Muduganti Purushotham Reddy,, ... vs Assessee

Muduganti Purushotham Reddy vs. Income Tax Officer, Ward - 2, (HUF), Warangal. Warangal.

PAN - AAFHM3070H (Appellant) (Respondent)

ITA No. 1070/Hyd/2013 Assessment Year: 2009-10

Income Tax Officer, Ward - 2, vs. Muduganti Purushotham Warangal. Reddy (HUF), Warangal.

PAN - AAFHM3070H (Appellant) (Respondent)

Assessee by : Shri T. Chaitanya Kumar Revenue by : Shri Ramakrishna Bandi

Date of hearing 19-05-2015 Date of pronouncement 27-05-2015

O RDE R

PER SAKTIJIT DEY, J.M.:

These cross appeals by assessee and the department are against order dated 14/05/13 of ld. CIT(A) - VI, Hyderabad for the AY 2009-10.

2. The only common issue in both the appeals is with regard to the addition made on account of unexplained investment. While assessee is aggrieved with the decision of ld. CIT(A) in partly sustaining the addition made by AO, the department is challenging the partial relief 2 ITA Nos. 1191 & 1070 /Hyd/2013 Muduganti Purushotham Reddy

granted by ld. CIT(A) by deleting part of addition. Assessee has also raised certain additional grounds challenging the validity of the assessment order on the ground that the notice issued u/s 143(2) is beyond the period of limitation.

3. At the outset, we propose to deal with the additional ground raised by assessee. As can be seen, before ld. CIT(A) assessee raised additional ground stating that notice issued u/s 143(2) of the Act is beyond the period of limitation as it is dated 03/09/2011. However, ld. CIT(A) after going through the materials on record, did not find the contention of assessee acceptable. He was of the view that the date of notice as mentioned in the assessment order as 03/09/2011 is a mistake as notice was actually issued on 03/09/2010. He also observed that assessee failed to place on record the notice purportedly issued u/s 143(2) on 03/09/2011. Further, ld. CIT(A) observed that as assessee has not objected to the initiation of proceeding before AO at the time of assessment proceeding and rather has complied to the notices and cooperated in completing the assessment proceeding, he is precluded from raising any objection against validity of the notice issued u/s 143(2) in view of the provisions contained u/s 292BB of the Act. Being aggrieved of the decision of ld. CIT(A), assessee has raised the issue before us through the additional ground. However, on perusing the order of ld. CIT(A) and going through the materials on record, we do not find any infirmity in the order of ld. CIT(A) on the issue. Apparently, assessee has not brought any material on record to substantiate its claim that the notice u/s 143(2) was issued on 03/09/11. Moreover, it is a fact on record that assessee has never objected to the validity of the proceeding initiated at the assessment stage and rather has complied with notice issued by AO and cooperated in finalization of the proceeding. That being the case, assessee cannot raise objection with regard to validity of the proceeding initiated in the appellate forum in view of the express provisions of section 292BB.

3 ITA Nos. 1191 & 1070 /Hyd/2013 Muduganti Purushotham Reddy

Accordingly, we refuse to admit the additional ground raised by assessee.

4. As far as merits of the addition are concerned, briefly the facts are, assessee, a HUF filed its return of income for the AY under consideration on 12/03/2010 declaring total income of Rs. 3,05,000. During the assessment proceeding, AO on verification of information available on record found that assessee has made investments in immovable properties. He found that assessee during the PY has constructed semi-finished house by making investment of Rs. 7,50,000 on plot of land purchased vide document No. 1403/08 for a consideration of Rs. 1,79,135. He further found that during the relevant PY, assessee had purchased a plot in survey No. 190 at Laxmipuram village, Warangal for an amount of Rs. 4,67,000 and incurred expenditure of Rs. 3,37,575 towards improvement of plot. When AO called upon assessee to explain source of such investments, assessee vide letter dated 07/12/2011 stated that investments made were out of the capital balance of Rs. 19,50,000 assessee was having as on 01/04/08. AO, however, being of the view that apart from the claim of opening capital balance of Rs. 19,50,000, assessee has not adduced any other substantive evidence to explain the source of investment and also having failed to prove the opening balance of Rs. 19,50,000, treated the amount of Rs. 7,50,000 and Rs. 8,11,365 as unexplained investments. Similarly, AO also found that assessee had entered into GPA with Rayikanti Lakshmi and Rayikanti Ailaiah for purchase of property in survey No. 262/1/1 and 262/1/3 admeasuring o.20 gts. at Bheemaram for an amount of Rs. 8,08,360 in June'08. When AO called upon assessee to explain the source of such investment, assessee vide letter dated 07/12/11 stated that investment made was out of sale proceeds of house at Laximipuram which was sold in the month of August'08. The explanation of assessee was not accepted by AO on the ground that assessee could not have invested the sale proceeds of a property sold in the month of 4 ITA Nos. 1191 & 1070 /Hyd/2013 Muduganti Purushotham Reddy

August'08 for acquiring plot in June'08. He further observed that sale proceeds were received in the form of cheque and was deposited in Andhra Bank on 01/09/08 and out of the sale proceeds, an amount of Rs. 6 lakhs was withdrawn by assessee for the purpose of investing in M/s Madhu Constructions. Accordingly, rejecting explanation of assessee, AO treated the investment of Rs. 8,03,000 as unexplained investment. Thus, in total, AO made addition of Rs. 23,69,725 as unexplained investment. Being aggrieved of such addition, assessee preferred appeal before ld. CIT(A).

5. In course of hearing of appeal, assessee submitted before CIT(A), it is in the business of trading in agricultural product (maize) and for that purpose it provides advances to farmers which were realized subsequently. It was submitted by assessee that as on 31/03/08 advances of Rs. 13,12,000 was receivable from farmers and as the said amount was received during the previous year assessee utilized the same for investment in the property. Assessee submitted, besides the advances realized from farmers assessee also has funds available from sale of certain immovable properties as well as loans received In support of such claim, assessee also furnished reconstructed cash flow statement before ld. CIT(A). Ld. CIT(A) after going through the reconstructed cash flow statement found that opening balance as on 01/04/08 was shown at Rs. 1,29,436. He further noticed that the investment made up to 09/06/08 in immovable properties till sale of immovable property at Gopalapuram on 29/08/08, if taken into consideration with the available cash balance, leaving aside the so called advances realized from farmers and the loan received, there is surplus investment of Rs. 13,50,274. As far as the claim of assessee that he realized advances from farmers, ld. CIT(A) observed that assessee's claim cannot be accepted as they are not supported by any evidence and assessee has not even disclosed the name and addresses of the farmers and the purpose for which such advances were given with confirmations. Therefore, in 5 ITA Nos. 1191 & 1070 /Hyd/2013 Muduganti Purushotham Reddy

absence of any details or supporting evidences, ld. CIT(A) refused to accept the amounts shown towards advances realized from farmers. Similar decision was taken by ld. CIT(A) in so far as loan claimed to have taken from Smt. Sulochana. Thus, ld. CIT(A) found that if the investment made by assessee till 09/06/08 with available sources of fund is considered, the excess investment comes to the tune of Rs. 13,50,274. Accordingly, ld. CIT(A) held that the said amount has to be treated as unexplained investment of assessee and addition to that extent was confirmed out of total addition of Rs. 23,69,725.

6. Ld. AR more or less reiterating the submissions made before ld. CIT(A) submitted, assessee had been filing return of income from AY 2000-01, hence, he has built up sufficient cash balance , which as on 01/04/08 stood at Rs. 19,50,000. Ld. AR submitted, assessee is in business of trade of maize for which purpose, he regularly/ periodically advances money to farmers for procuring their products. Therefore, the advances realized from the farmers also form part of capital available with assessee. It was submitted, apart from the advances realized from the farmers assessee had also obtained loan from Smt. Sulochana amounting to Rs. 1 lakh and an amount of Rs. 2 lakhs from Andhra Bank as gold loan. Ld. AR submitted, when assessee has explained the source of investment with necessary evidence, addition made is not justified. In so far as the observation of ld. CIT(A) that assessee has failed to furnish even names and addresses of the concerned farmers from whom advances were realized, ld. AR submitted, assessee has furnished a statement containing names and addresses of the concerned farmers before this forum. In this context, he referred to a list submitted in paper book containing names and addresses of the farmers from whom advances were claimed to have been realized. Thus, ld. AR submitted, when assessee is having sufficient cash balance available with him to invest in purchase/construction of the property, there is no reason to sustain even part of addition.

6 ITA Nos. 1191 & 1070 /Hyd/2013 Muduganti Purushotham Reddy

7. Ld. DR, on the other hand, submitted, neither at the assessment stage nor before ld.CIT(A) assessee could explain the source of investment in immovable property. Therefore, in absence of proper explanation by assessee in explaining the source of investment in properties, addition made by AO is justified. Ld. DR submitted, as assessee has failed to substantiate the source of investment, assessee is not eligible even to partial relief granted by ld. CIT(A). Ld. DR submitted, assessee has not explained in what mode capital of Rs. 19,50,000 was available. In the aforesaid circumstances, the addition made by AO should be restored.

8. We have considered the submissions of the parties and perused the materials on record as well as the orders of revenue authorities. As can be seen, out of the total addition of Rs. 23,69,725 made by AO on account of investment made in three immovable properties, ld. CIT(A) has sustained the addition of Rs. 13,50,274 after examining the reconstructed cash flow statement of assessee. On a perusal of the said reconstructed cash flow statement, it appears that major part of the inflow shown by assessee is from the so called advances realized from farmers which amounted to Rs. 13,12,000. Further, it also contains loan of Rs. 1 lakh claimed to have been taken from one Smt. Sulochana on 01/06/08. As is apparent from the order of ld. CIT(A), he has not accepted assessee's claim with regard to alleged advances realized from the farmers as well as loan from Smt. Sulochana as a result of which excess investment made by assessee up to 09/06/2008 was worked out to Rs. 13,50,274. It is also evident from the order of ld. CIT(A), he has not accepted assessee's version of advances realized from farmers for the reason that assessee has failed to produce any supporting evidence in respect of the claim made and assessee has even not furnished names and addresses of the farmers from whom advances were realized. In this context, assessee has brought to our notice a list submitted in paper book, a 7 ITA Nos. 1191 & 1070 /Hyd/2013 Muduganti Purushotham Reddy

copy of which is at pages 87 &88, wherein names and addresses of the farmers from whom advances were realized have been given. It is not disputed that the aforesaid list was not furnished either before AO or before ld. CIT(A), but, for the first time assessee has submitted the list before the Tribunal. On perusal of the said list, it appears that, though assessee has furnished names and addresses of the farmers, but, he has not furnished any confirmation from the said farmers/persons. In our view, merely furnishing a list containing names and addresses of some persons from whom advances were claimed to have been realized will not be of any help to assessee unless he conclusively proves the fact that advances were actually realized from these persons. To substantiate its claim, assessee has to furnish either confirmations from the concerned persons or may produce them for examination. As assessee for the first time has disclosed the details of the farmers before the Tribunal neither AO nor ld. CIT(A) had any occasion to verify the claim of assessee by conducting any enquiry. However, considering the fact that assessee has furnished at least names and addresses of these persons, even though at belated stage, we are of the view that assessee deserves an opportunity to prove the fact that advances of Rs. 13,12,000 were realized during the year from the concerned farmers. For the purpose of enabling assessee to prove such claim, we are inclined to remit the matter back to the file of AO to examine the issue afresh by verifying assessee's claim and conducting enquiry on the basis of the names and addresses given by assessee in the list furnished before us. Assessee on its part may also furnish supporting evidences either by way of confirmation from concerned persons or may produce concerned persons before AO to substantiate its claim that advances given earlier were realized during the relevant PY. AO may also examine the loan claimed to have been taken from Smt. Sulochana since a confirmation letter has been filed by assessee. As far as gold loan is concerned, on perusal of the bank statement, it is clear that such loan was obtained by assessee in January'09, hence, it will be 8 ITA Nos. 1191 & 1070 /Hyd/2013 Muduganti Purushotham Reddy

of no help to assessee for explaining investments made prior to 09/06/2008. As far as the objection of the department with regard to relief granted by ld. CIT(A), it is seen from reconstructed cash flow statement that investments made by assessee post 09/06/08 are clearly out of surplus fund available with assessee. Therefore, as investments made are fully explained from available sources, in our view, ld. CIT(A) was justified in accepting these investments. Therefore, grounds raised by department are without any merit.

9. In the result, assessee's appeal in ITA No. 1191/Hyd/13 is partly allowed for statistical purposes and revenue's appeal in ITA No. 1070/Hyd/13 is dismissed.

Pronounced in the open court on 27 th May, 2015.

Sd/- Sd/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated: 27 th May, 2015 kv

Copy to:- 1) ITO, Ward - 2, Warangal

2) Muduganti Purushotham Reddy (HUF), C/o B. Narsing Rao & Co CAs, Plot No. 554, Road No. 92, Jubilee Hills, Hyd. - 96 3 CIT(A)-VI, Hyderabad

4) CIT-VI, Hyderabad

5) The Departmental Representative, I.T.A.T., Hyderabad.