The DCIT, Central Circle, Visakhapatnam v. Sri S Ramakrishnam Raju, Visakhapatnam

ITSSA NOS 112 AND 115 S RAMA KRISHNA RAJU VISAKHAPA TNAM PAGE 1 OF 12 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER IT(SS)A NO.112/VIZAG/2002 BLOCK PERIOD ENDED 21.12.1999 S. RAMA KRISHNA RAJU VISAKHAPATNAM VS. DY.COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1 VISAKHAPATNAM (APPELLANT) GIR NO.739 (RESPONDENT) IT(SS)A NO.115/VIZAG/2002 BLOCK PERIOD ENDED 21.12.1999 DY.COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1 VISAKHAPATNAM VS. S. RAMA KRISHNA RAJU VISAKHAPATNAM GIR NO.739 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI C. SUBRAMANYAM CA RESPONDENT BY: SHRI T.H. LUCAS PETER CIT (DR) ORDER PER SHRI B. R. BASKARAN ACCOUNTANT MEMBER: THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER D ATED 20.06.2002 PASSED BY THE LEARNED CIT (A)-I HYDERABAD AND THEY RELATE TO THE BLOCK PERIOD ENDING 21.12.1999. 2. THE ASSESSEE IS THE MANAGING DIRECTOR OF A COMPA NY NAMED M/S PRAMADA FINVEST LIMITED. THE DEPARTMENT CARRIED OUT SEARCH AND SEIZURE OPERATIONS UNDER SECTION 132 OF THE ACT IN THE RESI DENTIAL PREMISES OF THE ASSESSEE ON 21.12.1999. CONSEQUENT THERETO THE BLO CK ASSESSMENT WAS COMPLETED IN THE HANDS OF THE ASSESSEE BY DETERMINI NG THE UNDISCLOSED INCOME AT RS.44 20 000/- AS AGAINST NIL INCOME DISC LOSED BY THE ASSESSEE IN HIS BLOCK RETURN. THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE THE ITSSA NOS 112 AND 115 S RAMA KRISHNA RAJU VISAKHAPA TNAM PAGE 2 OF 12 LEARNED CIT (A) AND GOT PARTIAL RELIEF. AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) BOTH THE PARTIES ARE IN APPEAL BEFORE US. 3. THE REVENUE IS IN APPEAL BEFORE US IN RESPECT OF RELIEF GRANTED BY THE LEARNED CIT (A) ON THE FOLLOWING ADDITIONS: A) UNEXPLAINED INVESTMENT IN WINTEL SOFTWARE LTD R S.15 20 000/- B) UNEXPLAINED INVESTMENT IN THE NAME OF G.CHOUDHAR Y AND G. LEELAVATI - RS. 10 00 000/- C) BOGUS DEPOSITS IN M/S PRAMADA FINVEST LTD RS.1 3 00 000/- 4. THE ASSESSEE IS IN APPEAL BEFORE US IN RESPECT O F THE FOLLOWING ADDITIONS WHICH WERE CONFIRMED BY THE LEARNED CIT (A): A) UNEXPLAINED INVESTMENT IN PURCHASE OF SHARES - RS.2.00 LAKHS B) UNEXPLAINED MARRIAGE EXPENDITURE RS.2.00 LAKH S C) UNEXPLAINED LOAN ADVANCED TO SHRI NARASIMHA RAJU - RS.2.00 LAKHS 5. THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUN D AND THE SAME READS AS UNDER: THE LEARNED ASSESSING OFFICER ERRED IN RECORDING A FINDING THAT A SEARCH WAS CONDUCTED IN THE RESIDENTIAL PREMISES OF THE ASSESSEE ON 21 ST DECEMBER 1999 WHICH IS CONTRARY TO THE FACTS ON RE CORD AND SUCH OBSERVATIONS OF ASSESSING OFFICER ARE ERRONEOUS BOT H ON FACTS AND IN LAW THEREFORE THE ASSESSMENT FRAMED UNDER SECTION 158B C OF THE I.T. ACT IS NOT SUSTAINABLE IN LAW. 6. DURING THE COURSE OF HEARING THE LEARNED DEPART MENTAL REPRESENTATIVE PRODUCED A COPY OF WARRANT OF AUTHO RIZATION IN FORM NO.45 AND FROM THAT WE NOTICE THAT THE WARRANT HAS BEEN ISSUED TO SEARCH THE RESIDENCE OF THE ASSESSEE HEREIN. HENCE WE DO N OT FIND MERIT IN THE ADDITIONAL GROUND RAISED BY THE ASSESSEE AND ACCORD INGLY WE DISMISS THE SAME. ITSSA NOS 112 AND 115 S RAMA KRISHNA RAJU VISAKHAPA TNAM PAGE 3 OF 12 7. WE SHALL TAKE UP THE APPEAL OF THE REVENUE FIRST . THE FIRST ISSUE RELATES TO THE ADDITION OF RS.15 20 000/- PERTAININ G TO UNEXPLAINED INVESTMENT MADE IN THE COMPANY NAMED M/S. WINTEL SO FTWARE LTD. THE SAID COMPANY HAD BEEN FLOATED BY ASSESSEES SON SHR I S. VIKRAM RAJU. THE ASSESSEE IS ONLY A SHAREHOLDER IN THAT COMPANY. DUR ING THE COURSE OF SEARCH EVIDENCES PERTAINING TO PAYMENT OF RS.40.00 LAKHS MADE BY M/S WINTEL SOFTWARE LTD TO ANOTHER COMPANY NAMED M/S OR BIT INFOCOM PRIVATE LTD. WERE FOUND. THE ASSESSEE WAS QUESTIONED ABOUT THOSE PAYMENTS AND HIS EXPLANATION WAS ACCEPTED FOR RS.43.80 LAKHS. T HE ASSESSEE AGREED TO OFFER THE BALANCE AMOUNT OF RS.15.20 LAKHS AS HIS U NDISCLOSED INCOME. THE SAME WAS ASSESSED BY THE ASSESSING OFFICER. BEFORE THE LEARNED CIT (A) THE ASSESSEE CONTENDED THAT THE IMPUGNED PAYMENTS H AVE BEEN MADE BY THE COMPANY OWNED BY HIS SON AND ACCORDINGLY CONTEN DED THAT THE ASSESSEE IS NOT RESPONSIBLE TO EXPLAIN THE SAID PAY MENTS. THE LEARNED CIT (A) WAS CONVINCED WITH THE SAID CONTENTIONS AND ACC ORDINGLY DELETED THE IMPUGNED ADDITION OF RS.15.20 LAKHS WITH THE FOLLOW ING OBSERVATIONS: 4. FROM THE EXPLANATION FURNISHED BY THE APPELLANT IT MAY BE SEEN THAT M/S WINTEL SOFTWARE P. LTD WAS FLOATED BY APPELLANTS SON SRI S. VIKRAM RAJU IN SEPTEMBER 1999 ALONG WIT H SRI M.R.K. RAJU. THE APPELLANT IS NOT EVEN A DIRECTOR IN THE SAID COMPANY. HE IS ONLY A SHARE HOLDER IN THE SAID COMP ANY . AS ON THE DATE OF SEARCH CONDUCTED ON 21-11-1999 H E IS STATED TO HAVE INVESTED RS.6.00 LAKHS IN HIS HUF CAPACITY AND RS.3.00 LAKHS IN INDIVIDUAL CAPACITY. THE INVESTMENTS ARE D ULY REFLECTED IN THEIR CASH FLOW STATEMENTS FILED BEFORE THE ASSE SSING OFFICER. THE ASSESSING OFFICER HAS NOT DISPUTED THE CASH FLO W STATEMENTS. BOTH THE INVESTMENTS ARE ALSO REFLECTED IN THE BALANCE SHEETS FILED FOR HUF AND INDIVIDUAL. THE COMPANY FLOATED BY HIS SON IS A SEPARATE LEGAL ENTITY AND T HE APPELLANT WHO IS NOT EVEN A DIRECTOR IN THE COMPANY SHOULD NOT HAVE BEEN MADE RESPONSIBLE TO EXPLAIN TH E SOURCES OF INVESTMENTS MADE BY THE SAID COMPANY. M/S WINTEL SOFTWARE LTD WAS ORIGINALLY INCORPORATED ON 17-9-1999 AS A PRIVATE LIMITED COMPANY AND HAS OPENED ITS BANK A CCOUNT ON 15-11-1999 WITH UNION BANK OF INDIA VISAKHAPATNAM. THE COMPANY RIGHT FROM ITS INCEPTION MAINTAINED ACCOUNT S AND THERE IS NO REASON WHY A PRIVATE LIMITED COMPAN Y WILL NOT MAINTAIN ITS ACCOUNTS. IT HAS OPENED BANK ACCOUNT AN D HAS BEEN DOING SOFTWARE BUSINESS AS ON THE DATE OF SEAR CH AND THE ITSSA NOS 112 AND 115 S RAMA KRISHNA RAJU VISAKHAPA TNAM PAGE 4 OF 12 STAFF WORKING ON THE COMPUTERS ACQUIRED BY THE COMP ANY. THE COMPANY HAD MADE PAYMENTS TO M/S ORBIT INFOCOM (P) LTD THROUGH ITS BANK ACCOUNT MAINTAINED WITH UNION BANK OF INDIA VISAKHAPATNAM. THE SOURCES WERE SHAR E APPLICATION RECEIVED BY THE COMPANY WHICH WAS AT RS.69 94 500/- AS ON THE DATE OF SEARCH. THE OBSERVATION MADE BY THE ASSESSING OFFICER THAT THE COMPANY DID NOT MAINTAIN ACCOUNTS ARE ALSO WITHOUT ANY BASIS. DURING THE COURSE OF SEARCH SOME VOUCHERS OF WINTE L SOFTWARE LTD WERE FOUND AND SEIZED. AS PER THE VOUC HERS IT IS EVIDENT