Sri MVA Sreeramjee,, Nidadavole v. The ITO, Ward-2., Tanuku

ITA 344/VIZ/2007 | 2003-2004
Pronouncement Date: 24-09-2010 | Result: Partly Allowed

Appeal Details

RSA Number 34425314 RSA 2007
Assessee PAN AHWPM2607A
Bench Visakhapatnam
Appeal Number ITA 344/VIZ/2007
Duration Of Justice 3 year(s) 2 month(s) 8 day(s)
Appellant Sri MVA Sreeramjee,, Nidadavole
Respondent The ITO, Ward-2., Tanuku
Appeal Type Income Tax Appeal
Pronouncement Date 24-09-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 24-09-2010
Date Of Final Hearing 31-08-2010
Next Hearing Date 31-08-2010
Assessment Year 2003-2004
Appeal Filed On 16-07-2007
Judgment Text
ITA NO.344 OF 07 MVA SREERAMJEE NIDADAVOLE PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO.344/VIZAG/2007 ASSESSMENT YEAR: 2003-04 M.V.A SREERAMJEE NIDADAVOLE VS. ITO WARD-2 TANUKU (APPELLANT) PAN NO: AHWPM 2607 A (RESPONDENT) APPELLANT BY: SHRI G.V.N. HARI CA RESPONDENT BY: SHRI D.S. SUNDER SINGH (DR) ORDER PER SHRI B. R. BASKARAN ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 17-04- 2007 PASSED BY LEARNED CIT(A) RAJAHMUNDRY AND IT R ELATES TO THE ASSESSMENT YEAR 2003-04. 2. THE GROUNDS RAISED BY THE ASSESSEE RELATE TO THE FOLLOWING ISSUES: A) ESTIMATE OF AGRICULTURAL INCOME B) DISALLOWANCE OF RS.30 000/- OUT OF EXPENSES C) DISALLOWANCE OF PRIOR PERIOD EXPENDITURE RS.44 428/- D) ADDITION OF NOTIONAL INTEREST OF RS.79 026/- E) ADDITION TOWARDS PERSONAL EXPENSES RS.82 000/- 3. THE FIRST ISSUE RELATES TO THE ESTIMATE OF AGRIC ULTURAL INCOME. ACCORDING TO THE ASSESSEE THE AGRICULTURAL LAND HE LD IN THE NAME OF ALL THE FAMILY MEMBERS MEASURING AN EXTENT OF 44.605 ACRES WERE CULTIVATED JOINTLY BY HIM AND HIS TWO SONS. THE INCOME DERIVED THEREFR OM WAS SAID TO BE SHARED BY THREE PERSONS ON AN ESTIMATED BASIS EQUIT ABLY. ACCORDINGLY THE ASSESSEE HAD DISCLOSED AN AGRICULTURAL INCOME OF RS .2 83 500/-. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE IS THE OWNER OF ONLY 11.94 ACRES ITA NO.344 OF 07 MVA SREERAMJEE NIDADAVOLE PAGE 2 OF 7 AND REST OF THE LANDS ARE OWNED BY OTHER MEMBERS. T HE ASSESSEE ADMITTED THAT HE DID NOT MAINTAIN ANY BOOKS OF ACCOUNT FOR A GRICULTURAL OPERATIONS NOR COULD HE PRODUCE ANY EVIDENCE IN SUPPORT OF THE AGRICULTURAL INCOME. HENCE THE ASSESSING OFFICER ESTIMATED THE AGRICULTU RAL INCOME AT RS.15 000/- PER ACRE ON 11.94 ACRES AND ARRIVED AT A FIGURE OF RS.1 79 100/- ON 11.94 ACRES. ACCORDINGLY THE A.O RESTRICTED THE AGRICULTURAL INCOME IN THE HANDS OF THE ASSESSEE AT RS.1 79 100/- AND TREA TED THE BALANCE AMOUNT OF RS.1 04 400/- AS INCOME FROM OTHER SOURCES. BEF ORE THE LEARNED CIT (A) THE ASSESSEE SUBMITTED THAT THE LAND BELONGING TO T HE WIFE AND MOTHER OF THE ASSESSEE WERE ALSO CONSIDERED FOR ESTIMATING TH E AGRICULTURAL INCOME IN THE ASSESSMENT YEAR 2004-05 AND ACCORDINGLY THE LEA RNED CIT (A) ACCEPTED THE LAND HOLDINGS BELONGING TO THE ASSESSEE AT 21.9 0 ACRES (INCLUDING THE LAND STOOD IN THE NAME OF WIFE AND MOTHER). DURING THE COURSE OF APPELLATE PROCEEDINGS THE LEARNED CIT (A) CALLED FOR A REMAN D REPORT FROM THE ASSESSING OFFICER WHEREIN THE ASSESSING OFFICER HA D SUGGESTED THAT THE AGRICULTURAL INCOME SHOULD BE ESTIMATED AT RS.10 00 0/- PER ACRE INSTEAD OF RS.15 000/- ESTIMATED IN THE ASSESSMENT ORDER. ACC ORDINGLY THE LEARNED CIT (A) ESTIMATED THE AGRICULTURAL INCOME IN RESPEC T OF 21.90 ACRES @ RS.2 19 000/- (CALCULATED AT RS.10 000/- PER ACRE) AND THE DIFFERENCE OF RS.64 500/- WAS TREATED AS INCOME FROM OTHER SOURCE S. 3.1. THIS ISSUE RELATING TO THE ESTIMATE OF AGRICUL TURAL INCOME WAS CONSIDERED BY THIS BENCH IN THE HANDS OF ASSESSEES SON NAMED M.NARAYANA CHALAMAYA IN ITA NO.343/VIZ/2007 AND THE DECISION R ENDERED IN THAT CASE IS EXTRACTED BELOW: 6. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISS UE AND PERUSED THE RECORD. THE FACT REMAINS THAT THE ASSES SEE DID NOT MAINTAIN ANY BOOKS OF ACCOUNT FOR HIS AGRICULTURAL OPERATIONS. THE ASSESSEE DID NOT ALSO PRODUCE ANY EVIDENCES TO SUPP ORT THE INCOME DECLARED BY HIM. IN THESE CIRCUMSTANCES THE ASSES SING OFFICER DOES NOT HAVE ANY OTHER OPTION BUT TO ESTIMATE THE INCOME. THE CLAIM OF THE ASSESSEE IS THAT THE ENTIRE AGRICULTUR AL LAND HELD IN THE ITA NO.344 OF 07 MVA SREERAMJEE NIDADAVOLE PAGE 3 OF 7 NAME OF VARIOUS FAMILY MEMBERS ARE LOCATED IN A SIN GLE BIT AND ARE BEING CULTIVATED JOINTLY. THOUGH THE TAX AUTHORITIE S HAS REJECTED THE SAID CLAIM IT IS A FACT THAT NO MATERIAL WAS BROUG HT ON RECORD TO REJECT THE SAID CLAIM. IN VIEW OF THE ABOVE WE ARE INCLINED TO ACCEPT THE CLAIM OF THE ASSESSEE THAT THE ENTIRE AG RICULTURAL HOLDINGS OF THE FAMILY MEMBERS ARE BEING CULTIVATED BY THE ASSESSEE HIS FATHER AND HIS BROTHER. NOW LET US T URN TO THE ESTIMATE OF AGRICULTURAL INCOME MADE BY THE TAX AUT HORITIES. THE AGRICULTURAL INCOME WHICH WAS INITIALLY ESTIMATED A T RS.15 000/- WAS REDUCED TO RS.10 000/- PER ACRE BY LEARNED CIT(A) BASED ON THE REMAND REPORT SUBMITTED BY THE ASSESSING OFFICER. A T THAT TIME THE A.O HAS REFERRED TO THE RETURN OF INCOME FILED FOR THE SUCCEEDING YEAR WHICH IS NOT CALLED FOR AT THAT ST AGE. HOWEVER WE NOTICE THAT THE ASSESSEE HAS PRODUCED A PERSON NAME D SHRI K. MUSALAYYA WHO HAS ADMITTED THAT HE WAS GIVING 43 BA GS OF PADDY PER ACRE TO THE FAMILY OF THE ASSESSEE AND ACCORDIN G TO THE ASSESSEE THE SAID STATEMENT CORROBORATES THE INCOME DISCLOSED BY THE ASSESSEE HIS FATHER AND HIS BROTHER. HOWEVER THE FACT REMAINS THAT THE A.O HAS NOT ACCEPTED THE INCOME DISCLOSED BY THE ASSESSEE AND DURING THE COURSE OF ASSESSMENT PROCEE DINGS HE HAS ESTIMATED THE INCOME AT RS.15 000/- PER ACRE. HENCE WE ARE OF THE VIEW THAT IT WOULD BE REASONABLE TO SUSTAIN THE EST IMATE OF RS.15 000/- PER ACRE MADE DURING THE COURSE OF ASSE SSMENT PROCEEDINGS. ACCORDINGLY WE DIRECT THE ASSESSING OF FICER TO ARRIVE AT THE AGRICULTURAL INCOME ON 41.605 ACRES AND DIST RIBUTE THE SAME EQUALLY AMONG THE ASSESSEE HEREIN HIS FATHER SHRI M.V.A SREERAMJI AND HIS BROTHER SHRI M.T.V.M. RATNAKAR. CONSEQUENT LY THE INCOME FROM OTHER SOURCES WILL ALSO STAND MODIFIED. ACCOR DINGLY THE ORDER OF LEARNED CIT(A) STANDS MODIFIED. CONSISTENT WITH THE VIEW TAKEN IN THE CASE CITED AB OVE WE DIRECT THE ASSESSING OFFICER TO ARRIVE AT THE AGRICULTURAL INC OME ON 41.60 ACRES @ RS.15 000/- PER ACRE AND DISTRIBUTE THE SAME EQUALL Y AMONG HE ASSESSEE HEREIN HIS SONS SHRI M. NARAYANA CHALAMAYA AND SHR I M.T.V.M. RATNAKAR. CONSEQUENTLY THE INCOME FROM OTHER SOURCES WILL ALS O STAND MODIFIED. ACCORDINGLY THE ORDER OF THE LEARNED CIT (A) STANDS MODIFIED. 4. THE NEXT ISSUE RELATES TO THE ADHOC DISALLOWANCE OUT OF VARIOUS EXPENSES CLAIMED BY THE ASSESSEE. THE AUDITORS OF T HE ASSESSEE HAD REPORTED IN THE TAX AUDIT REPORT THAT THE EXPENDITU RE HAS NOT BEEN FULLY/PROPERLY VOUCHED FOR. ACCORDINGLY THE ASSESSI NG OFFICER DISALLOWED A SUM OF RS.50 000/- ON AN ESTIMATED BASIS FOR THE DE FICIENCIES POINTED OUT ITA NO.344 OF 07 MVA SREERAMJEE NIDADAVOLE PAGE 4 OF 7 BY THE TAX AUDITORS. IN THE APPEAL FILED BY THE ASS ESSEE THE LEARNED CIT (A) REDUCED THE AMOUNT OF DISALLOWANCE TO RS.30 000/-. 4.1 BEFORE US THE ASSESSEE PRAYS FOR FURTHER RELIE F ON THIS ISSUE. HOWEVER THE ASSESSEE HAS NOT PLACED BEFORE US ANY M ATERIAL TO COMPEL US TO INTERFERE WITH THE DECISION REACHED BY LEARNED C IT (A). ACCORDINGLY WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE DECISIO N OF THE LEARNED CIT (A) ON THIS ISSUE. 5. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF PR IOR PERIOD EXPENDITURE AGGREGATING TO RS.44 428/-. THE ADMITTED FACT IS TH AT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. IN THE TAX AUDIT REPORT THE ITEMS RELATING TO PRIOR PERIOD EXPENDITURE AGGREGAT ING TO RS.44 428/- WAS FOUND REPORTED. ACCORDINGLY THE ASSESSING OFFICER DISALLOWED THE SAME AS THE SAID EXPENSES WERE NOT RELATED TO THE YEAR UNDE R CONSIDERATION. BEFORE LEARNED CIT(A) THE ASSESSEE CLAIMED THAT THE RESPEC TIVE PAYMENTS WERE EFFECTED DURING THE YEAR UNDER CONSIDERATION. HOWE VER THE LEARNED CIT (A) TOOK THE VIEW THAT THE SAID EXPENSES CANNOT BE SAID TO HAVE BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION AN D ACCORDINGLY CONFIRMED THE SAID ADDITION. 5.1. THE UNDISPUTED FACT IS THAT THE ASSESSEE IS FO LLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. UNDER THE SAID METHOD OF ACCO UNTING ANY EXPENDITURE IS ALLOWABLE IN THE YEAR IN WHICH THE L IABILITY TO PAY THE SAME HAS ACCRUED. THE TAX AUDITOR HAS REPORTED IN THE T AX AUDIT REPORT THAT THE IMPUGNED EXPENSES WERE NOT RELATED TO THE YEAR UNDE R CONSIDERATION. HENCE WE ARE OF THE VIEW THAT THE LEARNED CIT(A) HA S ADJUDICATED THE SAID ISSUE IN ACCORDANCE WITH THE LAW AND HENCE WE DO NO T FIND ANY INFIRMITY IN THE DECISION OF LEARNED CIT(A) ON THIS ISSUE. ITA NO.344 OF 07 MVA SREERAMJEE NIDADAVOLE PAGE 5 OF 7 6. THE NEXT ISSUE RELATES TO THE ADDITION ON ACCOU NT OF NOTIONAL INTEREST ON THE INTEREST FREE ADVANCES. THE A.O NOTICED THAT T HE ASSESSEE HAS ADVANCED A SUM OF RS.2 30 769/- AND ANOTHER SUM OF RS.2 08 263/- TO M/S M. CHALAMAYYA AND SMT. ANDALU RESPECTIVELY. THE AS SESSEE DID NOT CHARGE ANY INTEREST ON THE AMOUNTS SO ADVANCED. HOWEVER T HE ASSESSEE WAS PAYING INTEREST ON THE LOANS TAKEN FROM HIS THE TWO SONS. HENCE THE ASSESSING OFFICER ESTIMATED INTEREST ON THE IMPUGNE D ADVANCES @ 18% P.A. AND ACCORDINGLY ADDED A SUM OF RS.79 026/- TO THE T OTAL INCOME OF THE ASSESSEE. THE SAID ADDITION WAS CONFIRMED BY LEARN ED CIT(A). 6.1 THE CASE OF THE ASSESSEE IS THAT THE AMOUNT STANDING IN THE NAME OF M/S M.CHALAMAYYA A PARTNERSHIP FIRM REPRESENTS CA PITAL CONTRIBUTION MADE BY THE ASSESSEE AND AS PER THE PARTNERSHIP DEED OF THE SAID FIRM NO INTEREST IS RECEIVABLE BY THE ASSESSEE. THE LOAN S TANDING IN THE NAME OF SMT. ANDALU WAS ADVANCED PRIOR TO THE OBTAINING OF LOANS FROM THE TWO SONS AND HENCE THERE IS NO NEXUS BETWEEN THE TWO ITEMS. THE ASSESSEE HAS ALSO PLACED RELIANCE ON THE DECISION OF HON'BLE GUWAHATI HIGH COURT IN THE CASE OF HIGH WAYS CONSTRUCTION (199 ITR 702). THE HONB LE GUWAHATI HIGH COURT IN THE ABOVE CITED CASE HAS HELD AS UNDER: THERE IS NO FINDING OF THE FACT TO THE EFFECT THAT ACTUALLY LOAN HAD BEEN GRANTED TO MANAGING DIRECTOR OR ANY OTHER PERSON ON INTEREST OR THAT INTEREST HAD ACTUALLY BEEN COLLEC TED AND THE COLLECTION OF THE INTEREST WAS NOT REFLECTED ON THE ACCOUNTS. THE FINDING OF THE ITO IS THAT THE ASSESSEE OUGHT T O HAVE COLLECTED INTEREST. IN OTHER WORDS IN THE VIEW OF THE ITO IS THAT THE ASSESSEE OUGHT TO HAVE COLLECTED INTEREST. IN OTHER WORDS IN THE VIEW OF THE ITO WHICH HAS BEEN ACCEPT ED BY THE TRIBUNAL THE ASSESSEE AS A GOOD BUSINESS CONCERN S HOULD NOT HAVE GRANTED INTEREST FREE LOAN OR SHOULD HAVE INS ISTED ON PAYMENT OF INTEREST. IF THE ASSESSEE HAD NOT BARGAI NED FOR INTEREST OR HAD NOT COLLECTED INTEREST ONE FAILS TO SEE HOW THE IT AUTHORITIES CAN FIX A NOTIONAL INTEREST AS DUE OR COLLECTED BY THE ASSESSEE. ATTENTION HAS NOT BEEN INVITED TO AN Y PROVISIONS OF THE IT ACT EMPOWERING THE IT AUTHORITIES TO INCL UDE IN THE INCOME INTEREST WHICH WAS NOT DUE OR NOT COLLECTED . ITA NO.344 OF 07 MVA SREERAMJEE NIDADAVOLE PAGE 6 OF 7 6.2 IN THE INSTANT CASE ALSO NO MATERIAL WAS BR OUGHT ON RECORD BY THE ASSESSING OFFICER TO SUGGEST THAT THERE EXISTED ANY CONTRACT FOR PAYMENT OF INTEREST. APART FROM THE ABOVE THE CASE OF THE AS SESSEE IS THAT THERE IS NO NEXUS BETWEEN THE BORROWED FUNDS AND THE AMOUNT ADV ANCED TO SMT. ANDALU AS THE SAID AMOUNT WAS ADVANCED PRIOR TO TH E OBTAINING OF LOAN. THE AMOUNT STANDING IN THE NAME OF M/S M.CHALAMAYYA REPRESENTS CAPITAL CONTRIBUTION MADE BY THE ASSESSEE. IN VIEW OF THE ABOVE WE DO NOT FIND ANY MERIT IN THE INTEREST ESTIMATED BY THE A.O. AC CORDINGLY WE SET ASIDE THE ORDER OF LEARNED CIT(A) ON THIS ISSUE AND DIREC T THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION OF RS.79 026/-. 7. THE LAST ISSUE RELATES TO THE ADDITION ON AC COUNT OF LOW PERSONAL DRAWINGS. THE ASSESSEE HAD SHOWN A WITHDRAWAL OF R S.28 000/- TOWARDS PERSONAL EXPENSES. THE A.O ESTIMATED THE PERSONAL EXPENSES AT RS.1.00 LAKH AND ACCORDINGLY ADDED THE DIFFERENCE AMOUNT OF RS.82 000/-. THE SAID ADDITION WAS CONFIRMED BY THE LEARNED CIT(A) WITH T HE FOLLOWING OBSERVATIONS: AFTER HEARING THE LEARNED AUTHORISED REPRESENTATIV E AND ON A CAREFUL CONSIDERATION OF THE FACTS RELATING TO TH E ISSUE IT MAY BE STATED THAT FROM APRIL 2002 TO FEBRUARY 2003 ADMITTEDLY ONLY A SUM OF RS.28 000 HAD BEEN WITHDR AWN FOR DOMESTIC EXPENSES WHICH STOOD EXPENDED BESIDES FUR THER AMOUNTS MET FROM UNEXPLAINED SOURCES. BY NO STRETCH OF IMAGINATION CAN AN AMOUNT OF RS.1 00 000 WITHDRAWN IN THE MONTH OF MARCH 2003 BE TAKEN AS AVAILABLE DURING T HE PRECEDING MONTHS. EVEN IF THE WITHDRAWAL OF A SUM O F RS.29 000 FROM HIS ELDER SONS BOOKS AND THE AGGREG ATE OF DISALLOWANCES ON ACCOUNT OF TELEPHONE AND CAR EXPEN SES ARE TAKEN INTO CONSIDERATION YET THE TOTAL EXPENDITURE FOR THE WHOLE OF THE FAMILY COMPRISING OF NOT ONLY THE APPE LLANT AND HIS WIFE BUT HIS SON HIS DAUGHTER-IN-LAW AND HIS GRANT CHILDREN APPEARS TO BE PATHETICALLY LOW IN THE BAC KGROUND OF HIS ECONOMIC STATUS AND STANDARD OF LIVING. EVEN IF A CONSERVATIVE FIGURE OF RS.12 000 PER MONTH IS TAKEN AS EXPENDITURE TOWARDS HOUSEHOLD EXPENSES THE TOTAL EXPENDITURE WOULD WORK OUT TO A SUM OF RS.1 44 000 PER ITA NO.344 OF 07 MVA SREERAMJEE NIDADAVOLE PAGE 7 OF 7 ANNUM AGAINST WHICH A MAXIMUM CREDIT OF RS.65 000 COULD BE GIVEN WHICH LEAVES THE BALANCE AMOUNT OF ABOUT RS.80 000 AS DEFICIT EXPENDITURE PRESUMED TO HAVE BEEN MET FROM UNEXPLAINED SOURCES. THE APPELLANTS EXPLANATI ON BEING DISJOINTED AND THEREFORE BEREFT OF ANY SUBSTANCE THE ADDITION MADE ORIGINALLY OF RS.82 000/- IS HEREBY AFFIRMED. WE NOTICE THAT THE LEARNED CIT(A) HAS ADJUDICATED T HIS ISSUE BY CONSIDERING THE SURROUNDING FACTS AND ACCORDINGLY WE UPHOLD HIS DECISION ON THIS ISSUE. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 24 TH SEPTEMBER 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKAR AN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE: 24-09-2010. COPY TO 1 SHRI M.V. A. SREERAMJI D.NO.11 - 4 - 133 NIDADAVOLE WEST GODAVARI DISTT. 2 THE ITO WARD-II TANUKU 3 4. THE CIT RAJAHMUNDRY THE CIT(A) RAJAHMUNDRY 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM