DCIT, Hyderabad v. Sri K.Sathi Reddy, Nalgonda District

ITA 1258/HYD/2008 | 2005-2006
Pronouncement Date: 06-02-2012 | Result: Partly Allowed

Appeal Details

RSA Number 125822514 RSA 2008
Assessee PAN AACHK8054J
Bench Hyderabad
Appeal Number ITA 1258/HYD/2008
Duration Of Justice 3 year(s) 6 month(s) 26 day(s)
Appellant DCIT, Hyderabad
Respondent Sri K.Sathi Reddy, Nalgonda District
Appeal Type Income Tax Appeal
Pronouncement Date 06-02-2012
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 06-02-2012
Date Of Final Hearing 05-10-2011
Next Hearing Date 05-10-2011
Assessment Year 2005-2006
Appeal Filed On 10-07-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B HYDERABAD BEFORE SHRI CHANDRA POOJARI ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN JUDICIAL MEMBE R. ITA NO. ASSESSMENT YEAR APPELLANT RESPONDENT 1256/HYD/2008 195/HYD/2009 2004-05 2005-06 DY. COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE I HYDERABAD SHRI K.SRINIVASA REDDY NAKIREKAL NALGONDA DISTRICT. (PAN AACHK 8054 J) 1257/HYD/2008 1258/HYD/2008 2004-05 2005-06 DY. COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE I HYDERABAD SHRI K.SATHI REDDY NAKIREKAL NALGONDA DISTRICT. (PAN AACHK 8053 R) APPELLANT BY : SHRI V.SRINIVAS RESPONDENT S BY : SHRI M.V.ANIL KUMAR DATE OF HEARING 6.2.2012 DATE OF PRONOUNCEMENT 6.2.2012 O R D E R PER CHANDRA POOJARI ACCOUNTANT MEMBER THESE APPEALS BY THE REVENUE CONCERNING TWO ASSES SEES WHO ARE RELATED TO EACH OTHER ARE DIRECTED AGAINST TWO SEPARATE COMMON ORDERS OF THE CIT(A) I HYDERABAD BOTH DATE D 2.4.2008 PASSED FOR THE ASSESSMENT YEARS 1999-2000 TO 2005-0 6. SINCE COMMON ISSUES ARE INVOLVED THESE APPEALS ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. AT THE OUTSET WE MAY NOTE THAT THERE WAS A DEL AY OF 215 DAYS IN THE FILING OF THE APPEAL ITA NO.195/HYD/20 09 BY THE REVENUE IN THE CASE OF SHRI K.SRINIVASA REDDY FOR THE ASSE SSMENT YEAR 2005- ITA NO.1256/HYD/2008 & 3 ORS. SHRI K.SRI NIVASA REDDYU NAKIREKAL & ANR. 2 06. THE APPELLANT HAS FILED A PETITION EXPLAINING THE REASONS WHICH LED TO THE LATE FILING OF THE APPEAL AND PRAYED FOR CO NDONATION OF DELAY. WE HAVE GONE THROUGH THE REASONS EXPLAINED BY THE D EPARTMENT. IN OUR OPINION THE DELAY IS FOR BONA FIDE REASONS AN D THERE IS A REASONABLE CAUSE FOR THE DELAY IN THE FILING OF THE APPEAL. WE ACCORDINGLY CONDONE THE DELAY AND PROCEED TO DISPOS E OF THE APPEAL ON MERITS. 