THAT THE SAID COMPANY HAS BEEN MAINTAINING BOOKS OF ACCOUNT AND THE VOUCHERS ARE SIGNED BY THE MANAGING DIRECTOR MR. VIKRAM RAJU INDICATING THAT THE BUSINESS IS MAN AGED BY HIM. THE MANAGING DIRECTOR OF WINTEL SOFTWARE LTD HAS FI LED ALL THE SHARE APPLICATIONS AND CONFIRMATION LETTERS FOR THE INVESTMENTS MADE IN THE SAID COMPANY. KEEPING IN VIEW THE ENTIR E FACTS AND CIRCUMSTANCES OF THE CASE I AM OF THE CONSIDERED VI EW THAT THE ASSESSING OFFICER WAS NOT AT ALL JUSTIFIED IN TREAT ING THE SUM OF RS.15.20 LAKHS AS APPELLANTS UNEXPLAINED INVESTMEN T IN M/S WINTEL SOFTWARE LTD. IN FACT THE INVESTMENT MADE BY THE APPELLANT AND HIS HUF WAS ONLY TO THE EXTENT OF RS. 9.00 LAKHS AS ON THE DATE OF SEARCH ON 21-11-1999 AND THE SAME HAS BEEN DULY EXPLAINED BY WAY OF CASH FLOW STATEMENTS FILED BEFORE THE ASSESSING OFFICER. IN SUCH CIRCUMSTANCES I DO NOT FIND ANY JUSTIFICATION IN UPHOLDING THE ADDITION OF RS.15.20 LAKHS AND THE SAME IS HEREBY CANCELLED. 7.1 WE NOTICE THAT THE LEARNED CIT (A) HAS GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE IS RELATED TO THE COMPANY VIZ. M /S WINTEL SOFTWARE LTD ONLY AS A SHARE HOLDER I.E. HE IS NO WAY CONCERNED WITH THE MANAGEMENT OF THE COMPANY. FURTHER THE SAID COMPANY HAS BEEN FLO ATED BY THE ASSESSEES SON. THE LEARNED CIT (A) HAS ALSO GIVEN A FINDING T HAT THE SAID COMPANY IS MAINTAINING BOOKS OF ACCOUNT AND THE IMPUGNED PAYME NTS HAVE BEEN MADE THROUGH BANKING CHANNELS. ACCORDINGLY THE LEARNED CIT (A) HAS HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TREATING THE SUM OF RS.15.20 LAKHS AS THE UNEXPLAINED INVESTMENT OF THE ASSESSEE. ON A CAREFUL CONSIDERATION OF THE FACTS NARRATED BY LEARNED CIT(A) WE ARE OF THE VIEW THAT THE ASSESSEE CANNOT BE CALLED FOR TO EXPLAIN THE TRANSA CTIONS ENTERED BY A COMPANY OWNED BY HIS SON. ACCORDINGLY WE DO NOT FI ND ANY INFIRMITY IN THE ITSSA NOS 112 AND 115 S RAMA KRISHNA RAJU VISAKHAPA TNAM PAGE 5 OF 12 DECISION OF THE LEARNED CIT (A) ON THIS ISSUE AND A CCORDINGLY UPHOLD THE SAME. 8. THE NEXT ISSUE CONTESTED BY THE REVENUE RELATES TO THE ADDITION OF RS.10.00 LAKHS. DURING THE COURSE OF SEARCH IN THE RESIDENTIAL PREMISES OF THE ASSESSEE PHOTOCOPIES OF DEMAND DRAFTS PURCHAS ED IN FAVOUR OF SHRI CHOUDHARY AND SMT. LEELAVATI AGGREGATING TO RS.10. 00 LAKHS WERE FOUND. SINCE THE ASSESSEE COULD NOT EXPLAIN THE PURPOSE AN D THE SOURCES OF THE DDS HE AGREED TO OFFER THE ABOVE SAID SUM OF RS.10 .00 LAKHS AS HIS UNDISCLOSED INCOME. DURING THE COURSE OF ASSESSMEN T PROCEEDINGS THE ASSESSEE EXPLAINED THAT THE SAID DEMAND DRAFTS WERE PURCHASED BY HIS SON SHRI S. VIKRAM RAJU WHO HAD RETURNED FROM USA TO SE T UP A SOFTWARE COMPANY. IT WAS EXPLAINED THAT SHRI VIKRAM RAJU HAD REQUESTED SHRI CHOUDHARY AND SHRI LEELAVATI TO PURCHASE AGRICULTUR AL LANDS ON HIS BEHALF. IT WAS ALSO SUBMITTED THAT THE TRANSACTIONS RELATING TO THE PURCHASE OF DEMAND DRAFTS HAVE BEEN RECORDED IN THE BOOKS OF SH RI VIKRAM RAJU. HOWEVER THE ASSESSING OFFICER DID NOT ACCEPT THE S AID EXPLANATIONS AND ACCORDINGLY ADDED THE SUM OF RS.10.00 LAKHS AS THE UNDISCLOSED INCOME OF THE ASSESSEE. THE LEARNED CIT (A) NOTICED THAT THE ASSESSEES SON SHRI S. VIKRAM RAJU