Ys 2008-09 to 2012- 13. I. T. A. No. 609/Viz/2018, A. Y. 2012-13 12. Ground No. 1 and 7 are general in nature which does not require specific adjudication. 13. Ground No. 2 is related to the deletion of addition made towards pronotes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 199 of the seized folder marked as A/R VR/2 found and seized froth the residence of Sri Ravulpalli Venkatraniaiah during the course of search operations conducted. As per which you have taken amount of Ps. 1. 5 crores from Sri Ravulapalli Venkatrainaiah, Please explain these transactions and clarify whether these are reflected in your books of account, if so please produce the evidences there of? Ans : I confirm that,I have signed and executed the following pro-notes asmentioned at pages serially numbered 195, 196, 198 & 199 of seized folder marked as A/RVR/2 from the residence of Sri Ravulapalli Venkatramaiah Date of pronote Amount Seized Reference 01/07/2011 50 lakhs Page 195 01/07/2011 50 Lakhs Page 196 07/10/2011 25 lakhs Page 198 20/10/2011 25 lakhs Page 199 On 01/07/2011, I have executed two pronotes worth Rs, I Crore in favour of Sri P. Venkatramaiah and his wife Smt. Sulochana Devi which are not financial transactions. It is only to secure Mr. R. Venkatramaiah for the guarantee given by him for allotment of road work for our partnership concern at Delhi-Agra Road from JP Associates since the work was not materialized in the pm-notes execute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, the AO did not find the explanation offered by the assessee as convincing, hence, treated the sum of Rs. 50. 00 lakhs as unexplained investment and taxed the same in the hands of the assessee. 14. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld. CIT(A) confirmed the addition made by the AO. However, allowed the sum of Rs. 50 lakhs as telescopic benefit for the additional income offered by the assessee in the A. Y. 2011-12. For the sake of clarity and convenience, we extract relevant part of the order of the Ld. CIT(A) from page No. 21 to 23 which reads as under: "A cursory look at the pro-notes reveals the following facts : The first set of pro-notes were executed on 07. 10. 2011. The rate of interest charged at 24%. Apparently, the Executant acknowledged the receipt of cash of Rs. 50,00,000/-. Prima facie the purpose of executing pro-notes does not indicate anything about performance guarantee. Therefore, such interpretation sounds illogical and unreasonable as there is no-corroborative evidence. I have gone through the statement of Sri R. Venkataramaiah recorded u/s. 131 of the Act on 11. 01. 2012 wherein he stated asunde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signature appended by the Executant. The burden of proof shifts on Sri R. Muttaiah to prove that money was not received against the acknowledgement. Thus, the probability of ignoring the instruments is remote and unconvincing. The assertion of executants of pro-note is definitely an afterthought engaged in order to orchestrate the view of the appellant. Further, the material evidence as to Executant's role in Delhi-Agra road project, the corroborative evidence necessitating the alleged arrangement was not brought on record. There is no Law preventing Mr. Muttaiah to mention the purpose being "guarantee" on the pro-note instead of mentioning the rate of interest and "receipt of cash" on 01/07/2011. In view of the facts and inconsistencies mentioned above, the argument of the appellant is rejected. (f) I have further examined the Letter dt 18/02/2014 fired by Sri R Muttaiah before the Assessing Officer which reveals the reason for executing the pro notes It was stated that the appellant came forward to invest more capital and therefore, Sri Muttaiah executed pro-notes as security for performance guarantee. It was also stated that both the parties were exploring the possibiliti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 68, AP HC] CIT vs. K. S. M. Guruswamy Nadar & Sons [149 ITR 127, Mad HC] Gopal S Pandith vs DCIT [186 TTJ 64, Bang Tribunal]J M. M. Sulatman vs. ACIT [159 TTJ 746, Cochin Tribunal ] (j) I have considered the alternative plea and found that the appellant had offered Rs. 50,00,000/- as additional income for the A. Y. . 2011-12 while filing the revised return of income on 23. 05. 2013. The original return of Income was filed on 3009 2011 admitting Rs. 39,12,370/ compared to the income of Rs. 89,12,370/ admitted in the revised return of income. I have gone through the case laws cited above and found merit in the argument of the Ld Authorized Representative In view of these facts, the alternative plea of telescoping is admitted and found reasonable. Accordingly, the addition of Rs. 50,00,000/- on account of pro-notes gets explained. There would be no addition of Rs. 50,00,000/- for the A Y 2012 13 15. The revenue has filed appeal challenging the order of the Ld. CIT(A) to allow set off of Rs. 50 lakhs against the additional income offered by the assessee for the A. Y. 2011-12 and the assessee has filed appeal challenging the order of the CIT(A) by raising additional ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended that there was no advance and alternatively pleaded for telescopic benefit which is contradictory to each other and once the assessee asks for telescopic benefit, it goes against the assessee. In any case, since the assessee has already spent the amount for the A. Y. 2011-12, there is no case for allowing telescopic benefit, hence argued that the Ld. CIT(A) erred in allowing telescopic benefit. Accordingly, requested to set aside the order of the Ld. CIT(A) and restore the order of the AO. 17. On the other hand, the Ld. AR vehemently opposed for taxing the sum of Rs. 50 lakhs as additional income in the hands of the assessee as well as in the hands of Smt. Sulochana Devi. The Ld. AR further argued that even if it is presumed that Rs. 50 lakhs is additional income, since the assessee had offered the sum of Rs. 50 lakhs as additional income for the A. Y. 2011-12, the Ld. CIT(A) has rightly allowed the set off and no interference is called for. The Ld. AR further submitted that Sri Muthaiah in his statement recorded on 19. 04. 2012 very clearly stated that the pro-notes were executed as guarantee given by him for allotment of work in the partnership concern at Delhi-Agra r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi-Agra road work from JP Associates. There is no dispute that Sri R. Muthaiah has agreed that all the pro-notes were signed by Sri Muthaiah and there is no dispute with regard to the correctness of the pro-notes. The contention of the assessee was that it was obtained for the security for tender work of HSNL, whereas as per the contention of the executant, it was given as guarantee for allotment of work at Delhi-Agra road from JP Associates. Be that as it may, the pro notes were found in the premises of the assessee and as per the provisions of section 292C of the Act, the presumption is that the material found during the course of search belongs to the assessee and the contents in the incriminating material is true and correct, therefore, burden lies on the assessee to prove that the contents are incorrect. According to the assessee, the pro-notes were paper transactions, no money was exchanged with regard to execution of two pro-notes of Rs. 50 lakhs each aggregating to Rs. 1. 00 crore and the said pro-notes were given as security. Neither the assessee nor Sri Muthaiah have placed any evidence to show that the pronotes are necessary for tender process in case of HSNL work or for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d promissory note. Since the valid pro-notes are available with the assessee, during the course of search, as per section 292C of the Act, it is presumed that the assessee had given loans to Sri R. Muthaiah. Since the assessee failed to prove that the pro-notes were obtained only for the purpose of security, we have no hesitation to hold that the promissory notes of Rs. 1. 00 crore (50. 00 lakhs each) on 01. 07. 2011 are genuine transactions, accordingly we uphold the order of the CIT(A) and dismiss the appeal of the assessee. 19. The next issue is set off of addition made by the AO relating to pronotes against the undisclosed income admitted by the assessee. The Ld. CIT(A) confirmed the addition of Rs. 50 lakhs in the hands of the assessee towards the payments. However, he allowed the sum of Rs. 50 lakhs against the income admitted by the assessee for the A. Y. 2011-12. The Ld. DR argued that allowing of telescopic benefit is an error committed by the Ld. CIT(A) and the Ld. CIT(A) ought not to have allowed the telescopic benefit. 20. On the other hand, the Ld. AR filed cross objections, supporting the order of the Ld. CIT(A) and vehemently supported the order of the Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the addition made by the AO and filed cross objections supporting the order of the Ld. CIT(A) for restricting the disallowance to 50%. The issue is involved on identical facts in the assessee's case for the A. Y. 2008-09 to 2011-12 discussed in para No. 8 to 11 of this order. Taking consistent view, we uphold the order of the Ld. CIT(A) and confirm the disallowance to the extent of 50% as discussed in this order in the paragraphs cited supra. Accordingly, the appeal of the revenue, cross objections and cross appeals filed by the assessee are dismissed on this issue. I. T. A. No. 566/Viz/2018, A. Y. 2012-13 24. All the grounds of appeal in this case are related to Rs. 50,00,000/- representing pro-notes executed in favour of the assessee by Sri Muthaiah. During the course of search u/s 132 in the residence of Shri R. Venkatramaiah, husband of the assessee, a pro-note dated 01. 07. 2011 for Rs. 50 lakhs @24% in page No. 195 of Annexure-A/RVR/2 was found and seized. The assessee had stated that the pro-note was executed as a security for tender process of HSNL work and executants R. Muthaiah stated that the pro note was given to Sri R. Venktramaiah as a guarantee for allotm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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