3. GROUNDS OF THE REVENUE IN THESE FOUR APPEALS AR E COMMON AND THE SAME AS TAKEN FROM THE APPEAL IN THE CASE OF SHRI K.SRINIVASA REDDY FOR ASSESSMENT YEAR 2004-05 READ AS FOLLOWS- 1. THE LEARNED. CIT(A) ERRED BOTH IN LAW AND FACTS OF THE CASE. 2. THE LEARNED. CIT(A) OUGHT TO HAVE UPHELD THE ORD ER OF THE ASSESSING OFFICER TO TREAT THE AMOUNTS UTILIZED FOR RECEIVING BACK THE CANCELLED CHEQUES AS UNDISCLOSED INCOME OF THE ASSESSEE. 3. THE LEARNED. CIT(A) ERRED IN DIRECTING THE ASSES SING OFFICER TO TREAT THE PEAK CASH CREDIT AS UNDISCLOSE D INCOME OF THE ASSESSEE. 4. ANY OTHER GROUND THAT MAY BE URGED AT THE TIM E OF HEARING. 4. BRIEF FACTS OF THE CASE COMMON IN THESE MATTER S AS TAKEN FROM THE APPEAL FOR THE ASSESSMENT YEAR 2004-05 CON CERNING SHRI SRINIVASA REDDY LEADING TO THE FILING OF THE PRESE NT APPEALS BEFORE US ARE THAT A SEARCH AND SEIZURE OPERATION WAS CONDUCT ED IN THE CASE OF THE ASSESSEES ALONGWITH SUDHAKAR GROUP OF CASES ON 16.6.2004. DURING THE COURSE OF SEARCH BOOKS OF ACCOUNT AND C ERTAIN OTHER INCRIMINATING DOCUMENTS WERE SEIZED. 5. IN RESPONSE TO NOTICE ISSUED INITIATING PROCEE DINGS UNDER S.153A OF THE ACT THE ASSESSEES FILED RETURNS OF I NCOME FOR THE ITA NO.1256/HYD/2008 & 3 ORS. SHRI K.SRI NIVASA REDDYU NAKIREKAL & ANR. 3 ASSESSMENT YEARS 1999-00 TO 2005-06 DECLARING CERT AIN INCOMES BESIDES AGRICULTURAL INCOMES. 6. IN THE COURSE OF ASSESSMENT OF SHRI K.SRINIVASA REDDY THE ASSESSING OFFICER HAS OBSERVED INTER ALIA THAT CERT AIN CANCELLED CEHQUES WERE IDENTIFIED AND SEIZED VIDE ANNEXURE NO.A/SR/1. THE SAID CHEQUES WERE ISSUED BY EITHER SHRI K.SATHI REDDY OR SHRI K. SRINIVASA REDDY. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT HE IS TO BORROW MONEY BY GIVING CHEQUES AS SECURITIES AND WH EN THE LOAN IS RETURNED THE CHEQUES ARE RECEIVED BACK AND CANCELL ED. HOWEVER NO DETAILS OF BORROWINGS OR NAMES OF THE LENDER AND OT HER DETAILS AS ASKED FOR WERE GIVEN TO THE ASSESSING OFFICER. UN DER SUCH CIRCUMSTANCES THE ASSESSING OFFICER CONCLUDED THAT THE REPAYMENT OR PAYMENTS MADE BY THE ASSESSEE AGAINST THE CHEQUES HAVE BEEN EFFECTED OUTSIDE REGULAR BOOKS OF ACCOUNT THESE PA YMENTS HAVE BEEN MADE OUT OF UNDISCLOSED INCOME OF THE ASSESSEE. ACC ORDINGLY THE ASSESSING OFFICER HAS CONSIDERED THE AMOUNT PAID BY THE ASSESSEE TO CLEAR THE CHEQUES WHICH WERE PUT AS SECURITIES AND TAKEN BACK AS UNDISCLOSED INCOME IN THE RESPECTIVE ASSESSMENT YEA RS. ON THAT BASIS THE ASSESSING OFFICER ADDED AN AMOUNT OF RS.20 66 5 80 FOR ASSESSMENT YEAR 2004-05 AND AN AMOUNT OF RS.2 56 580 FOR ASSES SMENT YEAR 2005-0 TO THE TOTAL INCOMES DISCLOSED BY THE ASSESS EE ON ACCOUNT OF UNDISCLOSED AMOUNTS UTILISED FOR RECEIVING BACK TH E CHEQUES. 7. WITH SIMILAR OBSERVATIONS AND CONCLUSIONS IN THE CASE OF SHRI K.SATHI REDDY ALSO AN AMOUNT OF RS.16 00 300 FOR ASSESSMENT YEAR 2004-05 AND RS.11 20 000 FOR ASSESSMENT YEAR 2 005-06 WERE ADDED BY THE ASSESSING OFFICER AS UNDISCLOSED AMOUN TS UTILSED FOR RECEIVING BACK THE CHEQUES. ITA NO.1256/HYD/2008 & 3 ORS. SHRI K.SRI NIVASA REDDYU NAKIREKAL & ANR. 4 8. ON APPEAL THE CIT(A) GAVE SUBSTANTIAL RELIEFS TO THE ASSESSEES ON THIS COUNT. IN THE FIRST PLACE HE OB SERVED IN PARAS 07.0 AND 07.1 OF THE CIT(A) OBSERVED IN PARAS 07.0 AND 0 7.1 OF HIS ORDER IN THE CASE OF SHRI K.SRINIVASA REDDY AS FOLLOWS- 07.0 ..THE APPELLANT HAS FAILED TO GIVE PARTICUL ARS OF LOAN TAKEN AGAINST CHEQUE ISSUED AND THE USE OF SUC H LOAN. IT APPEARS THAT THE APPELLANT IS ENGAGED IN UNACCOUNTE D BUSINESS OF WINE SHOP ETC. ACCORDINGLY IT IS NOT KNOWN WHAT IS THE VOLUME OF BUSINESS AND INCOM E EARNED THEREON AND SOURCE OF FINANCE FOR THE UNACCOUNTED BUSINESS. HOWEVER AS P ER THE NARRATION GIVEN AGAINST SOME OF THE CHEQUES IT WOU LD APPEAR THAT SUCH CHEQUES WOULD NOT HAVE BEEN USED FOR UNAC COUNTED BUSINESS. THE CHEQUE NO.405954 DATED 14.2.2004 FOR AN AMOUNT OF RS.3 00 000 ISSUED BY SRI K.SRINIVASA RED DY AS A SELF-CHEQUE HAS BEEN RETURNED BY THE BANK FOR WANT OF BALANCE. CHEQUE NOS.571015 DATED 3-1-2004 AND 571019 DATED 3 -5- 2004 FOR SAME AMOUNT OF RS.21 580 HAVE BEEN ISSUED BY SRI K.SRINIVASA REDDY IN FAVOUR OF SUNDARAM FINANCE. TH ESE CHEQUES APPEAR TO HAVE GONE THROUGH CLEARING AND NO T USED FOR GETTING LOANS. 07.1 THE APPELLANT SUBMITS THAT CHEQUES BEARING NO NAMES OF THE PAYEES WOULD NOT HAVE BEEN USED FOR TH E BUSINESS OR THE LENDER IN SUCH CASE IS NOT IDENTIFIABLE FOR WHICH THE ADDITION MADE BY THE ASSESSING OFFICER IS NOT CORRE CT. HOWEVER THIS SUBMISSION OF THE APPELLANT IS NOT ACCEPTABLE FOR THE REASON THAT A BEARER CHEQUE HAVING NO NAME OF PAYEE CAN BE USED AS A SECURITY SIMILAR TO A BEARER CHEQUE HAVIN G NAME OF THE PAYEE MENTIONED ON IT. THE PURPOSE OF HANDING OVER THE BEARER CHEQUES TO THE LENDER IS TO SECURE THE LENDE R AND THIS PURPOSE CAN BE SERVED EVEN IF THE CEHQUE DOES NOT C ONTAIN NAME OF THE PAYEE. FURTHER A CANCELLED BEARER CHEQ UE DOES NOT PROVE THAT THE CHEQUE WAS NOT USED AS A SECURITY FO R BORROWING. ACCORDINGLY THE APPELLANTS SUBMISSION THAT THE CA NCELLED CHEQUES SHOULD NOT HAVE BEEN CONSIDERED FOR ADDITIO N BY THE ASSESSING OFFICER IS ALSO NOT CORRECT. NO BOOKS OF ACCOUNT OR PARTICULARS HAVE BEEN MAINTAINED BY THE APPELLANT T O SUGGEST THAT SOME OF THE CHEQUES WERE NOT USED FOR UNACCOUN TED BUSINESS. IT IS FOR THE APPELLANT TO COME OUT CLEA N ON THE USE OF THE CHEQUES AND THE DETAILS OF UNACCOUNTED BUSINESS INCLUDING THE SOURCE OF CAPITAL USED AND PROFITS MADE. UNDER SUCH CIRCUMSTANCES THE BEARER CHEQUES ISSUED BY THE AP PELLANT ARE REQUIRED TO BE CONSIDERED FOR DETERMINING UNDISCLOS ED INCOME IRRESPECTIVE OF THE FACT WHETHER THE CHEQUES BEAR N AMES OF THE PAYEES CANCELLED OR NOT AND MARKED PAID OR NOT. TH E TWO CHEQUES WHICH HAVE BEEN ISSUED TO MS/.SUNDARAM FINA NCE AND THE SELF CEHQUE RETURNED FOR WANT OF BALANCE ARE HO WEVER NOT TO BE CONSIDERED AS USED IN THE UNACCOUNTED BUSINES S. AT THE SAME TIME THE ASSESSING OFFICER IS NOT CORRECT IN A DDING THE TOTAL CHEQUES ISSUED BY THE APPELLANT DURING THE YE AR WITHOUT CONSIDERING THE PEAK CASH CREDIT. IT IS SEEN THAT IN MOST OF THE ITA NO.1256/HYD/2008 & 3 ORS. SHRI K.SRI NIVASA REDDYU NAKIREKAL & ANR. 5 CASES THE LOANS HAVE BEEN REPAID WITHIN THREE TO F IVE DAYS OF THE DATE OF CHEQUE AFTER WHICH THE CHEQUES HAVE BEE N RETURNED. CHEQUE NO.829008 WAS ISSUED ON 8-3-2004 AND PAID ON 22-3-2004 IN THE CASE OF SHRI SATHI REDDY AND C HEQUE NO.829009 WAS ISSUED ON 19-3-2004 AND PAID ON 22-3- 2004 IN THE CASE OF SHRI SRINIVAS REDDY ETC. IN WINE BUSIN ESS THE ROLL OVER OF CAPITAL IS VERY FAST IN VIEW OF THE SAME THE PEAK CASH CREDIT HAS TO BE CONSIDERED AS INCOME OF THE APPELL ANT AND NOT THE TOTAL AMOUNT OF CHCEQUES ISSUED DURING THE WHOL E OF THE YEAR. .. CONSIDERING THAT CHEQUES ISSUED HAVE BEEN DISCHARGE D WITHIN THREE DAYS OF FIVE DAYS THE CIT(A) WORKED OUT THE PEAK C ASH CREDIT WHETHER ROLL OVER CAPITAL IS CONSIDERED FOR THREE DAYS OR F IVE DAYS COMES TO RS.7 75 000 AS ON 20.3.2004. ACCORDINGLY DIRECTING THE ASSESSING OFFICER TO ADD ONLY AN AMOUNT OF RS.7 75 000 AS UND ISCLOSED INCOME OF THE ASSESSEE IN RESPECT OF CHEQUES ISSUED FOR UNACC OUNTED BUSINESS FOR ASSESSMENT YEAR 2004-05 DELETED THE ADDITIONS OF R S.20 66 580 FOR ASSESSMENT YEAR 2004-05 AND RS.2 56 580 FOR ASSESSM ENT YEAR 2005- 06. 9. IN THE CASE OF SHRI SATHI REDDY ALSO MAKING OB SERVATIONS SIMILAR TO THOSE MADE IN THE CASE OF SHRI SRINIVASA REDDY EXTRACTED ABOVE AND WORKING OUT THE PEAK CASH CREDIT WHETHE R ROLL OVER CAPITAL IS CONSIDERED FOR THREE DAYS OR FIVE DAYS AT RS.7- LAKHS AS ON 20.3.2004 THE CIT(A) DIRECTED THE ASSESSING OFFICE R TO ADD AN AMOUNT OF RS.7 LAKHS AS UNDISCLOSED INCOME OF THE ASSESSE E IN RESPECT OF CHEQUES ISSUED FOR UNACCOUNTED BUSINESS FOR ASSESSM ENT YEAR 2004-05 AND DELETED THE ADDITIONS OF RS.167 00 300 FOR ASSE SSMENT YEAR 2004- 05 AND RS.11 20 000 FOR ASSESSMENT YEAR 2005-06. 10. AGGRIEVED BY THE RELIEFS GRANTED BY THE CIT(A) AS ABOVE REVENUE PREFERRED THE PRESENT APPEALS BEFORE US. ITA NO.1256/HYD/2008 & 3 ORS. SHRI K.SRI NIVASA REDDYU NAKIREKAL & ANR. 6 11. LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTING THE ORDERS OF THE ASSESSING OFFICER SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN GRANTING SUBSTANTIVE RELIEFS TO THE AS SESSEES AND HE OUGHT TO HAVE SEEN THAT THE AMOUNTS UTILIZED BY THE ASS ESSEE FOR RECEIVING BACK THE CANCELLED CHEQUES REPRESENTS THE UNDISCLOS ED INCOME FO THE ASSESSEES. 12. THE LEARNED COUNSEL FOR THE ASSESSEES REITERA TING THE CONTENTIONS URGED BEFORE THE LOWER AUTHORITIES STR ONGLY SUPPORTED THE ORDERS OF THE CIT(A). 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE ORDERS OF THE LOWER AUTHORITIES AND OTHER MATERIAL ON RECORD. IN OUR CONSIDERED OPINION PROCEEDING ON THE BASIS OF THE PEAK CREDIT IS ONE OF THE METHODS OF COMPUTATION OF INCOME FOR THE PURPOS ES OF INCOME-TAX ACT. ONCE THE BOOKS OF ACCOUNT ARE REJECTED IT I S NOT POSSIBLE TO ASCERTAIN THE INCOME ON THE BASIS OF THE VERY SAME BOOKS OF ACCOUNT AND THE INCOME HAS TO BE ESTIMATED. PROCEEDING ON THAT BASIS IN THESE CASES WE FIND THERE WERE CHEQUES FOUND DURI NG THE COURSE OF THE SEARCH WHICH WERE TAKEN BACK AFTER CLEARING TH E LOANS. THE ASSESSING OFFICER CONSIDERED THE AMOUNTS OF ALL THE CHEQUES AND TREATED THE SUM OF THE SAME AS REPRESENTING THE UND ISCLOSED INCOME OF THE ASSESSEES FOR THE YEARS UNDER APPEAL. THE CIT( A) CONSIDERED ONLY THE PEAK AMOUNT OF THE CHEQUE AND SUSTAINING THE AD DITION ONLY TO THAT EXTENT DELETED THE BALANCE ADDITIONS MADE FOR THE YEARS UNDER APPEAL. WHILE DETERMINING THE PEAK CREDIT THE CIT(A) HAS T AKEN BOTH THE YEARS IN EACH OF THESE CASES TOGETHER INSTEAD OF TAKING PEAK CREDIT FOR EACH ASSESSMENT YEAR WHICH IS NOT CORRECT. IN THE CIRC UMSTANCES WE MODIFY THE ORDER OF THE CIT(A) AND DIRECT THE ASSE SSING OFFICER TO CONSIDER THE PEAK AMOUNT OF CHEQUE IN RESPECT OF EA CH OF THE TWO YEARS UNDER APPEAL FOR EACH OF THESE TWO ASSESSEES AND TREAT SUCH ITA NO.1256/HYD/2008 & 3 ORS. SHRI K.SRI NIVASA REDDYU NAKIREKAL & ANR. 7 PEAK AMOUNT IN EACH CASE AS THE UNDISCLOSED INCOME OF THE ASSESSEE. TO THIS EXTENT GROUNDS OF OF THE REVENUE IN THESE ARE ALLOWED. 14. IN THE RESULT REVENUES APPEALS ARE PARTLY AL LOWED. ORDER PRONOUNCED IN THE COURT ON 06.02.2012 SD/- SD/- (ASHA VIJ AYARAGHAVAN) (CHANDRA POOJARI) JUDICIAL MEMBER. ACCOUNTANT MEMBER. DT/- 6TH FEBRUARY 2012 COPY FORWARDED TO: 1. SHRI K.SRINIVASA REDDY NAKIREKAL NALGONDA DIST RICT. 2. 3. SHRI K.SATHI REDDY NAKIREKAL NALGONDA DISTRICT DY COMMISSIONER OF INCOME - TAX CENTRAL CIRCLE - 1 HYDERABAD 4. COMMISSIONER OF INCOME-TAX(APPEALS) II HYDERABAD 5 . COMMISSIONER OF INCOME - TAX CENTRAL HYDERABAD 6 . DEPARTMENTAL REPRESENTATIVE ITAT HYDERABAD B.V.S.