HAD CONFIRMED THAT THE DEMAND DRAFTS WE RE PURCHASED ON HIS BEHALF. THE LEARNED CIT (A) ALSO NOTICED THAT THE C OVERING LETTER TO THE DEMAND DRAFTS FOUND DURING THE COURSE OF SEARCH ALS O SUGGESTS THAT THE PAYMENTS WERE MADE ON BEHALF OF SHRI S. VIKRAM RAJU . THE LEARNED CIT (A) ALSO NOTICED THAT THE TRANSACTIONS WERE REFLECTED I N THE BANK ACCOUNT OF THE ASSESSEE AND ALSO IN THE BOOKS OF THE ASSESSEE. AC CORDINGLY THE LEARNED CIT (A) DELETED THE ADDITION OF RS.10.00 LAKHS RELA TING TO DEMAND DRAFT WITH THE FOLLOWING OBSERVATIONS: VIDE ANOTHER LETTER DT. 21-12-2001 IT WAS EXPLAI NED THAT THE DDS PURCHASED IN FAVOUR OF SRI G. CHOWDARY AND SMT. G. LEELAVATI FOR RS.10.00 LAKHS ARE DULY REFLECTED IN THE CASH FLOW STATEMENT AS UNDER: DATE AMOUNT SOURCE 11-3-99 RS.5.00 LAKHS OUT OF THE AMOUNT SENT BY SON FROM USA ITSSA NOS 112 AND 115 S RAMA KRISHNA RAJU VISAKHAPA TNAM PAGE 6 OF 12 19-4-99 RS.3.00 LAKHS - DO 30-4-99 RS.2.00LAKHS - DO IT HAS THEREFORE BEEN SUBMITTED THAT THE SOURCE OF RS.10.00 LAKHS INVESTED IN PURCHASE OF DEMAND DRAFTS STANDS DULY EXPLAINED AND NO ADDITIONS SHOULD HAVE BEEN MADE ON THIS ACCOUNT. THE AMOUNT SENT BY HIS SON WERE CREDITED I N APPELLANTS BANK ACCOUNT IN INDUS IND BANK LTD CDR EXTENSION BRANCH VISAKHAPATNAM. THE AMOUNTS WERE RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE. THE DEMAN D DRAFTS PURCHASED IN FAVOUR OF G.CHOWDHARY AND SMT. G. LEEL AVATI ARE DULY REFLECTED IN BALANCE SHEET OF APPELLANTS HUF FOR THE YEAR ENDED 31-3-1999 AND 31-3-2000. IN THE BALANCE S HEET THE AMOUNTS HAVE BEEN SHOWN AS LAND ADVANCES IN THE NAMES OF SHRI G. CHOWDARY AND SMT. G. LEELAVATI. THE APPE LLANT HAS FILED CASH BOOK WHICH SHOWS THAT DDS WERE PURCHASED AFTER MAKING WITHDRAWALS FROM THE CASH BOOK AND ENTRIES I N THIS REGARD ARE REFLECTED ON PAGES 159 AND 186 OF CASH B OOK. THUS THE SOURCES OF INVESTMENT IN PURCHASE OF DDS S TANDS DULY EXPLAINED AND THEREFORE THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TREATING THE SAME AS UNEXPLAINED IN TH E HANDS OF THE APPELLANT. HENCE THIS ADDITION IS ALSO DELETED . 8.1 WE NOTICE THAT THE LEARNED CIT (A) HAS CONSIDER ED VARIOUS MATERIALS WHICH EVIDENCED THAT THE IMPUGNED DEMAND DRAFTS HAV E BEEN PURCHASED ON BEHALF OF THE ASSESSEES SON. THE LEARNED CIT (A) H AS ALSO GIVEN A FINDING THAT THE FUNDS USED FOR THE PURCHASE OF DEMAND DRAF TS WERE SENT BY HIS SON. THE ASSESSEE HAS ALSO RECORDED THE RECEIPT OF FUNDS AND THE PURCHASE OF DEMAND DRAFTS IN THE BOOKS OF ACCOUNT OF HIS HUF . IN VIEW OF THE ABOVE WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DEC ISION OF THE LEARNED CIT (A) ON THIS ISSUE. 9. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE RELA TES TO THE ADDITION OF RS.13.00 LAKHS. DURING THE COURSE OF SEARCH IT WAS NOTICED THAT THE COMPANY M/S PRAMADA FINVEST LTD HAD RECEIVED DEPOSI TS FROM NUMBER OF PERSONS DURING THE FINANCIAL YEARS 1997-98 AND 1998 -99. THE AGGREGATE AMOUNT OF DEPOSITS STOOD AT RS.26.00 LAKHS. WHEN TH E ASSESSEE WAS ASKED ABOUT THE GENUINENESS OF THE DEPOSITS HE AGREED TO OFFER 50% OF RS.26.00 LAKHS I.E. RS.13.00 LAKHS AS HIS UNDISCLOSED INCOM E. BEFORE THE ASSESSING OFFICER THE ASSESSEE SUBMITTED THAT THE SAID DEPOS ITS WERE RECEIVED BY THE ITSSA NOS 112 AND 115 S RAMA KRISHNA RAJU VISAKHAPA TNAM PAGE 7 OF 12 COMPANY AS PER THE RULES FRAMED BY RESERVE BANK OF INDIA AND THE APPLICATIONS SUBMITTED BY THE DEPOSITORS ARE ALSO M AINTAINED BY THE SAID COMPANY. THE ASSESSING OFFICER DID NOT ACCEPT THE E XPLANATIONS OF THE ASSESSEE AND ADDED THE ABOVE SUM OF RS.13.00 LAKHS AS THE UNDISCLOSED INCOME OF THE ASSESSEE. THE LEARNED CIT (A) NOTICED THAT THE IMPUGNED DEPOSITS HAVE BEEN RECORDED IN THE BOOKS OF M/S PRA MADA FINVEST LTD AND ACCORDINGLY HELD THAT THE ADDITION IF ANY IS REQUI RED TO BE MADE ONLY IN THE HANDS OF THE COMPANY. THE OBSERVATIONS OF THE LEARN ED CIT (A) ARE EXTRACTED BELOW: IN FACT THE COMPANY HAD TOTAL DEPOSITS OF RS.2 0 7 42 107/- AS ON 31-3-1998 AND THERE IS NO REASON WHY A PUBLIC LI MITED COMPANY WOULD CREATE BENAMI DEPOSITS. THE COMPANY H AS BEEN MAINTAINING ALL ITS STATUTORY REGISTERS AND HAS BEE N FOLLOWING RBI GUIDELINES IN RESPECT OF PUBLIC DEPOSITS THAT AR E REGULARLY ACCEPTED AS THE BUSINESS OF THE COMPANY ITSELF IS T HAT OF NON- BANKING FINANCE COMPANY. THESE DEPOSITS CANNOT FORM PART OF UNEXPLAINABLE INCOME OF THE APPELLANT WITHIN THE ME ANING OF SEC.158B(B) AS THE AMOUNTS WERE ALREADY RECORDED IN THE BOOKS OF ACCOUNT OF THE COMPANY AND THERE IS NO MATERIAL AVAILABLE DURING THE SEARCH OR DURING THE SUBSEQUENT INVESTIG ATION THEREAFTER TO SHOW THAT THE DEPOSITS WERE IN FACT T HE UNDISCLOSED INCOME OF THE APPELLANT. AS PER SEC.158 BB THE UNDISCLOSED INCOME SHALL BE COMPUTED ON THE BASIS O F EVIDENCES FOUND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNT OR DOCUMENTS AND SUCH OTHER MATERIALS OR INFORMATION A S ARE AVAILABLE WITH THE ASSESSING OFFICER. THE CALCUTTA HIGH COURT IN THE CASE OF BHAGWATI PRASAD KEDIA (248 ITR 562) REL YING UPON THE EXPLANATION TO SEC.158 BA HAS HELD THAT IN THE CASE OF REGULAR ASSESSMENT THE A.O IS FREE TO EXAMINE THE VERACITY OF THE RETURN AS WELL AS THE CLAIMS MADE BY THE ASSESS EE WHEREAS THE UNDISCLOSED INCOME IS TAXED BY WAY OF BLOCK ASS ESSMENT AS A RESULT OF SEARCH AND SEIZURE. THE DELHI HIGH COUR T IN THE CASE OF CIT VS. RAVI KANT JAIN (250 ITR 141) HAS HELD TH AT THE SCOPE AND AMBIT OF CHAPTER XIV B IS LIMITED IN A SENSE T O MATERIALS UNEARTHED DURING THE SEARCH AND THE ASSESSMENT FOR THE BLOCK PERIOD CAN BE DONE ON THE BASIS OF EVIDENCE FOUND A S A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNT OR DOCUME NTS AND SUCH OTHER MATERIAL OR INFORMATION AS ARE AVAILABLE WITH THE A.O. IN THE INSTANT CASE THE DEPOSITS WERE APPEARING IN THE BOOKS OF ACCOUNT OF THE COMPANY OF WHICH THE APPELLANT IS A MANAGING DIRECTOR. IF AT ALL THE ADDITION IS REQUIRED TO BE M ADE THE SAME SHOULD HAVE BEEN MADE IN THE HANDS OF THE COMPANY A ND NOT IN THE HANDS OF THE INDIVIDUAL UNLESS IT IS PROVED TH AT THE DEPOSITS ITSSA NOS 112 AND 115 S RAMA KRISHNA RAJU VISAKHAPA TNAM PAGE 8 OF 12 ARE MADE BY THE APPELLANT OUT OF HIS UNDISCLOSED SO URCES. THE ASSESSING OFFICER HAS NOT GIVEN ANY SUCH FINDING. 9.1 THE UNDISPUTED FACTS ARE THAT THE IMPUGNED AMOU NT OF RS.26.00 LAKHS HAVE BEEN ACCEPTED AS DEPOSITS BY M/S PRAMADA FINVEST LTD AND FURTHER THE SAID AMOUNT HAS BEEN FOUND RECORDED IN THE BOOKS OF THE ABOVE SAID COMPANY PRIOR TO THE DATE OF SEARCH. IN THESE CIRCUMSTANCES WE AGREE WITH THE VIEW OF THE LEARNED CIT (A) THAT THE IMPUG NED ADDITION CANNOT BE MADE IN THE HANDS OF THE ASSESSEE. ACCORDINGLY WE UPHOLD THE ORDER OF THE LEARNED CIT (A) ON THIS ISSUE. 10. NOW WE SHALL TAKE UP THE APPEAL OF HE ASSESSEE. THE FIRST ISSUE RELATES TO ADDITION OF RS.2.00 LAKHS PERTAINING TO THE INVESTMENT MADE IN PURCHASE OF SHARES. DURING THE COURSE OF SEARCH A NUMBER OF SHARE CERTIFICATES ISSUED BY M/S PRAMADA FINVEST LTD ALON G WITH BLANK SIGNED TRANSFER DATES WERE FOUND. THE AGGREGATE PURCHASE V ALUE OF THE SAID SHARE CERTIFICATES STOOD AT RS.8 33 045/-. IT WAS NOTICE D THAT ALL THE PAYMENTS EXCEPT FOR AN AMOUNT OF RS.1 99 200/- HAD BEEN MAD E THROUGH BANK ACCOUNT. WHEN QUESTIONED THE ASSESSEE ADMITTED TH AT THE CASH PAYMENTS WERE MADE FROM OUT OF HIS UNDISCLOSED INCOME AND AC CORDINGLY HE OFFERED A SUM OF RS.2.00 LAKHS AS HIS UNDISCLOSED INCOME. TH E ASSESSING OFFICER ALSO ACCORDINGLY TREATED THE ABOVE SAID SUM OF RS.2.00 L AKHS AS THE UNDISCLOSED INCOME OF THE ASSESSEE. THE LEARNED CIT (A) ALSO CO NFIRMED THE SAID ADDITION WITH THE FOLLOWING OBSERVATIONS: 9. DURING THE COURSE OF SEARCH NUMBER OF SHARE CER TIFICATES OF M/S PRAMADA FINVEST LTD ALONG WITH BLANK SINGED TRA NSFER DEEDS WERE FOUND AND ON THE ENVELOPES RS.6 TO 10 PE R SHARE WERE WRITTEN. TOTAL PURCHASE VALUE WAS RS.8 33 045/ - AND EXCEPT AN AMOUNT OF RS.1 99 200/- ALL THE PAYMENTS WERE THROUGH BANK ACCOUNT. BEFORE ME IT HAS BEEN CONTEN DED THAT THE AMOUNT OF RS.1 99 200/- PAID TO 47 SMALL SHARE HOLDERS IN THE RANGE OF MOSTLY 3000 TO RS.5 000/- PER SHARE HO LDER WAS MADE IN CASH. THE SOURCE OF AMOUNT WAS RECEIVED FRO M S. VIKRAM RAJU FROM USA ON 16-12-1998 THROUGH KARUR VY SYA BANK. SRI VIKRAM RAJU ALSO CONFIRMED THIS PAYMENT O F RS.2 06 390/- CREDITED IN KARYR VYSYA BANK. THE CON TENTION OF ITSSA NOS 112 AND 115 S RAMA KRISHNA RAJU VISAKHAPA TNAM PAGE 9 OF 12 THE APPELLANT CANNOT BE ACCEPTED ON FACTS. THE APPE LLANT IS TRYING TO LINK UP CASH PAYMENTS TO SHARE HOLDERS WI TH THE AMOUNT RECEIVED FROM SON FROM USA ON 16-12-1998. FI RST OF ALL NO SUCH EXPLANATION WAS FURNISHED BEFORE THE ASSESS ING OFFICER THAT THE PAYMENTS TO THE SHARE HOLDERS WERE MADE OU T OF AMOUNTS RECEIVED FROM SON. THE DATES ON WHICH THE P AYMENTS WERE MADE TO THE SHARE HOLDERS ARE ALSO NOT GIVEN. TWO OF THE SHARE HOLDERS HAVE BEEN PAID CASH AMOUNTS OF RS.11 400/- AND RS.28 800/-. IT IS SEEN THAT EXCEPT CASH PAYMEN T OF RS.1 99 200/- ALL OTHER PAYMENTS HAVE BEEN MADE THR OUGH CHEQUES SOME OF THEM RANGES BETWEEN RS.2000/- TO RS.5000/-. IN SUCH CIRCUMSTANCES I AM OF THE VIEW TH AT THE SOURCE OF CASH PAYMENT OF RS.1 99 200/- HAS NOT BEE N SATISFACTORILY EXPLAINED AND THE SAME HAS BEEN RIGH TLY TREATED AS UNDISCLOSED INCOME OF THE APPELLANT. HENCE THIS ADDITION OF RS.2.00 LAKHS IS SUSTAINED. 10.1 WE NOTICE THAT THE ASSESSEE HAD CONTENDED BEFO RE THE ASSESSING OFFICER THAT THE IMPUGNED PAYMENTS OF RS.2.00 LAKHS WERE ALREADY RECORDED IN THE BOOKS OF ACCOUNT. HOWEVER THE ASSESSING OFF ICER WAS NOT CONVINCED WITH THE SAID EXPLANATION AS THE INDIVIDUAL BOOKS O F ACCOUNT WERE NOT FOUND AT THE TIME OF SEARCH AND THE ASSESSEE ALSO DID NOT PRODUCE THE SAME BEFORE THE SEARCH OFFICIALS. BEFORE THE LEARNED CIT (A) THE ASSESSEE HAS GIVEN A NEW EXPLANATION AND THE SAME WAS REJECTED B Y LEARNED CIT (A). BEFORE US ALSO THE ASSESSEE COULD NOT LINK UP THE BANK WITHDRAWALS AND THE PURCHASE OF SHARE CERTIFICATES. HENCE WE ARE OF T HE VIEW THAT THE ASSESSEE HAS FAILED TO EXPLAIN THE SOURCES FOR MAKING INVEST MENT OF RS.2.00 LAKHS IN PURCHASE OF SHARES. ACCORDINGLY WE CONFIRM THE ORDE R OF THE LEARNED CIT (A) ON THIS ISSUE. 11. THE NEXT ISSUE IN THE APPEAL OF THE ASSESSEE RE LATES TO THE ADDITION OF RS.2.00 LAKHS PERTAINING TO UNEXPLAINED EXPENDIT URE INCURRED ON MARRIAGE OF ASSESSEES DAUGHTER. DURING THE COURSE OF SEARCH THE ASSESSEE ADMITTED THAT HE SPENT A SUM OF RS.7.00 LAKHS ON HIS DAUGHTE RS MARRIAGE AND OFFERED A SUM OF RS.2.00 LAKHS AS UNEXPLAINED. BEF ORE THE ASSESSING OFFICER THE ASSESSEE EXPLAINED SOURCES TO THE TUNE OF RS.7.00 LAKHS BUT THE ITSSA NOS 112 AND 115 S RAMA KRISHNA RAJU VISAKHAPA TNAM PAGE 10 OF 12 ASSESSING OFFICER WAS NOT CONVINCED WITH THE SAME. THE LEARNED CIT(A) ALSO CONFIRMED THE SAID ADDITION. 11.1 BEFORE US THE LEARNED AUTHORISED REPRESENTATIV E SUBMITTED THAT THE ASSESSEE HAD OBTAINED LOAN OF RS.4.00 LAKHS FROM A FINANCE COMPANY NAMED M/S SHRI VENKATESWARA FINANCE & INVESTMENTS AN D ANOTHER LOAN OF RS.3.00 LAKHS FROM SHRI D. RAJESH VARMA FOR THE PUR POSE OF MEETING THE MARRIAGE EXPENSES. BESIDES THE ABOVE IT WAS EXPLA INED THAT THE ASSESSEE HAD ALSO OBTAINED GIFTS AGGREGATING TO RS.1.00 LAKH S FROM HIS PARENTS. THE LEARNED AUTHORISED REPRESENTATIVE ALSO CONTENTED TH AT THE SEARCH OFFICIALS DID NOT COME ACROSS ANY INCRIMINATING MATERIALS IN CONNECTION WITH THE MARRIAGE EXPENSES. ACCORDINGLY IT WAS CONTENDED THA T THE IMPUGNED ADDITION IS LIABLE TO BE DELETED. 11.2 WE NOTICE THAT THE ASSESSEE DID NOT RAISE ANY OBJECTION WITH REGARD TO THE AVAILABILITY OF INCRIMINATING MATERIAL BEFOR E THE TAX AUTHORITIES AND HENCE WE ARE UNABLE TO ACCEPT THE SAME AT THIS STAG E. BEFORE THE ASSESSING OFFICER THE ASSESSEE HAS EXPLAINED THE SOURCES FOR THE MARRIAGE EXPENSES AS UNDER: DATE NAME OF THE PERSON AMOUNT 20-4-1998 SRI VENKATESWARA CONSTRUCTION (LOAN RECEIVED) 3 50 000/- 26 - 06 - 1998 DRAWN FROM BANK (OUT OF VSL FINANCE LOAN) 1 00 000/ - 02-07-1998 DRAWINGS FROM (INDIVIDUALS ACCOUNT) S.V.G.K. RAJU (FATHER) S.SAROJINI 1 50 000/- 50 000/- 50 000/- THERE APPEARS TO BE NO DISPUTE WITH REGARD TO THE B ORROWINGS MADE BY THE ASSESSEE AS THE TAX AUTHORITIES HAS ACCEPTED THE SO URCES TO THE TUNE OF RS.5 LAKHS. THE DISPUTE APPEARS TO BE ONLY WITH REGARD T O THE DRAWINGS FROM THE INDIVIDUAL ACCOUNTS AND THE RECEIPT OF GIFTS. WITH REGARD TO THE DRAWINGS THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSE E HAS PREPARED THE ACCOUNTS AFTER THE SEARCH IN ORDER TO ARRIVE AT THE CASH BALANCE OF RS.1.5 LAKHS IN HIS INDIVIDUAL ACCOUNTS. WITH REGARD TO T HE GIFTS THE ASSESSING ITSSA NOS 112 AND 115 S RAMA KRISHNA RAJU VISAKHAPA TNAM PAGE 11 OF 12 OFFICER HAS OBSERVED THAT THE ASSESSEE HAS FAILED T O FURNISH ANY EVIDENCE IN SUPPORT OF RECEIPT OF GIFTS FROM HIS PARENTS. IN TH ESE CIRCUMSTANCES THE LEARNED CIT(A) HAS CONFIRMED THE ADDITION OF RS.2.0 0 LAKHS. WE HAVE CONSIDERED THE ORDER OF LEARNED CIT(A) AND CONSIDER ING THE FACTS SURROUNDING THE PRESENT ISSUE WE ARE OF THE VIEW T HAT THE LEARNED CIT (A) HAS RIGHTLY CONFIRMED THE ADDITION OF RS.2 LAKHS PE RTAINING TO UNEXPLAINED MARRIAGE EXPENSES AND ACCORDINGLY UPHOLD HIS VIEW O N THIS ISSUE. 12. THE LAST ISSUE IN THE APPEAL OF THE ASSESSEE RE LATES TO THE ADDITION OF RS.2.00 LAKHS PERTAINING TO THE LOAN GIVEN TO SHRI NARASIMHA RAJU. DURING THE COURSE OF SEARCH A BLANK PROMISSORY NOTE SIGNED BY SHRI BH. NARASIMHA RAJU FOR AN AMOUNT OF RS.2.00 LAKHS WAS FOUND. THE ASSESSEE AGREED TO OFFER THE SAME AS HIS UNDISCLOSED INCOME. HOWEVER HE FAILED TO OFFER THE SAME IN HIS BLOCK RETURN. BEFORE THE ASSESSING OFF ICER ALSO THE ASSESSEE DID NOT FILE ANY EXPLANATION. ACCORDINGLY THE ASSES SING OFFICER ADDED THE ABOVE SAID SUM OF RS.2 LAKHS AS THE UNDISCLOSED INC OME OF THE ASSESSEE. BEFORE THE LEARNED CIT (A) IT WAS SUBMITTED THAT TH E IMPUGNED AMOUNT OF RS.2 LAKHS WAS GIVEN BY M/S. PRAMADA FINVEST LTD. T HE LEARNED CIT (A) WAS NOT CONVINCED WITH THE SAID EXPLANATION AND ACCORDI NGLY CONFIRMED THE ADDITION. THE RELEVANT OBSERVATIONS OF THE LEARNED CIT (A) ARE EXTRACTED BELOW: IN THE WRITTEN SUBMISSIONS FILED BEFORE ME IT HAS BEEN CONTENDED THAT SHRI BH. NARASIMHA RAJU IS A REGULAR CUSTOMER OF M/S PRAMADA FINVEST LTD. INITIALLY THE APPELLANT PROMISED TO GIVE HIM A LOAN OF RS.2.00 LAKHS ON 08- 09- 1999 AND COLLECTED THE PROMISSORY NOTE BUT THE PART Y WAS INSISTING FOR A LOAN OF RS.4.00 LAKHS . AN AMOUNT OF RS.4.00 LAKHS THEREFORE WAS ADVANCED ON 10-9-1999 BY M/S PRAMADA FINVEST LTD. THE PROMISSORY NOTE EXECUTED ON 8-9-1999 FOR RS.2.00 LAKHS WAS NOT DESTROYED . ON THESE FACTS IT HAS BEEN CONTENDED THAT ADDITION OF RS.2. 00 LAKHS IS UNJUSTIFIED AND UNCALLED FOR. THE CONTENTION OF THE APPELLANT CANNOT BE ACCEPTED ON FACTS. THE SEIZED PROMISSORY NOTE DT.8- 9-1999 IS DULY STAMPED AND SINGED BY SHRI BH. NARAS IMHA RAJU. HENCE I UPHOLD THAT THE ADDITION OF RS.2.00 LAKHS WHICH HAS BEEN RIGHTLY TREATED AS UNDISCLOSED INCOME OF T HE APPELLANT. THEREFORE THE ADDITION IS SUSTAINED. ITSSA NOS 112 AND 115 S RAMA KRISHNA RAJU VISAKHAPA TNAM PAGE 12 OF 12 12.1 WE NOTICE THAT THE EXPLANATIONS FURNISHED BEFORE THE LEARNED CIT(A) WAS NOT CONVINCING TO THE FIRST APPELLATE AU THORITY. THE EXPLANATION OF THE ASSESSEE THAT THE IMPUGNED PROMISSORY NOTE W AS EXECUTED WITHOUT PASSING THE MONEY IS NOT PROVED WITH ANY MATERIAL E VIDENCE. HENCE WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LEARNED C IT(A) ON THIS ISSUE. 13. IN THE RESULT THE APPEALS FILED BY THE ASSESSEE AS WELL AS REVENUE STAND DISMISSED. 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 S.RAMA KRISHNA RAJU C/O SHRI C. SUBRAMANYAM CHARTERED ACCOUNTANT 402 LAKSHMI9 APARTMENTS FACOUR LAYOUT WALTAIR UPLANDS VISAKHAPATNAM 530 003 2 THE DY.COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1 VISAKHAPATNAM 3 4. THE CIT CENTRAL HYDERABAD THE CIT(A)-I HYDERABAD 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM