ACIT, Bangalore v. K.Y. Venkataswamy Reddy, Bangalore

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SMT. P. MADHAVI DEVI JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY ACCOUNTANT MEMBER ITA NO.797 807 798 & 808/BANG/2009 ASSESSMENT YEARS : 2003-04 TO 2006-07 THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE 10(1) BANGALORE. : APPELLANT VS. SHRI K.V. VENKATASWAMY REDDY NO.191/2 (OLD NO.188) KUDLU VILLAGE MADIWALA POST HOSUR ROAD BANGALORE 560 058. : RESPONDENT APPELLANT BY : SMT. JACINTA ZIMIK VASHAI ADDL. CIT(DR) RESPONDENT BY : SHRI C.R. SUNDARESH ADVOCATE O R D E R PER A. MOHAN ALANKAMONY ACCOUNTANT MEMBER THESE FOUR APPEALS OF THE REVENUE ARE DIRECTED AGA INST THE ORDERS OF THE LD. CIT (A)-V BANGALORE IN ITA NOS: 101 102 & 103/C 10(1)/CIT (A)-V/08-09 DATED; 29.5.2009 FOR THE ASSE SSMENT YEARS 2003-04 2004-05 & 2006-07 AND IN ITA NO: 62/07/CIT(A)-V/07- 08 DATED; 29.5.2009 FOR THE ASSESSMENT YEAR 2005-06 IN THE CASE OF K.Y. VENKATASWAMY REDDY. ITA NO.797 798 807 808/BANG/09 PAGE 2 OF 18 I. ITA NOS:797 807 & 808/09 - AYS. 03-04 04-0 5 & 06-07: FOR THE ASSESSMENT YEARS 03-04 04-05 AND 06-07 THE REVENUE HAS RAISED FOUR IDENTICAL GROUNDS. ON A PER USAL GROUND NO.1 IS GENERAL AND THUS IT HAS BECOME NON-CONSEQUENTIAL. IN THE REMAINING GROUNDS THE CRUX OF THE ISSUE RAISED PRIMARILY IS THAT (I) THE CIT(A) HAS ERRED IN DELETING THE ADDITION MADE AS UNDISCLOSED INCOME WITHOUT APPRECIATING THE FACTS; & - THE THEORY OF HUF BY THE ASSESSEE WAS ONLY AN AFTER THOUGHT. II. ITA NO:798 - AY. 05-06: FOR THIS ASSESSMENT YEAR THE REVENUE H AS RAISED SIX GROUNDS OUT OF WHICH GROUND NO.1 BEING GENERAL IT DOESNT SUR VIVE FOR ADJUDICATION. IN THE REMAINING GROUNDS THE ISSUES RAISED ARE REFORM ULATED IN A CONCISE MANNER AS UNDER: THE CIT (A) HAS ERRED IN: (I) DELETING THE ADDITION OF RS.62 29 977/- BEING UNEXP LAINED INVESTMENTS; & (II) DELETING THE ADDITION OF RS.14 34 266/- TOWARDS VEH ICLE MAINTENANCE. 2. AS THE ISSUES RAISED IN THESE APPEALS WERE SIMIL AR AND RATHER INTER- LINKED FOR THE SAKE OF CLARITY AND CONVENIENCE TH EY WERE CLUBBED HEARD TOGETHER AND DISPOSED OFF IN THIS COMMON ORDER. ITA NO.797 798 807 808/BANG/09 PAGE 3 OF 18 I. ITA NOS:797 807 & 808/09 - AYS. 03-04 04-05 & 06-07: (1) BRIEFLY STATED THE ASSESSEE AN INDIVIDUAL WAS DOING BUSINESS IN BRICKS. DURING THE COURSE OF ASSESSMENT PROCEEDING S FOR THE AY 2005-06 THE AO HAD NOTICED AND REASONED TO BELIEVE THAT CER TAIN INCOME OF THE ASSESSEE ESCAPED ASSESSMENTS FOR THE AYS 2003-04 0 4-05 AND 06-07 AND ACCORDINGLY TO EXAMINE THE VERACITY OF THE SA ME THE ASSESSEE WAS CALLED UPON TO FURNISH HIS RETURNS OF INCOME FOR TH E SAID AYS BY ISSUANCE OF NOTICES U/S 148 OF THE ACT. IN COMPLIANCE THE ASS ESSEE VIDE HIS LETTER DATED; 1.2.2008 REQUESTED THE AO TO TREAT THE RETUR NS ALREADY FURNISHED FOR THE AYS 03-04 04.05 AND 06.07 ON 31.3.04 30.10. 04 AND 31.10.06 RESPECTIVELY IN RESPONSE TO NOTICES U/S 148 OF THE ACT. (2) AFTER GIVING DUE WEIGHTAGE TO THE ASSESSEES CO NTENTIONS THE AO HAD OBSERVED THAT IT IS VERIFIED FROM THE ASSESSMENT ORDER DT.28.12.0 7 FOR THE AY 05-06 THE LOANS AND ADVANCES AMOUNTING TO R S.25 LAKHS AND CASH BALANCE AS SHOWN IN THE BALANCE SHEET AMOUNTING TO RS.21 29 977/- HAS ALREADY BEEN ADDED AND BROUGHT TO TAX. HENCE SIMI LAR DISALLOWANCE IS NOT CONSIDERED FOR THE RELEVANT ASSESSMENT YEAR IN QUES TION. ON EXAMINING THE CASH FLOW STATEMENTS FOR THE AYS UNDER DISPUTE THE AO FOUND THAT THE ASSESSEE HAD SHOWN AGRICULTURAL INCOME WHICH WAS A CCORDING TO THE AO EARNED BY THE ASSESSEE IN THE HUF CAPACITY. IN THE ABSENCE OF ANY DETAILS AND ALSO NO RETURNS OF INCOME IN THE CAPACITY OF HU F WERE FURNISHED THE AO HAD RESORTED TO TREAT THE AGRICULTURAL INCOMES O F RS.11 00 419/- RS.13 01 136/- AND RS.17 03 213/- FOR THE AY 03.04 04.05 AND 06.07 ITA NO.797 798 807 808/BANG/09 PAGE 4 OF 18 RESPECTIVELY AS INCOMES FROM OTHER SOURCES AND CO NCLUDED THE ASSESSMENTS ACCORDINGLY. (3) DISILLUSIONED WITH THE FINDINGS OF THE AO THE ASSESSEE TOOK UP THE ISSUES WITH THE LD. CIT (A) FOR REMEDY. AFTER DULY CONSIDERING THE CONTENTIONS OF THE ASSESSEE THE REMAND REPORT OF THE ASSESSING OFFICER AND ALSO THE COUNTER-OBJECTIONS PUT-FORTH BY THE AS SESSEE ON THE REMAND REPORT THE LD. CIT(A) HAD OBSERVED THUS (P.14) THE ASSESSING OFFICER WAS NOT CORRECT IN R EJECTING THE REQUEST OF THE APPELLANT FOR FURNISHING THE REASONS RECORDED ON IS SUANCE OF NOTICE UNDER SECTION 148 WITHOUT OBSERVING THE DECISION OF THE S UPREME COURT. FOLLOWING THE ABOVE DECISIONS RELIED UPON BY THE APPELLANT T HE APPEALS ARE ALLOWED AND THE ASSESSMENTS MADE ON 26.12.2008 WERE HELD AS INVALID AS THE ASSESSING OFFICER HAS FAILED TO OBSERVE THE PRINCIP LES OF NATURAL JUSTICE AS HELD BY THE HONBLE SUPREME COURT OF INDIA. WITH REGARD TO THE TREATMENT OF AGRICULTURAL INCOME OF HUF AS UNEXPLAINED INVESTMENTS OF THE ASSESSEE THE LD. CI T (A) HAD MADE THE FOLLOWING OBSERVATIONS: (P.16).IN RESPECT OF SMT.K. RADHA APPELLANT S WIFE FILED HER RETURN OF INCOME FOR THE ASST. YEARS 2001-02 AND 20 02-03 ON 31.7.2001 AND 31.3.2003 RESPECTIVELY AND AN AMOUNT OF RS.25 LAKHS WAS SHOWN AS ADVANCE RECEIVED FROM HUF IN THE BALANCE SHEET. THE COPI ES OF THE SAID RETURN OF INCOME WITH BALANCE SHEET WERE ALREADY AVAILABLE ON RECORD TO SHOW THE EXISTENCE OF HUF IS NOT AN AFTERTHOUGHT. ON PERUSA L OF THE RECORDS THE COPIES OF THE SAID RETURNS WERE AVAILABLE ON RECORD TO STRENGTHEN THE APPELLANT CASE. THE ASSESSMENT ORDER PASSED WITHOU T OBSERVING THE PRINCIPLE OF NATURAL JUSTICE AS ENUNCIATED BY THE S UPREME COURTS DECISION IN GKN DRIVESHAFTS AND ALSO THE INCOME BEING AGRICULTU RAL INCOME EARNED BY THE HUF CANNOT BE TAXED IN THE HANDS OF THE APPELLA NT. BOTH THE GROUNDS OF APPEALS SUCCEED AND RELIEF GRANTED TO THE APPELLANT . (4) DISAPPOINTED WITH THE FINDINGS OF THE FIRST APP ELLATE AUTHORITY THE REVENUE HAS COME UP WITH THE PRESENT APPEALS. THE CRYPTIC SUBMISSION OF ITA NO.797 798 807 808/BANG/09 PAGE 5 OF 18 THE REVENUE WAS THAT THE ORDERS OF THE CIT(A)S WAS ILLEGAL IMPROPER AND MUCH AGAINST THE FACTS OF THE CASE THAT THE CIT(A) ERRED IN DELETING THE ADDITION MADE AS UNDISCLOSED INCOME THAT HE FAILED TO APPRECIATE THE FACTS SUBMITTED IN THE FORM OF WRITTEN SUBMISSION BEFORE PASSING THE APPELLATE ORDER AND FAILED TO APPRECIATE THE FACT THAT THE TH EORY OF HUF WAS ONLY AN AFTER THOUGHT. IT WAS THEREFORE PRAYED THAT THE IMPUGNED ORDER OF THE CIT (A) REQUIRES TO BE SET ASIDE. (5) ON THE OTHER HAND THE LD. A R CAME UP WITH A S PIRITED ARGUMENT THAT THE AO HAD MISERABLY FAILED TO PROVIDE THE REA SONS FOR REOPENING OF THE ASSESSMENTS BEFORE PROCEEDING WITH TO CONCLUDE THE ASSESSMENTS AND THUS IT WAS VEHEMENTLY URGED THAT THE ASSESSMENTS MADE BY THE AO HAVE NO LEGAL SANCTITY AS HAS BEEN RIGHTLY HIGHLIGHTED B Y THE LD. CIT (A) IN HIS IMPUGNED ORDER. EVEN ON MERITS ALSO IT WAS SUBMIT TED THE AO HAD NO LOCUS STANDI TO TREAT THE AGRICULTURAL INCOMES AS I NCOME FROM OTHER SOURCES WHEN ALL THE RELEVANT DETAILS EXPLANATION ETC WERE PLACED AT HIS DOORSTEP. IT WAS THEREFORE STRONGLY PLEADED THAT THE IMPUGNED ORDER OF THE LD. CIT (A) DOESNT SUFFER FROM ANY INFIRMITY W HICH REQUIRES NO CURE AT THIS STAGE. TO DRIVE HOME HIS POINT THE ASSESSEE HAS PLACED RELIANCE ON THE FOLLOWING CASE LAWS: (I) GKN DRIVESHAFTS (INDIA) LTD. V. ITO AND OTHERS 259 ITR 19 (SC); & (II) ALLANA COLD STORAGE LTD. V. ITO 287 ITR 1(BOM) ITA NO.797 798 807 808/BANG/09 PAGE 6 OF 18 (6) WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS DILIGENTLY PERUSED THE RELEVANT RECORDS AND ALSO THE CASE LAWS ON WHICH THE ASSESSEE HAS PLACED STRONG RELIANCE. (7) AT THE OUTSET WE WOULD LIKE TO MAKE IT CRYSTAL CLEAR THAT THE WHEN THE ASSESSEE VIDE HIS LETTER DATED: 1.2.2008 REQUESTED THE AO TO TREAT THE RETURNS ALREADY FURNISHED AS THE RETURNS FILED IN C OMPLIANCE TO THE NOTICES U/S 148 AND SIMULTANEOUSLY REQUESTED THE AO TO PROV IDE THE REASONS FOR ISSUANCE OF NOTICES. IN STEAD OF CONCEDING TO THE ASSESSEES LEGITIMATE REQUEST THE AO WENT AHEAD IN CONCLUDING THE ASSESS MENTS WHICH ARE UNDER DISPUTE. (8) TO ADD INSULT TO INJURY THE AO IN HER REMAND R EPORT DATED: 11.5.2009 TO THE LD. CIT (A)S QUERY HAS INFORMED THAT WITH REGARD TO THE NON-FURNISHING OF REASONS RECOR DED FOR ISSUE OF NOTICE U/S 148 HE HAS REQUESTED FOR REASONS REC ORDED AND SUBMITTED THAT THE RETURN OF INCOME FILED EARLIER M AY BE TREATED AS COMPLIANCE. HENCE WHEN THE RETURN OF INCOME WAS FILED FURNISHING OF REASONS WOULD BE INFRUCTUOUS. (9) THE STAND OF THE REVENUE IN OUR CONSIDERED VIE W IS AGAINST THE SPIRIT OF THE RULING OF THE HIGHEST JUDICIARY OF TH E LAND IN THE CASE OF GKN DRIVESHAFTS (INDIA) LTD. REFERRED SUPRA WHEREIN TH E HONBLE APEX COURT HAS OBSERVED THUS WHEN A NOTICE UNDER SECTION 148 OF THE INCOME-TAX ACT 1961 IS ISSUED THE PROPER COURSE OF ACTION FOR THE NOTICEE IS TO FILE THE RETURN AND IF HE SO DESIRES TO SEEK REASONS FOR I SSUING THE NOTICES. THE AO IS BOUND TO FURNISH REASONS WITHIN A REASONA BLE TIME. ON RECEIPT OF REASONS THE NOTICEE IS ENTITLED TO FILE OBJECTIONS TO ITA NO.797 798 807 808/BANG/09 PAGE 7 OF 18 ISSUANCE OF NOTICE AND THE AO IS BOUND TO DISPOSE O F THE SAME BY PASSING A SPEAKING ORDER. IN THE PRESENT CASE THE DIRECTIONS OF THE HONBLE COURT HAVE BEEN GIVEN A GO-BY. IT MAY BE APPROPRIATE TO ANALYZE THE R ULING OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF ALLANA COLD STORAGE LTD. V. ITO 287 ITR 1 WHICH IS OF MORE ILLUSTRATIVE ON A SIMILAR ISSUE. AFTER DELIBERATING THE ISSUE AT LENGTH THE HONBLE COURT HAS OBSERVED THAT - THE LAW AS LAID DOWN BY THE APEX COURT IS BINDING ON THIS COURT AS WELL AS ON THE AUTHORITIES FUNCTIONING UNDER THE STATUTE. THIS BEING THE POSITION ONE FAILS TO UNDERSTAND AS TO W HY THE FIRST RESPONDENT DID NOT DECIDE THE OBJECTIONS SEPARATELY WHICH HE IS DUTY BOUND TO DECIDE. THE WHOLE IDEA IN LAYING DOWN THE LAW IN GKN DRIVESHAFTS (INDIA) LTD. V. ITO REPORTED IN [20 03] 259 ITR 19 (SC) IS TO GIVE AN OPPORTUNITY TO THE ASSESSEE T O KNOW AS TO WHAT IS THE DECISION ON HIS OBJECTIONS WHICH DECIS ION HAS ALSO TO BE ARRIVED AT AFTER GIVING AN OPPORTUNITY TO THE AS SESSEE. IN THE PRESENT CASE THE ASSESSEE HAS BEEN DENIED THIS OPP ORTUNITY. NOT ONLY THAT BUT IN THE FIRST THREE WRIT PETITIONS WHA T WE FIND IS THAT A COMMON ORDER HAS BEEN PASSED ON THE OBJECTIONS AS W ELL AS FOR THE REASSESSMENT. IN THE FOURTH MATTER THE ASSESSM ENT ORDER DOES NOT DISCLOSE ANY DECISION ON THE OBJECTIONS AT ALL AND UNDOUBTEDLY NO SUCH DECISION HAS BEEN GIVEN SEPARATELY ON THE O BJECTIONS. HAVING NOTED THIS SCENARIO IN OUR VIEW THE PROPER COURSE WILL BE TO INTERFERE WITH THE ASSESSMENT ORDERS PASSED IN A LL FOUR MATTERS BY THE CONCERNED OFFICER. WE ARE AWARE THAT WHEN AN ALTERNATIVE REMEDY IS RESORTED TO THE WRIT JURISDICTION IS NOT TO BE EXERCISED BUT THAT IS A RULE OF SELF-LIMITATION. THE ORDERS C HALLENGED IN THE PRESENT MATTER ARE CLEARLY AGAINST THE LAW LAID DOW N BY THE APEX COURT AND THEREFORE THE EXERCISE OF WRIT JURISDIC TION IS CALLED FOR. THAT BEING SO WE ALLOW ALL THESE PETITIONS AND QUA SH AND SET ASIDE THE ORDERS OF ASSESSMENT PASSED IN ALL THESE FOUR PETITIONS ITA NO.797 798 807 808/BANG/09 PAGE 8 OF 18 (10) RESPECTFULLY FOLLOWING THE RULING OF THE HON BLE COURTS REFERRED SUPRA WE ARE OF THE UNANIMOUS VIEW THAT THE ASSESS MENT ORDERS UNDER DISPUTE HAVE NO LEGAL SANCTITY SINCE THEY HAVE NOT BEEN CONCLUDED IN CONFORMITY WITH THE RULING OF THE HONBLE SUPREME C OURT CITED SUPRA. (11) EVEN ON MERITS ALSO AS SUBMITTED BY THE LD. A R DURING THE COURSE OF HEARING BEFORE THIS BENCH THE AO HAD MISERABLY FAILED TO SEE THE REASON BEFORE RESORTING TO TREAT THE AGRICULTURAL INCOME A S INCOME FROM OTHER SOURCES. THE ASSESSEE IN THE CAPACITY OF HUF OWNING AGRICUL TURAL LANDS THE DETAILS OF WHICH ARE AS UNDER: SY.NOS. NAME OF THE VILLAGE EXTENT OF LAND HOLDING 192/1 172/2 143/2 10/8 & 160/1 KUDLU 7 A 27 G 8/1 8/2 AND 8/3 18/1 CHOODASANDRA KUDLU 7 A 10 G 9 7 A 24 G ACCORDING TO THE ASSESSEE (VIDE HIS LETTER DT.4.12.2008 TO THE AO) AFTER THE DEMISE OF HIS FATHER AND ON PARTITIO N AMONG HIS BROTHERS HE GOT HIS SHARE OF 14 A 20 G AND SUBSEQUENTLY HE HAD PURCHASED 21 A 35 G UP-TO THE F.Y 2004-05. THESE LAND HOLDINGS OF TH E ASSESSEE HAVE SUBSEQUENTLY BECOME THE HUF OF THE ASSESSEE . IT IS APPARENT FROM THE ABOVE THE ASSESSEE (HUF) HAS BEEN HOLDING VAST AGR ICULTURAL LANDS - WHICH FACTS WERE ON THE RECORDS OF THE AO FROM WH ICH THE ASSESSEE ITA NO.797 798 807 808/BANG/09 PAGE 9 OF 18 (HUF) WAS IN RECEIPT OF INCOMES FOR THE AYS THE DE TAILS OF WHICH ARE AS UNDER: ASST. YEAR AGRL. INCOME EXTENT OF LAND HOLDING 2003-04 RS.11 LAKHS 30 A 11 G 2004-05 RS.13 LAKHS 32 A 24 G 2005-06 RS.15 LAKHS 36 A 20 G 2006-07 RS. 17 LAKHS 40 A 14 G THE ASSESSEE HAS BEEN EARNING INCOME FRO M VARIOUS CROPS TREES GROWN IN THE SAID LANDS SUCH AS COCONUT TREES MAN GO TREES CHICKOO TREES NILGIRI TREES BANANA PLANTATION SEASONED CROP LIK E RAGI VEGETABLES ETC. OUT OF THESE SALE PROCEEDS THE ASSESSE E HAD ADVANCED AMOUNTS TOTALING TO RS.25 LAKHS AS ON 31.3.2003 TO SMT. K. RADHA WIFE OF THE ASSESSEE. AS A MATTER OF FACT SMT. K.RADHA HAD FU RNISHED HER RETURNS OF INCOME FOR THE AYS 2001-02 AND 2002.03 WHEREIN SHE HAD DISCLOSED THE ADVANCES TAKEN FROM HUF AMOUNTING TO RS.25 LAKHS. THESE FACTS WERE AVAILABLE ON RECORD OF THE AO. THE AOS OTHER ALLE GATION THAT THE CREATION OF HUF WAS AN AFTER THOUGHT ALSO DOESNT HOLD WATER SINCE THE ASSESSEES WIFE IN HER RETURNS OF INCOME REFERRED SUPRA HAD DI SCLOSED FOR THE ASSESSMENT YEAR 2001-02 ITSELF THAT SHE HAD TAKEN L OAN FROM HUF THIS VITAL INFORMATION WAS ALSO ON THE RECORD OF THE AO. WE HAVE DULY PERUSED THE COPIES OF STATEMENTS OF AF FAIRS AS ON 31.3.2001 AND 31.3.2002 IN THE CASE OF MRS. K.RADHA WHEREIN IT HAS BEEN EXPLICITLY MENTIONED THAT SHE HAD TAKEN LOAN FROM H UF. THIS VERY FACT HAS ITA NO.797 798 807 808/BANG/09 PAGE 10 OF 18 BEEN ANALYZED AND BROUGHT ON RECORD BY THE LD. CIT (A) IN HIS IMPUGNED ORDER WHICH IS UNDER DISPUTE. (11) IN AN OVERALL CONSIDERATION OF THE FACTS AN D CIRCUMSTANCES AS DELIBERATED UPON IN THE FORE-GOING PARAGRAPHS WE A RE OF THE FIRM VIEW THAT THE AO WAS NOT JUSTIFIED TO TREAT THE AGRICULTURAL INCO ME OF RS.11 LAKHS RS.13.01 LAKHS AND RS.17.03 LAKHS FOR THE A YS 2003.04 2004.05 AND 2006.07 RESPECTIVELY AS THE INCOME OF THE ASSES SEE FROM OTHER SOURCES. IT IS ORDERED ACCORDINGLY. (12) IN A NUT-SHELL THE ADDITIONS MADE FOR THE AYS. 2003-04 2004- 05 AND 2006-07 ARE DELETED. II. ITA NO:798 - AY. 05-06: (1) THE GRIEVANCE OF THE REVENUE RELATES TO THE DELETION OF RS.62 29 977/- AS UNEXPLAINED INVESTMENTS. THE CRUX OF THE ISSUE IN BRIEF IS AS UNDER: THE UNDISCLOSED INCOME OF THE ASSESSEE OF RS.627997 7 CONSISTS OF: INVESTMENT ON PURCHASE OF LANDS (HALF SHARE) IN SY. NO.28 RS.16 00 000 LOAN AND ADVANCES RS.25 00 000 CASH BALANCE RS.21 29 977 RS.62 29 977 AFTER HEARING THE ASSESSEE THE AO TREA TED THE ABOVE SUMS AS ASSESSEES INCOME FOR THE FOLLOWING REASONS: (I) THE HUF HAD NOT FILED ANY RETURNS FOR ANY OF THE AY S AND TO SHOW THE CASH IN HAND OF RS.21.29 LAKHS AND RS.29.51 LAK HS FOR AY 05- 06 AND 04-05 RESPECTIVELY; (II) THE ASSESSEE HAD NOT DISCLOSED HOW THE HUF CAME INT O EXISTENCE; ITA NO.797 798 807 808/BANG/09 PAGE 11 OF 18 (III) THE LANDS IN CHOODASANDRA AND KUDLU VILLAGES WERE P URCHASED IN 89-90 WHEREAS THE ASSESSEE GOT MARRIED IN 1991; (IV) NO PROOF FOR AGRICULTURAL INCOME OF HUGE PROPORTION S WAS FURNISHED; (V) NO DISCLOSURE OF PURCHASE OF ASSETS IN THE BALANCE SHEET OF HUF IN HIS EARLIER RETURNS; (VI) THE CREATION OF HUF WAS AN AFTER THOUGHT TO EXPLAIN THE SOURCES FOR PURCHASE OF AGRICULTURAL LANDS; & (VII) THE BANK ACCOUNT NO.3273 WAS ADMITTEDLY IN THE INDI VIDUAL NAME AND NOT IN THE NAME OF HUF. (2) AGITATED THE ASSESSEE CONTENDED BEFORE THE LD. CIT (A) THE SUBSTANCE OF WHICH IS SUMMARIZED AS UNDER: (I) THE IMPUGNED ASSESSMENT ORDER WAS DATED: 28.12.07 WHEREAS THE AR APPEARED BEFORE THE AO ON 27.12.07 AND FURNISHED CERTAIN DETAILS AND THE CASE WAS ADJOURNED TO 28.12.07. AG AIN THE AR APPEARED ON 28.12.07 FURNISHED CERTAIN DETAILS AN D ON 29.2.07 DISCUSSED THE CASE WITH THE AO; - IN THE LETTER DT. 29.12.07 DETAILS SUCH AS CASH DEPOSITED IN THE BANK PURCHASE OF PAY ORDERS FOR RS.16 LAKHS FO R PURCHASE OF LANDS AND CASH BALANCE OF RS.8.25 LAKHS WERE FURNISHED; - DETAILS OF HUF ON SEPARATION FROM FAMILY ON AN ORA L PARTITION THE ASSESSEE GOT AGRICULTURAL LANDS ADME ASURING 7A 10 G OF HUF PROPERTY; - THE DETAILS OF LANDS PURCHASED IN CHOODSANDRA AND K UDLU VILLAGE - THE LANDS ADMEASURING 7A 24G IN SY.NO.9 WERE PURCHASED AFTER THE DEATH OF ASSESSEES FATHER AND BEFORE THE ORAL PARTITION OF THE FAMILY OF ASSESSEES LATE FATHER AND THUS THERE WAS AN HUF DURING THE LIFE TIME OF ASSES SEES FATHER; ITA NO.797 798 807 808/BANG/09 PAGE 12 OF 18 - ON PARTITION AND AFTER THE MARRIAGE OF THE ASSESSEE AGRICULTURAL LANDS OF 14A 20G BECAME THE HUF PROPER TY AND THE HUF HAD SUBSEQUENTLY PURCHASED ABOUT 17A 38 G TILL THE FY 2003-04 (II) BY IGNORING THE ABOVE DETAILS BEFORE THE AO AND ON RECORDS THE AO HAD PASSED THE ORDER ON 28.12.07 ITSELF EVEN THOUGH THE ASSESSEE WAS GIVEN A HEARING ON 29.12.07. (3) ARMED WITH THE ABOVE PARTICULARS THE LD. CIT ( A) VIDE HIS LETTER DT.30.4.09 REQUIRED THE AO TO EXPLAIN HER STAND ON THE ISSUE. ACCORDING TO THE CIT (A) THE AO HAD REPEATED THE CONTENTS OF HE R EARLIER REPORT ALONG WITH THE ASSESSMENT FOLDER AND NOT REPLIED TO HIS SPECIFIC QUERIES . (4) IN VIEW OF THE ABOVE SEQUENCE OF EVENTS IT IS APPROPRIATE TO EXTRACT (THOUGH AT THE COST OF REPETITION) THE OBSERVATIONS OF THE LD. CIT (A) FOR PROPER APPRECIATION OF FACTS AS UNDER: 7ON PERUSAL OF RECORDS I FIND THE HEARING HAD TAKEN PLACE ON 29.12.07 WITH A NOTING ON THE ORDER SHEET AS SRI SIVAGURU PRASAD FCA APPEARED FILED LETTER DT.29.12.07 CASE HEARD. IT IS SURPRISED TO NOTE THAT THE AO GAVE A HEARING ON 29. 12.07 AND ACCEPTED THE LETTER DT.29.12.07 PASSED THE ASST. ORDER ON 2 8.12.07 WITHOUT CONSIDERING THE SUBMISSION MADE ON 29.12.07. IN FA CT THE AO HAS VIOLATED THE PRINCIPLES OF NATURAL JUSTICE IN THE I NSTANT CASE. IF THE AO HAS INTENDED TO COMPLETE THE ASSESSMENT ON 28.12.07 THEN HE SHOULD NOT HAVE ASKED THE AR OF THE APPELLANT TO APPEAR AN D FILE DETAILS REGARDING THE HUF. ONCE THE APPELLANT FILED DETAIL S BEFORE THE AO THE SAME CANNOT BE IGNORED WITHOUT ASSIGNING ANY RE ASONS BY THE AO. IF THE AO HAS COMPLETED THE ASST. ORDER ON 28.12.07 NOTHING PREVENTED HIM TO SERVE THE ORDER ON 29.12.07 AS AGAINST DISCU SSING THE CASE AND ACCEPTING THE DETAILS. AFTER CONSIDERING THE RIVAL CONTENTIONS IN RESPECT OF GROUNDS OF APPEAL NO.4 -7 REGARDING THE ADDITION OF RS.62 29 977/- RELATING TO A HUF IT IS SEEN THAT T HE ADDITION WAS MADE BY THE AO ON THE GROUND THAT THE APPELLANTS HUF HA S NOT FILED RETURN OF INCOME. THE APPELLANT CLAIMED THAT THE ONLY APP ELLANTS HUF IS FROM AGRICULTURE AND IT WAS NECESSARY TO FILE RETUR N DECLARE ONLY AGRICULTURAL INCOME FOR INCOME-TAX PURPOSES. THE L AND HOLDINGS OF HUF AND BANK ACCOUNT NOT REFLECTED IN THE BALANCE S HEET OF APPELLANT PROVED THAT THESE LANDS BELONGED TO THE HUF. THE A O NEXT OBSERVED ITA NO.797 798 807 808/BANG/09 PAGE 13 OF 18 THAT THE LANDS DO NOT STAND IN THE NAME OF HUF HEN CE THE LANDS ARE TO BE CONSIDERED AS THAT OF APPELLANT. IN THIS REGARD THE APPELLANT CONTENTION IS THAT THE KARNATAKA LAND REFORMS ACT 1 961 PROHIBITS FOR PURCHASING AGRICULTURAL LANDS OTHER THAN A PERSON W HO CULTIVATES THE LANDS. FURTHER THE APPELLANTS AR SUBMITTED THAT SECTION79B OF THE SAID ACT STATES THAT NO PERSON OTHER THAN A PERSON CULTIVATING LAND PERSONALLY SHALL BE ENTITLED TO HOLD LANDS. IN THE SE CIRCUMSTANCES THE APPELLANT HUF COULD NOT HAVE ACQUIRED AGRICULTURAL LAND IN THE NAME OF HUF. IN EFFECT THE LANDS SHALL STAND IN THE NA ME OF INDIVIDUAL AND NOT IN THE NAME OF HUF. THE AO FURTHER OBSERVED THAT THE CREATION OF HUF IS AN AFTER THOUGHT. THE APPELLANT CLAIMED THAT THE RETURN OF INCOME IN RESPECT OF APPELLANTS WIFE SMT. K.RADHA FOR THE AYS 2001-02 A ND 02-03 WAS FILED ON 31.3.01 AND 31.3.03 RESPECTIVELY ALONG WIT H THE BALANCE SHEET. WHEREIN AN AMOUNT OF RS.25 LAKHS WAS SHOWN AS ADVAN CES RECEIVED FROM HUF. THE COPIES OF HE SAID RETURNS OF INCOME WERE SUBMITTED TO THE AO AT THE TIME OF ASSESSMENT PROCEEDINGS. ON P ERUSAL OF ASSESSMENT RECORDS COPIES OF THE SAID RETURNS ARE AVAILABLE ON RECORD TO STRENGTHEN THE APPELLANT CASE. THE CLAIMS OF TH E APPELLANT WITH MATERIAL ON RECORDS AND EVIDENCES CANNOT BE BRUSHED ASIDE WITHOUT ANY COGENT REASON BY THE AO. THE AO EITHER DURING THE ASST. PROCEEDINGS OR SUBSE QUENTLY HAS NOT DISPUTED THE EXISTENCE OF THE LAND AND THE AGRICULT URAL OPERATIONS CARRIED ON BY THE HUF AND FAILED TO CONSIDER THE SU BMISSION MADE BY THE APPELLANT. IN VIEW OF THE ABOVE THE ADDITION OF RS.62 29 977/ - MADE UNDER UNEXPLAINED INVESTMENT CANNOT STAND THE TEST OF APP EAL. THE ADDITION MADE IS WITHOUT ANY BASIS AND IS UNJUSTIFIED.. (5) BEFORE US THE SUBMISSION OF THE REVENU E WAS RATHER AMBIGUOUS WHICH CONFINED TO THAT - THE CIT (A) OUGHT TO HAVE APPRECIATED THE CLEAR FAC TS STATED IN THE WRITTEN SUBMISSION AS ALSO OUGHT TO HAVE CONSID ERED THE DETAILED REASONS MENTIONED IN THE ORDERS OF ASSESSM ENT AND THAT THE ASSESSEE HAD NOT FILED THE RETURN OF INCOME IN THE STATUS OF HUF AND HAD COME UP WITH THE THEORY OF HUF FOR THE FIRST TIME TO EXPLAIN DEPOSITS. IT APPEARS TO BE PURELY AN AF TER THOUGHT AND IN THE ABSENCE OF ANY EXPLANATIONS AND DETAILS THE ACTION OF THE ASSESSING OFFICER TO BRING THE SAID AMOUNT TO TAX I S PERFECTLY JUSTIFIED . ITA NO.797 798 807 808/BANG/09 PAGE 14 OF 18 (6) ON THE OTHER HAND THE LD. AR WAS VER Y EMPHATIC IN HIS URGE THAT SINCE THE ISSUE HAS BEEN COMPREHENSIVELY DELIBERATE D UPON IN A JUDICIOUS MANNER BY THE LD. CIT (A) WHICH REQUIRES NO INTERFE RENCE AT THIS STAGE. IT WAS THEREFORE PLEADED THAT THE IMPUGNED ORDER OF THE FIRST APPELLATE AUTHORITY BE SUSTAINED. (7) WE HAVE DULY CONSIDERED THE RIVAL SUBMISS IONS AND ALSO PERUSED THE RELEVANT RECORDS. AT THE OUTSET WE WOULD LIKE TO POIN T OUT AS RIGHTLY HIGHLIGHTED BY THE LD. CIT (A) THAT WHEN THE RELEVANT DETAILS WER E ON THE RECORD THE AO IN STEAD OF EXAMINING THE PARTICULARS SO FURNISHED WENT AHEAD IN TREATING THE SAID SUM AS ASSESSEES INCOME AND THUS BROUG HT ON THE SAME TO TAX NET IN AN ARBITRARY MANNER. FURTHER THE ASSESSEE S WIFE IN HER RETURNS OF INCOME FOR THE AYS 2001-02 AND 02-03 AND ALSO IN TH E STATEMENTS OF AFFAIRS HAS EXPLICITLY MENTIONED THAT HUF ADVANCE AND LOAN FROM SRI VENKATESHWARA BRICK WORKS AS LIABILITIES. THESE V ERY FACTS STRANGELY ENOUGH HAVE BEEN OVER-LOOKED BY THE AO. (8) IN VIEW OF THE ABOVE AND ALSO THE ISSUE H AS SINCE BEEN DEALT WITH ELABORATELY BY THE LD. CIT (A) IN HIS IMPUGNED ORDE R WE ARE OF THE UNANIMOUS VIEW THAT THE AO WAS NOT JUSTIFIED IN TRE ATING THE ENTIRE SUM OF RS.62 29 977/- AS ASSESSEES INCOME WITHOUT ANY BAS IS AND ALSO BY OVER- LOOKING THE FACTS AVAILABLE ON RECORD. ACCORDINGLY THE ADDITION OF RS.62 29 977/- IS DELETED . ITA NO.797 798 807 808/BANG/09 PAGE 15 OF 18 (9) THE OTHER ISSUE RAISED BY THE REVENUE IS WITH REGARD TO DELETION OF THE ADDITION OF RS.14 34 266/-. THE ASSESSEE BEING A MANUFACTURER AND SUPPLIER OF BRICKS HAD CLAIMED AN EXPENDITURE OF RS.28 68 533/- UNDER THE HEAD VEHICLE MAINTENANCE. HOWEVER THE AO WAS OF THE VIEW THAT THE CLAIM WAS ON A HIGHER SIDE AS IN THE IMMEDIATELY PRECEDING YEAR T HE EXPENSE ON VEHICLE MAINTENANCE WAS ONLY RS.10 37 892/- ON A TURNOVER O F RS.70.5 LAKHS AS AGAINST RS.28.68 LAKHS ON A TURNOVER OF RS.89.26 LA KHS FOR THE CURRENT YEAR. BRUSHING ASIDE THE ASSESSEES CONTEN TION THAT THE VEHICLES WERE OLD AND EVEN JCB EXPENDITURE ALSO INCLUDED UNDER TH IS HEAD ETC. THE AO IN COMPARING THE TOTAL EXPENDITURE ON RAW MATERIALS AN D CONSUMABLES ETC. TOOK A VIEW THAT THE EXPENSES CLAIMED WERE EXCESSIV E AND THEREFORE DISALLOWED 50% OF THE TOTAL EXPENDITURE OF RS.28685 33/- ON VEHICLE MAINTENANCE. (10) THE LD. CIT (A) AFTER GIVING DUE WEI GHT-AGE TO THE FORCEFUL CONTENTIONS OF THE ASSESSEE BACKED WITH COMPARATIVE FIGURES ETC. PERUSING THE REMAND REPORT OF THE AO AND THE REBUTTAL OF THE ASSESSEE ON REMAND REPORT HAS OBSERVED THUS (PAGE 20).IT IS NOT FAIR TO COMPARE THE PERCE NTAGE OF EXPENDITURE ON VEHICLE MAINTENANCE ON THE BASIS OF TURNOVER ALONE VARIOUS OTHER FACTORS SUCH AS COST OF FUEL SPARE P ARTS SALARIES TO DRIVERS DISTANCE OF PROCUREMENT OF RAW MATERIAL AN D DELIVERY OF BRICKS ETC. HAVE TO BE CONSIDERED. THE AO APART FROM HOLDING THAT THE EXPENDITURE ON VEHICLE MAINTENANCE IS DISPROPORTION ATE TO INCREASE IN TURNOVER HAS NOT GIVEN ANY OTHER VALID AND JUSTIFIA BLE REASONS FOR THE DISALLOWANCE. THE ADDITION MADE NOT BASED ON VALID REASONS AND ON MERE SURMISE GUESS WORK AND ASSUMPTIONS CANNOT BE UPHELD. THE ITA NO.797 798 807 808/BANG/09 PAGE 16 OF 18 ADDITION OF RS.14 34 266/- UNDER VEHICLE MAINTENANC E IS DELETED ACCORDINGLY. (11) THE INEXPLICABLE REASONING OF THE REVENU E BEFORE US WAS THAT THE CIT (A) HAS SERIOUSLY ERRED IN NOT CONSIDERING THE WRITTEN SUBMISSION MADE BEFORE PASSING THE IMPUGNED ORDER. THE CONTENTIONS OF THE ASSESSEE PUT -FORTH ARE SUMMARIZED AS UNDER: (I) THE ASSESSEE HAD SIX VEHICLES WHICH WERE THREE TO F IFTEEN YEARS OLD AND THE EXPENSES CLAIMED INCLUDED DIESEL LUBRI CANTS JCB EXPENSES AND TRANSPORTATION OF MUD ETC. - THE CONSUMPTION OF FUEL AND OTHER LUBRICANTS DEPEND S ON THE AGE OF VEHICLES AND ALSO THE LOADS THEY CARRY; THAT NORMALLY THE CONSUMPTION OF FUEL BY THE HEAVY LOADE D VEHICLES WOULD BE MORE THAN THAT OF THE LMVS; - THE AO COMPARED THE EXPENDITURE OF PREVIOUS YEAR FI GURE WHICH IS RATHER ILLOGIC ON THE GROUND THAT (A) IF THE RAW MATERIAL SUCH AS CLAY WAS TO BE EXTRACTED AND TRANSPORTED FROM NEARBY TANK-BEDS THE CONSUMPTION OF FUEL WOULD BE LESS; BUT AT MOST OF THE TIME THE ASSESSEE HAD TO EXTRACT AND PROCURE THE QUALITATIVE CLAYS FROM FAR OFF PLACES OF TANKS-BEDS WHICH ATTRIBUTED MORE EXPENSES ON FUEL; (B) THE VEHICLES WERE TO TRANSPORT HEAVY LOADS SUCH AS CLAY BRICKS ETC. WHEREBY THE LONGEVITY OF THE VEHICLES WOULD RATHER BE SHORTENED; (C) THE DISTANCE FACTOR IN DELIVERY OF FINISHED GOODS BRICKS DEPENDS ON THE CUSTOMERS WORK SPOTS - THESE VITAL FACTS HAVE BEEN CONTRIBUTING MORE CONSU MPTION OF FUEL MAINTENANCE OF VEHICLES ETC. WHICH HAVE B EEN SIDE- TRACKED WHILE CONSIDERING THE ALLOWABILITY OF THE CLAIM BY THE AO; ITA NO.797 798 807 808/BANG/09 PAGE 17 OF 18 (II) THERE WAS A DEEP HIKE IN THE PRICE OF PETROLEUM PR ODUCTS DUE TO SHORT SUPPLY AS WELL AS STEEP RISE IN THE PRICE OF CRUDE OIL IMPORTED FROM OIL SUPPLIED COUNTRIES; (III) THE MAINTENANCE OF HEAVY VEHICLES WEAR AND TEAR O F ITS ANCILLARIES AND ALSO THE COST ON REPLACEMENT OF S PARES CANNOT BE EQUATED WITH THE EXPENSES CLAIMED FOR THE SAME IN T HE PREVIOUS YEAR (12) WE HAVE DULY CONSIDERED THE SUBMISSIONS OF THE EITHER PARTY AND ALSO TAKEN INTO COGNIZANCE OF THE FINDING OF THE LD . CIT (A). AS A WHOLE WE FIND REASONABLENESS IN THE ARGUMENT OF THE ASSESSEE . HOW COULD ONE COMPARE THE MAINTENANCE OF VEHICLES WITH THE CONSUM ABLES AND RAW MATERIALS TO ARRIVE AT THE EXPENSES INCURRED ON THE MAINTENANCE OF VEHICLES? IN OUR CONSIDERED VIEW THE COMPARISON A TTEMPT MADE BY THE AO WAS NOT ON THE SOUND FOOTING AND WAS RATHER ILLOGIC AL. HE HAD PERHAPS CONFUSED WITH THE ISSUE ITSELF. ANOTHER LAME EXCUSE OF THE AO WAS THAT SINCE THE ASSESSEE HAD FURNISHED THE REQUIRED DATA AT THE FAG END OF THE PROCEEDINGS HE HAD TO RESORT TO DISALLOW 50% OF TH E CLAIM AS EXCESSIVE. THE MOOT QUESTION BEFORE US IS - HOW COULD THE ACTI ON OF THE AO BE JUSTIFIABLE TO DISALLOW AS IT WOULD MEET THE END OF JUSTICE IF 50% OF THE EXPENDITURE CLAIMED DISALLOWABLE SINCE THE ASSESSEE TOOK A CONSIDERABLE TIME TO FURNISH THE REQUIRED DATA ? THIS EXERCISE OF THE AO TO PUT IT GENTLY WAS A FUTILE ATTEMPT WHICH IN NO WAY STAND THE TEST IMONY OF SCRUTINY. FOR THE YEAR UNDER DISPUTE THE ASSESSEE HAD INCLUDED J CB EXPENDITURE UNDER THE HEAD VEHICLE MAINTENANCE WHEREAS IN THE IMMED IATELY PREVIOUS YEAR THE JCB EXPENDITURE WAS ADDED TO CLAY EXCAVATION WH ICH WAS INCLUDED IN RAW MATERIAL AND CONSUMABLES. THIS FACT HAS NOT BE EN DISPUTED BY THE AO. ITA NO.797 798 807 808/BANG/09 PAGE 18 OF 18 THE ASSESSEE HAD CLAIMED JCB EXPENSES (EXCAVATION O F CLAY AND MAINTENANCE) OF RS.6.88 LAKHS WHICH WAS ADDED TO TH E VEHICLE MAINTENANCE AND IT PERHAPS CONTRIBUTED THE HIKE I N THE EXPENSES CLAIMED. THIS PHENOMENON HAS NOT BEEN PROPERLY APPRECIATED B Y THE AO. (13) CONSIDERING THE OVER ALL FACTS AND CIRCUM STANCES OF THE ISSUE WE ARE IN TOTAL AGREEMENT WITH THE FINDING OF THE L D. CIT (A) WHO WAS FULLY JUSTIFIED IN DELETING THE ADDITION ON THIS CO UNT. IN THE RESULT THE REVENUES APPEALS FOR THE ASSESSMENT YEARS 2003-04 2004-05 2005-06 AND 2006-07 ARE DI SMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF MAY 2010. SD/- SD/- ( SMT. P. MADHAVI DEVI ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE DATED THE 21 ST MAY 2010. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. C IT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE.