Sri Anjaneya Cotton Traders, Guntur v. The DCIT, Circle-1(1), Guntur

ITA 267 OF 07 159 205 375 539 OF 09 SOMESETTY ANJANEYULU GUNTUR IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO. 267 /VIZAG/ 20 07 ASSESSMENT YEAR : 2003 - 04 SRI SOMISETTY ANJA NEYULU GUNTUR ACIT CIRCLE - 1(1) GUNTUR (APPELLANT) VS. (RESPONDENT) PAN NO.AGZPS 2101B ITA NO. 159 205 375&539/ VIZAG/200 9 ASSESSMENT YEAR : 2002 - 03 2005 - 06 2004 - 05 & 2006 - 07 RESPECTIVELY SRI SOMISETTY ANJANEYULU GUNTUR ACIT CIRCLE - 1(1) GUNTUR (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI G.V.N. HARI CA RESPONDENT BY: SHRI R.K. SINGH SR.DR ORDER PER SHRI S.K. YADAV JUDICIAL MEMBER : - THESE APPEALS ARE PREFERRED BY THE ASSESSEE AGAINST THE RESPECTIVE ORDERS OF THE CIT(A) ON VARIOUS GRO UNDS. SOME OF THE GROUNDS IN THESE APPEALS ARE COMMON THEREFORE THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. WE HAVE HEARD THE RIVAL SUBMISSIONS IN ALL THESE APPEALS AND WE FIND THAT WHI LE FRAMING AN ASSESSMENT FOR THE ASSESSMENT YEAR 2003 - 04 THE ASSESSING OFFICER HAS NOTED THAT THE ASSESSEE HAS INTRODUCED THE SUBSTANTIAL AMOUNT OF CASH CREDIT IN THE NAME OF 17 PERSONS IN THE ASSESSMENT YEAR 2002 - 03 ON WHICH PAYMENT OF INTEREST WAS CLAIM ED IN THE IMPUGNED ASSESSMENT YEAR I.E. 2003 - 04. IT WAS ALSO NOTED THAT ASSESSMENT FOR THE ASSESSMENT YEAR 2002 - 03 WAS FRAMED U/S 143(1) OF THE I.T. ACT. THEREFORE THE VERACITY OF THE CASH CREDITS INTRODUCED BY THE ASSESSEE IN THAT YEAR WERE NOT EXAMINE D AND THE RETURNED INCOME OF THE ASSESSEE WAS ACCEPTED. IN ORDER TO VERIFY THE GENUINENESS/VERACITY OF THE CASH CREDITS INTRODUCED BY THE ITA 267 OF 07 159 205 375 539 OF 09 SOMESETTY ANJANEYULU GUNTUR 2 ASSESSEE IN THE NAME OF 17 PERSONS THE ASSESSING OFFICER MADE ENQUIRY/INVESTIGATION WHILE COMPLETING THE ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2003 - 04. HAVING CONCLUDED THAT THE CASH CREDITS INTRODUCED BY THE ASSESSEE ARE NOT GENUINE THE ASSESSING OFFICER RE - OPENED THE ASSESSMENT FOR THE ASSESSMENT YEAR 2002 - 03 AND MA DE THE ADDITIONS OF CASH CREDIT OF RS.48 7 8 808/ - UNDER SECTION 68 OF THE ACT. ACCORDINGLY HE DISALLOWED THE PAYMENT OF INTEREST ON THESE CASH CREDITS IN ALL ASSESSMENT YEARS. 3. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO HAS RE - EXAMINED THE ISSUE IN THE LIGHT OF EVIDENCE FILED BY T HE ASSESSEE. BEING NOT CONVINCED WITH IT HE CONFIRMED THE ADDITIONS MADE ON ACCOUNT OF UNEXPLAINED CASH CREDIT. HE HOWEVER NOTED THAT THERE WAS SOME ARITHMETICAL ERROR IN CALCULATING THE UNEXPLAINED CASH CREDIT AND HE ACCORDINGLY REDUCED THE ADDITION MA DE BY THE A.O. FROM RS.48 78 808/ - TO RS.32 48 958/ - . IN OTHER APPEALS THE DISALLOWANCE OF INTEREST ON THESE CASH CREDITS MADE BY THE A.O. WAS CONFIRMED BY THE CIT(A). NOW IN ALL APPEALS ASSESSEE HAS APPROACHED THE TRIBUNAL. 4. BEFORE THE TRIBUNAL THE LD. COUNSEL FOR THE ASSESSEE HAS NOT CHALLENGED THE VALIDITY OF THE RE - OPENING OF THE ASSESSMENT. THE SOLE GROUND RAISED IN THE ASSESSMENT YEAR 2002 - 03 IS WITH REGARD TO THE GENU I NENESS OF THE CASH CREDITS INTRODUCED BY THE ASSESSEES. IN THIS REGARD TH E LD. COUNSEL FOR THE ASSESSEE HAS EMPHATICALLY ARGUED THAT THE ASSESSING OFFICER DID NOT MAKE ANY ENQUIRY WITH REGARD TO THE UNEXPLAINED CASH CREDITS DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2002 - 03. HE HAS SIMPLY FOLLOWED THE ENQUIRY MADE IN THE ASSESSMENT YEAR 2003 - 04 WHILE DISALLOWING THE CLAIM OF THE ASSESSEE FOR PAYMENT OF INTEREST ON THESE CASH CREDITS. SINCE THE ASSESSING OFFICER HAS NOT MADE A PROPER ENQUIRY/INVESTIGATION WITH RESPECT TO THE CASH CREDITS INTRODUCED BY T HE ASSESSEE THE ADDITION MADE BY HIM ARE NOT SUSTAINABLE UNDER THE LAW. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER INVITED OUR ATTENTION THAT HE HAS FILED THE CONFIRMATION LETTERS AND AFFIDAVITS OF ALL THE CREDITORS. BESIDES MOST OF THE CREDITORS HAVE APPEARED DURING THE COURSE OF ENQUIRY BEFORE THE A.O. AND ITA 267 OF 07 159 205 375 539 OF 09 SOMESETTY ANJANEYULU GUNTUR 3 THEY HAVE CONFIRMED THE ADVANCES GIVEN TO THE ASSESSEES. THE ASSESSING OFFICER HAS WRONGLY CATEGORIZED THESE CREDITORS IN TWO CATEGORIES ONE IN WHICH THE PAY ORDERS WERE PURCHASED ON DEPOSIT OF C ASH AND SECOND THE ADVANCES WERE MAD E THROUGH CHEQUE. WHEREAS EXCEPT L. SRINIVASA RAO ALL ADVANCES WERE GIVEN THROUGH PAY ORDERS. WITH REGARD TO THE SOURCE OF AVAILABILITY OF FUNDS THESE CASH CREDITORS HAVE EITHER STATED THAT IT WAS GIVEN OUT OF THE AGRICULTURAL INCOME OR OUT OF THE SALE PROCEEDS RECEIVED ON SALE OF AGRICULTURAL LAND. THEREFORE THE GENUINENESS OF THE CREDITS IDENTITY AND CREDIT WORTHINESS OF THE CREDITORS WERE PROVED. THUS THE CREDIT INTRODUCED BY THE ASSESSEE IN THE BOOKS OF AC COUNTS ARE TO BE ACCEPTED AND THE ADDITION BE DELETED. HE HAS ALSO INVITED OUR ATTENTION TO THE CONFIRMATION LETTERS FILED BY THE ASSESSEE AND THE COPY OF THE STATEMENTS OF THE CREDITORS RECORDED BY THE A.O. I N SUPPORT OF HIS CONTENTIONS . 5. THE LD. D.R . ON THE OTHER HAND HAS SUBMITTED THAT IT MAKES NO DIFFERENCE WHETHER THE ASSESSING OFFICER HAS MADE AN ENQUIRY IN THE ASSESSMENT YEAR 2003 - 04 OR 2002 - 03. T HE ASSESSMENT FOR THE A.Y. 2002 - 03 WAS COMPLETED U/S 143(1) OF THE ACT . T HEREFORE THE ASSESSING O FFICER HAS NO OCCASION TO EXAMINE THE VERACITY OF THE CREDITS INTRODUCED BY THE ASSESSEE. WHEN THE QUESTION OF PAYMENT OF INTEREST ON THESE CREDITS RAISED BEFORE THE A.O. DURING THE FIRST ASSESSMENT YEAR I.E. 2003 - 04 THE A.O. HAS EXAMINED THE VERACITY OF CASH CREDITS INTRODUCED BY THE ASSESSEES IN ITS BOOKS OF ACCOUNTS. HE MADE A DETAILED INVESTIGATION AND EXAMINED THE CREDITORS AND ONCE HE FORMED A VIEW THAT THESE CASH CREDITS ARE BOGUS AND ADDITIONS ARE CALLED FOR U/S 68 OF THE ACT AS UNEXPLAINED CASH CREDITS HE RE - OPENED THE ASSESSMENT FOR THE ASSESSMENT YEAR 2002 - 03 AND DISALLOWED THE CASH CREDITS IN THAT YEAR AND MADE THE ADDITION OF THE SAME U/S 68 AS UNEXPLAINED CASH CREDIT IN A.Y. 2002 - 03. THE ENQUIRY WAS RIGHTLY CONDUCTED IN A.Y. 2003 - 04 BECAUS E WITHOUT FORMING A PLEA THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT IN A.Y. 2002 - 03 THE ASSESSMENT CANNOT BE RE - OPENED . T HEREFORE THE ENQUIRY OR INVESTIGATION CONDUCTED BY THE ASSESSING OFFICER IN A.Y. 2003 - 04 WAS RIGIDLY UTILIZED BY THE A.O. WHILE COMPLETING THE ASSESSMENT FOR A.Y. 2002 - 03 AND BY DOING SO NO ILLEGALITY OR IRREGULARITY IS COMMITTED. THE ENQUIRY OR INVESTIGATION WAS CONDUCTED IN THE PRESENCE OF THE ASSESSEE AND HE WAS ITA 267 OF 07 159 205 375 539 OF 09 SOMESETTY ANJANEYULU GUNTUR 4 GIVEN SUFFICIENT OPPORTUNITY TO DEFEND HIMSELF. THEREFORE IT CANNOT BE SAID THAT THE STATEMENT OF THE CREDITORS WERE UTILIZED BY THE A.O. WITHOUT CONFRONTING THE SAME TO THE ASSESSEES. SINCE THE ASSESSEE COULD NOT PROVE THE GENUINENESS OF THE CASH CREDITS AND THE CREDITWORTHINESS OF THE CREDITORS THE REVENUE HA S RIGHTLY DISALLOWED THESE CASH CREDITS AND MADE THE ADDITION O F THE SAME U/S 68 OF THE ACT. 6. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE RECORD WE FIND THAT UNDISPUTEDLY RETURN FOR A.Y. 2002 - 03 WAS PROCESSED U/S 143(1) OF THE ACT AND THE A.O. HAS HAD NO OCCASION TO EXAMINE THE VERACITY OF THE CLAIMS RAISED BY THE ASSESSEE. FIRST TIME THIS ISSUE WAS EXAMINED BY THE ASSESSING OFFICER IN A.Y. 2003 - 04 WHILE EXAMINING THE CLAIM OF THE ASSESSEE FOR PAYMENT OF INTEREST ON THESE LOAN S. SINCE THE ADDITION OF UNEXPLAINED CASH CREDIT CAN ONLY BE MADE IN THE YEAR IN WHICH IT IS INTRODUCED THE ASSESSING OFFICER HAS RIGHTLY RE - OPENED THE ASSESSMENT FOR THE ASSESSMENT YEAR 2002 - 03 AND MADE THE ADDITION OF THE UNEXPLAINED CASH CREDIT IN THA T YEAR. WE DO NOT FIND MUCH FORCE IN THE CONTENTION OF THE ASSESSEE THAT THE INVESTIGATION OR ENQUIRY CONDUCTED IN A.Y. 2003 - 04 CANNOT BE UTILIZED BY THE A.O. IN A.Y. 2002 - 03 FOR MAKING AN ADDITION U/S 68 OF THE I.T. ACT. ON PERUSAL OF RECORD WE FIND TH AT DURING THE COURSE OF ENQUIRY/INVESTIGATION THE ASSESSEE REPRESENTATIVE HAS PARTICIPATED AND FILED THE CONFIRMATIONS AND PRODUCED THE CREDITORS. THEREFORE IT CANNOT BE SAID THAT THIS ENQUIRY WAS CONDUCTED AT THE BACK OF THE ASSESSEE AND IT CANNOT BE U SED AGAINST HIM. BUT FROM A CAREFUL PERUSAL OF THE STATEMENTS OF THE CREDITORS RECORDED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y. 2003 - 04 WE FIND THAT MOST OF THE CREDITORS HAVE DEPOSED THAT THEY HAVE MADE THE PAYMENT VARIES FROM RS.1 LAKH TO RS.5 LAKHS TO THE ASSESSEE EITHER OUT OF AGRICULTURAL LAND OR OUT OF SALE PROCEEDS ON SALE OF THEIR AGRICULTURAL LAND. ALL THE CREDITORS HAVE CATEGORICALLY DEPOSED THAT THEY HAVE GIVEN THE ADVANCES TO THE ASSESSEES. ON A CAREFUL PERUSAL OF THE STATEMENTS WE FIND THAT SOME OF THE CREDITORS WERE THE EMPLOYEES OF THE ASSESSEE AND WERE DRAWING SALARY BETWEEN TWO TO FOUR THOUSAND PER MONTH. BUT THEY DEPOSED THAT THEY HAVE MADE THE DEPOSITS OUT OF THE SALE PROCEEDS OF THEIR AGRICULTUR AL LAND. THE FACTUM OF SALE OF LAND WAS NOT EXAMINED BY ITA 267 OF 07 159 205 375 539 OF 09 SOMESETTY ANJANEYULU GUNTUR 5 THE A.O. ONCE THE CREDITOR DEPOSED BEFORE THE A.O. THAT HE HAD MADE A PAYMENT TO THE ASSESSEE OUT OF THE SALE PROCEEDS OF ITS PROPERTY THE A.O. HAS TO EITHER ACCEPT THE SAME OR IF HE WANT TO REFUTE IT HE SHOULD MAKE FURTHER ENQUIRY WITH REGARD TO THE ACTUAL SALE OF THE PROPERTY. IN THIS CASE NUMBER OF CREDITORS HAVE DEPOSED THAT THEY HAVE GIVEN THE ADVANCES OUT OF THE SALE OF THE AGRICULTURAL LAND. BUT THE FACTUM OF SALE OF LAND WAS NOT VERIFIED BY THE A.O. AND WITHOUT VERIFYING THE SAME HE TREATED THE ADVANCES AS UNEXPLAINED CREDIT OF THE ASSESSEES. IN SOME OF THE CASES THE CREDITORS DEPOSED THAT THE ADVANCES WERE GIVEN OUT OF THE AGRICULTURAL INCOME OF THE ASSESSEES . I N THOSE CASES ALSO THE ASSESSING OFFICER DID NOT MAKE ANY EFFORT TO FIND OUT AS TO HOW MUCH AGRICULTURAL HOLDING IS OWNED BY THE CREDITOR AND HOW MUCH COULD BE THE ANNUAL INCOME OF THE CREDITOR. FROM A CAREFUL PERUSAL OF THE STATEMENTS OF THE CREDITORS WE FIND THAT THE ASSESS ING OFFICER HAS NOT MADE A PROPER INVESTIGATION/ENQUIRY WITH REGARD TO THE GENUINENESS OF THE CREDITS AND CREDITWORTHINESS OF THE CREDITORS. THEREFORE WE ARE OF THE VIEW THAT THIS ENTIRE ISSUE REQUIRES A FRESH ADJUDICATION BY THE ASSESSING OFFICER AFTER AFFORDING A PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEES. THE ASSESSING OFFICER MAY CALL THE CREDITORS FOR EXAMINATION AND MAKE DETAILED ENQUIRY WITH REGARD TO THE SOURCE OF DEPOSITS. WE HOWEVER ALSO AFFORD AN OPPORTUNITY TO THE ASSESSEE TO PLACE ALL RELEVANT EVIDENCE TO PROVE THE GENUINENESS OF THE CREDITS AND THE CREDITWORTHINESS OF THE CREDITORS. 7. IT IS ALSO NOTED THAT IN OTHER YEARS ASSESSEE HAS INTRODUCED SOME MORE CASH CREDITS IN ITS BOOKS OF ACCOUNTS. THE MODUS OPERANDI OF INTRODUCTION OF CASH CREDITS IS ALMOST SAME. THEREFORE WE ARE OF THE VIEW THAT SUCH CASH CREDITS ALSO REQUIRE TO BE VERIFIED AFTER MAKING A DETAILED INVESTIGATION BY THE A.O. WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(A) WITH REGARD TO THE UNEXPLAINED CASH CREDIT IN ALL THE YEARS AND REMIT THE MATTER BACK TO THE FILE OF THE A.O. WITH A DIRECTION TO RE - ADJUDICATE THE ISSUE AFRESH IN TERMS INDICATED ABOVE. 8. IN ITA NO.205 OF 2009 THE A.O. HAS INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND MADE A DISAL LOWANCE OF RS.2 97 334/ - AFTER HOLDING THAT THE TDS WAS NOT DEDUCTED ON PAYMENT OF INTEREST. WHEN THE ENTIRE ITA 267 OF 07 159 205 375 539 OF 09 SOMESETTY ANJANEYULU GUNTUR 6 ISSUE HAS BEEN REMITTED BACK TO THE ASSESSING OFFICER TO EXAMINE THE VERACITY OF THE LOANS INTRODUCED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS TH IS ISSUE ALSO GOES WHERE THE ASSESSEE CLAIMED PAYMENT OF INTEREST ON THESE CREDITS. ACCORDINGLY THESE APPEALS ARE DISPOSED OF. 9. IN THE RESULT APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 15.2 .20 1 1 SD/ - SD/ - (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM DATED 15 TH FEBRUARY 20 1 1 COPY TO 1 V. RAO & GOPI CHARTERED ACCOUNTANTS NAGARAMPALEM MAIN ROA D GUNTUR - 522 003 2 ACIT CIRCLE - 1(1) GUNTUR 3 THE CI T GUNTUR 4 THE CIT (A) GUNTUR 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM