Shri Y Hzarat Reddy, Guntur v. The Addl. CIT, Range-1, Guntur

ITA NO. 541/VIZAG/2009 Y. HAZARAT REDDY GUNTUR PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO.541/VIZAG/2009 ASSESSMENT YEAR: 2005 - 06 Y. HAZARAT REDDY GUNTUR VS. ADDL. CIT RANGE-1 GUNTUR (APPELLANT) PAN NO: AARPY 4277 C (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 30.9.2009 PASSED BY LEARNED CIT(A) GUNTUR AND IT R ELATES TO THE ASSESSMENT YEAR 2005-06. 2. THE PENALTY OF RS.10 09 800/- LEVIED UNDER SECTI ON 271(1)(C) OF THE ACT HAVING BEEN CONFIRMED BY LEARNED CIT(A) THE A SSESSEE IS IN APPEAL BEFORE US ASSAILING THE DECISION OF LEARNED CIT(A). 3. THE FACTS RELATING TO THE ISSUE ARE STATED I N BRIEF. THE ASSESSEE IS DERIVING INCOME AS COMMISSION AGENT IN CHILLIES. T HE REVENUE CARRIED OUT A SURVEY OPERATION UNDER SECTION 133A OF THE ACT IN T HE HANDS OF THE ASSESSEE ON 14.12.2005 AND DURING THE COURSE OF SURVEY A ST ATEMENT WAS RECORDED FROM THE ASSESSEE. IN THE STATEMENT THE ASSESSEE OFFERED AN AMOUNT OF RS.30.00 LAKHS AS HIS ADDITIONAL INCOME FOR THE YEA R UNDER CONSIDERATION AND THE SAID OFFER WAS RELATED TO THE FOLLOWING ITE MS. ITA NO. 541/VIZAG/2009 Y. HAZARAT REDDY GUNTUR PAGE 2 OF 6 A) COST OF CONSTRUCTION OF RESIDENTIAL BUILDING - RS.10.00 LAKHS. B) BOGUS TRADE CREDITORS IN THE BOOKS - RS.20.00 LAKHS. ACCORDINGLY HE FILED REVISED RETURN OF INCOME AND T HE ASSESSMENT WAS COMPLETED BY MAKING FEW MORE ADDITIONS. THE ASSESS ING OFFICER INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT AND LEVIED A PENALTY OF RS.10 09 800/- ON THE ADDITIONAL INCOME OF RS.30 .00 LAKHS OFFERED BY THE ASSESSEE DURING THE COURSE OF SURVEY. BEFORE LEARN ED CIT(A) THE ASSESSEE CONTENDED THAT THE PENALTY IS NOT LEVIABLE AS THE A DDITIONAL INCOME WAS OFFERED VOLUNTARILY AND ALSO WITH THE CONDITION THA T NO PENALTY WOULD BE LEVIED. THE LEARNED CIT(A) WAS NOT CONVINCED WITH THE SAID CONTENTIONS AND SHE WAS OF THE VIEW THAT THE ASSESSEE HAS SURRE NDERED THE ADDITIONAL INCOME ONLY DUE TO THE SURVEY OPERATIONS AND ACCORD INGLY CONFIRMED THE PENALTY. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFO RE US. 3. THE LEARNED A.R SUBMITTED THAT THE ASSESSEE HAS COME FORWARD VOLUNTARILY TO OFFER THE ADDITIONAL INCOME OF RS.30 .00 LAKHS. HE FURTHER SUBMITTED THAT THE LEARNED CIT(A) IS WRONG IN ASSUM ING THAT THE ASSESSEE WAS NOT CORNERED DURING THE COURSE OF SURVEY WHILE THE FACT REMAINS THAT THE SURVEY OFFICIAL DID NOT UNEARTH ANY MATERIAL EV IDENCE IN RESPECT OF THE ADDITIONAL INCOME CITED ABOVE. HE ALSO CONTENDED TH AT THE STATEMENT RECORDED DURING THE COURSE OF SURVEY DOES NOT EVIDE NTIARY VALUE AND HENCE THE SAME COULD NOT HAVE BEEN RELIED UPON BY THE ASS ESSING OFFICER FOR MAKING ADDITIONS. IN SUPPORT OF THIS CONTENTION TH E LEARNED A.R RELIED UPON THE DECISION OF HON'BLE DELHI HIGH COURT DATED 04-10-2010 IN ITA 1111/2010 IN THE CASE OF CIT VS. DHINGRA METAL WORK S. ACCORDINGLY HE CONTENDED THAT THE ADDITIONAL INCOME OF RS.30.00 LA KHS HAS TO BE TREATED AS A VOLUNTARY OFFICER AS THERE WAS NO MATERIAL WITH T HE ASSESSING OFFICER TO PROVE THE CONCEALMENT IF ANY WITH REGARD TO THE S AID OFFER. ITA NO. 541/VIZAG/2009 Y. HAZARAT REDDY GUNTUR PAGE 3 OF 6 3.1 WITH REGARD TO THE OFFER OF RS.10.00 LAKHS RELATING TO THE ADDITIONAL COST OF CONSTRUCTION OF THE RESIDENTIAL BUILDING T HE LEARNED A.R SUBMITTED THAT THERE WAS NO MATERIAL WITH THE ASSESSING OFFIC ER WITH REGARD TO THE ADDITIONAL COST OF CONSTRUCTION. IN THAT CONTEXT T HE LEARNED A.R INVITED OUR ATTENTION TO THE QUESTION NO.13 OF THE STATEMENT RE CORDED FROM THE ASSESSEE AND SUBMITTED THAT ASSESSING OFFICER HAS Q UESTIONED THE ASSESSEE ABOUT THE COST OF CONSTRUCTION ONLY ON THE BASIS OF THE REPORT OF TWO INSPECTORS. LEARNED A.R CONTENDED THAT THE INSPECT ORS OF INCOME TAX ARE NOT TECHNICALLY QUALIFIED PERSONS AND HENCE THEY AR E NOT ENTITLED TO ESTIMATE THE COST OF CONSTRUCTION. HENCE THIS OFFER CANNOT BE TERMED AS AN OFFER MADE ON THE BASIS OF ANY INCRIMINATING MATERIAL. T HE NEXT AMOUNT OF RS.20.00 LAKHS IS RELATED TO THE INVESTMENT MADE BY THE SON OF THE ASSESSEE IN A COMPANY. THE ASSESSEE ORIGINALLY STATED THAT THE SAID INVESTMENT WAS MADE BY HIS SON OUT OF THE LOANS OBTAINED FROM OTHE RS. HOWEVER SUBSEQUENTLY THE ASSESSEE VOLUNTARILY SUBMITTED THA T HE ONLY HAS PROVIDED THE FUNDS TO THE TUNE OF RS.20.00 LAKHS TO HIS SON AND ACCORDINGLY OFFERED THE SAME AS HIS ADDITIONAL INCOME. IT WAS FURTHER S TATED BY THE ASSESSEE THAT FOR THE PURPOSE OF GIVING THE ABOVE SAID AMOU NT HE HAS UTILIZED THE FUNDS GENERATED OUT OF BOGUS CREDITS CREATED IN HIS BOOKS OF ACCOUNT. ACCORDINGLY HE SUBMITTED THAT THE OFFER OF RS.20.00 LAKHS IS ALSO NOT BASED ON ANY MATERIAL AND FURTHER THE FACT OF BOGUS CREDI TS ALSO COULD NOT ALSO BE ESTABLISHED FROM HIS BOOKS OF ACCOUNT. THE LEARNED A.R ALSO SUBMITTED THAT THE ASSESSEE HAD SURRENDERED THE ADDITIONAL IN COME WITH A REQUEST NOT TO LEVY PENALTY. THE LEARNED A.R ALSO RELIED UPON FOLLOWING CASE LAW: A) D.C.I.T VS. DR. SATISH B GUPTA (2011) (49 DTR (AHD) 263) B) BHAGAT & C0. VS.A.C.I.T (2006) (101 TTJ (MUM) 553) 4. ON THE CONTRARY THE LEARNED D.R SUBMITTED T HAT THE ASSESSEE WOULD NOT HAVE OFFERED THE IMPUGNED AMOUNT OF RS.30.00 LA KHS VOLUNTARILY HAD ITA NO. 541/VIZAG/2009 Y. HAZARAT REDDY GUNTUR PAGE 4 OF 6 THERE NOT BEEN ANY SURVEY OPERATION IN THE HANDS OF THE ASSESSEE. THE ASSESSEE WAS CONSTRAINED TO MAKE THE IMPUGNED OFFER SINCE HE WAS NOT HAVING ANY DETAILS IN THAT REGARD. HE FURTHER SUBM ITTED THAT THE OFFER WAS ALSO NOT A CONDITIONAL ONE. ACCORDINGLY THE LEARNE D D.R PLEADED FOR CONFIRMATION OF THE ORDER OF LEARNED CIT(A). 5. IN THE REJOINDER THE LEARNED A.R INVITED OUR ATTENTION TO QUESTION NO.18 OF THE STATEMENT RECORDED DURING THE COURSE O F SURVEY WHERE IN THE ASSESSEE HAD REQUESTED NOT TO LEVY PENALTY. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. THE UNDISPUTED FACT REMAINS THAT THE IMPUGNED ADDIT ION OF RS.30.00 LAKHS HAS BEEN MADE ONLY ON THE BASIS OF THE STATEMENT RE CORDED DURING THE COURSE OF SURVEY. THE HON'BLE DELHI HIGH COURT IN THE CASE OF DHINGRA METAL WORKS (SUPRA) REFERRED TO THE DECISION OF KE RALA HIGH COURT IN THE CASE OF PAUL MATHEW & SONS VS. CIT (2003)(263 ITR 1 01) AND ALSO TO THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE O F CIT VS. KADER KHAN (208) (300 ITR 157) AND HAS HELD THAT THE STATEMENT RECORDED DURING THE COURSE OF SURVEY IS NOT A CONCLUSIVE PIECE OF EVIDE NCE BY ITSELF. THE HON'BLE KERALA HIGH COURT IN THE CASE OF PAUL MATHEW & SONS HAS HELD THAT THE STATEMENT RECORDED UNDER SECTION 133A OF THE ACT HA S NO EVIDENTIARY VALUE. 7. THE ABOVE SAID SUM OF RS.30.00 LAKHS CONSIST ED OF TWO ITEMS. THE FIRST ITEM RELATED TO THE ADDITIONAL COST OF CONSTR UCTION OF THE RESIDENTIAL BUILDING. WE NOTICE THAT THE ASSESSEE HAD FURNISHE D A VALUATION REPORT OBTAINED FROM AN APPROVED VALUER IN SUPPORT OF THE COST OF CONSTRUCTION. HOWEVER DURING THE COURSE OF SURVEY THE ASSESSING OFFICER DEPUTED TWO INSPECTORS TO VISIT THE RESIDENTIAL BUILDING OF THE ASSESSEE. THOUGH IT WAS STATED BY THE ASSESSING OFFICER THAT HE HAD OBTAINE D A REPORT FROM THE ITA NO. 541/VIZAG/2009 Y. HAZARAT REDDY GUNTUR PAGE 5 OF 6 INSPECTORS YET THE DETAILS OF SUCH REPORT ARE NOT AVAILABLE ON RECORD. WHEN THE ASSESSEE WAS QUESTIONED ABOUT THE COST OF CONST RUCTION THE ASSESSEE CAME FORWARD TO OFFER A SUM OF RS.10.00 LAKHS AS AD DITIONAL COST OF CONSTRUCTION. IT HAS BEEN HELD BY THIS BENCH OF TRI BUNAL VIDE ITS ORDER DATED 11-05-2006 IN THE CASE OF SHRI MAMIDI APPAJI IN ITA NO.71/V/2002 THAT THE INSPECTOR OF INCOME TAX AND THE ASSESSING OFFICER ARE NOT TECHNICALLY QUALIFIED TO MAKE ESTIMATE OF COST OF C ONSTRUCTION. WE HAVE ALREADY NOTICED THAT THE REPORT OF THE INSPECTORS O F INCOME TAX IS NOT AVAILABLE ON RECORD AND IN ANY CASE THEIR REPORT C ANNOT BE TAKEN COGNIZANCE OF FOR MAKING IMPUGNED ADDITION OF RS.10 .00 LAKHS. THUS IT IS SEEN THAT THERE IS NO MATERIAL FOR MAKING THE IMPUG NED ADDITION OF RS.10.00 LAKHS. 8. WITH REGARD TO THE OFFER OF RS.20.00 LAKHS A LSO IT IS SEEN THAT THE ASSESSEE HAS OFFERED THE SAME IN ORDER TO EXPLAIN T HE SOURCES FOR THE INVESTMENT MADE BY HIS SON. THE ASSESSEE HAS CLAIM ED THE BOGUS CREDITS AS THE SOURCE FOR MAKING THE SAID PAYMENT TO HIS SO N. BUT AS POINTED OUT BY THE LEARNED A.R THE CREDITORS IN THE ASSESSEES BOOK HAS BEEN USED TO BUILD UP THE ASSETS DISCLOSED IN THE SAME BOOK AND HENCE THE BOGUS CREDITORS CANNOT COME AS A SOURCE FOR THE INVESTMEN T MADE BY HIS SON. THUS IT IS SEEN THAT THE THEORY OF BOGUS CREDITORS DOES NOT MATCH WITH THE OFFER MADE WHICH MEANS THAT THERE IS NO MATERIAL W ITH REGARD TO THE OFFER OF RS.20.00 LAKHS ALSO. 9. THUS IT IS SEEN THAT EXCEPT THE VOLUNTARY SURR ENDER OF RS.30.00 LAKHS MADE BY THE ASSESSEE DURING THE COURSE OF SURVEY N O OTHER CORROBORATIVE MATERIAL WAS AVAILABLE WITH THE ASSESSING OFFICER. WE ALSO NOTICE THAT THE ASSESSEE HAD REQUESTED NOT TO LEVY PENALTY IN THE S TATEMENT TAKEN DURING THE COURSE OF SURVEY. THUS WE ARE OF THE VIEW THAT THE ASSESSEE HAD ITA NO. 541/VIZAG/2009 Y. HAZARAT REDDY GUNTUR PAGE 6 OF 6 VOLUNTARILY OFFERED THE IMPUGNED INCOME OF RS.30.00 LAKHS AND ACCORDINGLY WE ARE OF THE VIEW THAT THE SAID VOLUNTARY SURRENDE R IS NOT SUSCEPTIBLE TO PENALTY UNDER SECTION 271(1)(C) OF THE ACT. ACCORD INGLY WE REVERSE THE ORDER OF LEARNED CIT(A) AND DIRECT THE ASSESSING OF FICER TO DELETE THE PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT I N THE HANDS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE:28-02-2011 COPY TO 1 SHRI Y. HAZARAT REDDY BANDLA BAZAR GUNTUR 522 0 01 2 THE ADDL. COMMISSIONER OF INCOME TAX (I/C) RANGE- 1 GUNTUR 3 4. THE CIT GUNTUR THE CIT(A) GUNTUR 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM