Sri Vinod Kumar Agarwal, Hyderabad vs Assessee

S.No I.T.A. No. AY. Appellant Respondent 1. 357/Hyd/2014 2002-03 Asst. 2. 358/Hyd/2014 2004-05 Sri Vinod Kumar Commissioner 3. 359/Hyd/2014 2005-06 Agarwal, of Income Tax, 4. 360/Hyd/2014 2006-07 Hyderabad Circle-6(1), 5. 361/Hyd/2014 2008-09 PAN: AHHPA2316F Hyderabad 6. 1397/Hyd/2010 2007-08

For Assessee : Shri P. Murali Mohan Rao, AR For Revenue : Shri D. Sudhakar Rao, CIT-DR

Date of Hearing : 28-05-2015 Date of Pronouncement : 29-05-2015

ORDER

PER INTURI RAMA RAO, A.M. :

ITA No. 357/Hyd/2014 (AY. 2002-03): This is an assessee's appeal filed against the order of the Commissioner of Income Tax(Appeals)-IV, Hyderabad, dated 17-01-2014 for the Assessment Year (AY) 2002-03 raising the following grounds of appeal:

"1. The Ld CIT(A) has erred both in law and on facts while dismissing the appeal.

2. The Ld CIT(A) erred in adding an amount of Rs. 2,00,000/- by treating it as Unexplained opening balance of capital without considering the fact that it is a opening balance for the FY. 2002-03.

ITA Nos. 357 to 361/Hyd/2014 & :- 2 -: 1397/Hyd/2010 Sri Vinod Kumar Agarwal

3. The CIT(A) ought to have appreciated the fact that the amount pertaining to capital account is opening balance for the year & belongs to earlier years, hence cannot be added for the year under consideration .

4. The CIT(A) has erred by initiating penalty proceedings u/s. 271 of the act without considering the fact that the appellant has neither concealed income nor furnished any inaccurate particulars of income.

5. The CIT(A) ought to have appreciated the judgment given by ITAT, Hyderabad in case of Sri R. Ram Reddy ITA No. 103/Hyd/2004.

6. The assessee may add, alter or modify any other point to the Grounds of appeal at any time before or at the time of hearing of the appeal".

2. Briefly, the facts of the case are that the assessee is an individual and engaged in the business of scrap trading. Search and Seizure operations were conducted u/s. 132 of the Income Tax Act, 1961 [Act] in the residential premises of the appellant on 07-11-2007. Thereafter, the Ld. Assessing Officer (AO) issued notice u/s. 153A of the Act calling upon the appellant to file return of income for the AY. 2002-03 to 2008-

09. In response to the said notice, the appellant filed the return of income admitting incomes as under:

Assessment Return filed Income Year on admitted (Rs) 2002-03 17-08-2009 NIL 2003-04 17-08-2009 NIL 2004-05 17-08-2009 1,05,570 2005-06 17-08-2009 4,47,730 2006-07 17-08-2009 17,02,670 2007-08 17-08-2009 18,69,630 2008-09 25-09-2009 4,45,340

Against the said return of income for the AY. 2002-03, the ACIT, Circle- 6(1), Hyderabad completed the assessment at a total income of Rs. 2 Lakhs vide order dt. 30-11-2009 u/s. 143(3) r.w.s. 153A of the Act. The disparity between the returned income and assessed income is on ITA Nos. 357 to 361/Hyd/2014 & :- 3 -: 1397/Hyd/2010 Sri Vinod Kumar Agarwal

account of addition of opening cash balance of Rs. 2 Lakhs on the ground that the appellant had failed to produce evidence in support of the availability of cash balance as on 01-04-2002. Being aggrieved by this addition, the appellant preferred an appeal before the Ld.CIT(A), who vide impugned order has dismissed the appeal. It was submitted before the CIT(A) that no addition can be made in respect of opening cash balance in as much as even if the availability of cash balance is doubted, it is only in the preceding year the addition should be made. In support of this contention, he relied upon the following:

i. Smt. N. Sasikala [151 Taxman 42 (Chennai)]; and ii. Co-ordinate Bench of the ITAT in the case of P. Ram Reddy (ITA No.103/Hyd/2004).

The CIT(A) placing reliance on the decisions of the Hon'ble Madras High Court in the case of C. Packirisamy Vs. ACIT [315 ITR 293 (Mad)] the CIT(A) held that, in case, the assessee failed to substantiate the availability of opening balance, the addition can as well be made in the same year and therefore appeal was dismissed. Being aggrieved, assessee had come up with the present appeal before us.

3. It was argued by the Ld. AR before us that, no addition in respect of opening balance can be made in the year under consideration. If at all an addition is warranted, it can be made only in the preceding year. In this connection, the Ld. AR relied upon the following decisions of the co-

ordinate benches of the Tribunal:

i. Smt. Surapu Indira Devi Vs. ACIT (ITA No. 96/Hyd/2012) dt. 08-08-2013; and ITA Nos. 357 to 361/Hyd/2014 & :- 4 -: 1397/Hyd/2010 Sri Vinod Kumar Agarwal

ii. Sri Grosu Murali Krishna Vs. DCIT (ITA No. 178/Hyd/2011) dt. 05-03-2014.

4. On the other hand, Ld. CIT-DR had placed reliance on the orders of the lower authorities and submitted that no interference is called for by the Hon'ble Tribunal.

5. We heard the rival parties. We are of the considered opinion that the issue in appeal is covered by the decision of the co-ordinate bench of this Tribunal in the case of Smt. Surapu Indira Devi Vs. ACIT (Supra), vide para 15, it was held that:

"15. We have heard both the parties. We are of the opinion that even though there may be difference of opinion as to the amount of agricultural income which could be obtained from the land and the lack of evidence produced with respect to the same, the issue of Assessing Officer not accepting the opening balance and treating the same as NIL is incorrect. The CIT(A) has also confirmed the order of the Assessing Officer and hence, the lower authorities have erred as they have overlooked the principle that the opening balance cannot be disturbed this year. The authorities can only reopen for the earlier year. We rely on the decision of ACIT Vs. Smt. N. Sasikala (2005) 92 TTJ (Chennai) 119 wherein it has been held as follow:

5. ........................... The learned counsel for the assessee submitted that the assessee has filed the return of income for the assessment year 1991-92 along with cash flow statement and the statement of affairs. Cumulative cash balance was saved by the assessee over a period of time. The assessee explained the total assets and liabilities position and he further submitted that the assessee has also filed return of income for the assessment year 1990-

91. If the Department doubted the availability of cash balance, it can go to the concerned assessment year 1990-91, and treat it as unexplained income, but it cannot treat the opening balance in the assessment year 1991-92 as unexplained. The learned counsel for the assessee strongly supported the order of the CIT(A).

6. ................. The Tribunal held that the A.O. has failed to take cognizance of the return for 1990-91, while deciding the issue of 1991- 92 as the return was before him. The opening balance of cash cannot be treated as unexplained in the assessment year 1991-92. In view of this position, we have no hesitation in confirming the order of the CIT(A) and reject the ground taken by the Revenue".

ITA Nos. 357 to 361/Hyd/2014 & :- 5 -: 1397/Hyd/2010 Sri Vinod Kumar Agarwal

This above decision was again followed by this Hon'ble Tribunal in the case of Sri Grosu Murali Krishna Vs. DCIT (Supra). We also find that from the material on record, as a result of search and seizure operations, there is no material indicating that the opening cash balance was not available. Hence, it is settled principle of law that in the case of assessments made u/s. 153A, the additions can be made only based on the material seized in the absence of any such material, the addition cannot be made. We are in agreement with the reason given by the Hon'ble Tribunal in the above cases. Respectfully following the decision, we allow the grounds of appeal filed by the appellant.

6. In the result, this appeal is treated as allowed.

ITA Nos. 358 to 361/Hyd/2014 (AYs. 2004-05, 2005-06, 2006-07 & 2008-09) & ITA No. 1397/Hyd/2010 (2007-08):

7. These appeals are filed by the assessee for the AYs. 2004-05 to 2006-07 and 2008-09 against the common order of the Commissioner of Income Tax(Appeals)-IV, Hyderabad, dated 17-01-2014 and 10-09-2010 (for AY. 2007-08), raising the following grounds of appeal:

"1. The Ld CIT(A) has erred both in law and on facts while dismissing the appeal.

2. The CIT(A) erred in estimating the net profit at 6% for the AY. 2005-06 as against the net profit disclosed by the appellant at 2% to 5% average.

3. The CIT(A) erred in estimating the income of the assessee at 6% of the gross receipts without rejecting the books of accounts.

4. The CIT(A) ought to have appreciated the fact that without rejection of books of accounts the flat rate applied by the AO should consider the profit of the last years or rate of profit earned by the other assessee in same trade.

ITA Nos. 357 to 361/Hyd/2014 & :- 6 -: 1397/Hyd/2010 Sri Vinod Kumar Agarwal

5. The CIT(A) ought to have appreciated the order of ITAT in the case of the order of M/s. Varalaxmi Granites (P) Ltd., ITA No. 1435-1438/Hyd/2010.

6. The CIT(A) ought to have appreciated the fact that assessee maintains all the books of accounts & same should take into consideration to decide the matter in favour of the assessee.

7. Without prejudice, the CIT(A) ought to have estimated the income of the appellant based on past projects.

8. The CIT(A) ought to have appreciated the fact that assessee have a right to appeal against the agreed addition 'R.T. Balasubramaniam V/s. ITO 50 ITD 513 (MAD).

9. The CIT(A) has erred by initiating penalty proceedings u/s. 271 of the act without considering the fact that the appellant has neither concealed income nor furnished any inaccurate particulars of income.

10. The assessee may add, alter or modify any other point to the Grounds of appeal at any time before or at the time of hearing of the appeal".

8. Briefly, the facts of the case are that the assessee is an individual and engaged in the business of scrap trading. Search and Seizure operations were conducted u/s. 132 of the Act in the residential premises of the appellant on 07-11-2007. Thereafter, the Ld. Assessing Officer (AO) issued notice u/s. 153A of the Act calling upon the appellant to file return of income for the AY. 2002-03 to 2008-09. In response to the said notice, the appellant filed the return of income admitting incomes as under:

Assessment Return filed Income Year on admitted (Rs) 2002-03 17-08-2009 NIL 2003-04 17-08-2009 NIL 2004-05 17-08-2009 1,05,570 2005-06 17-08-2009 4,47,730 2006-07 17-08-2009 17,02,670 2007-08 17-08-2009 18,69,630 2008-09 25-09-2009 4,45,340 ITA Nos. 357 to 361/Hyd/2014 & :- 7 -: 1397/Hyd/2010 Sri Vinod Kumar Agarwal

No original return of income for the AYs. 2002-03 and 2003-04 have been filed by the appellant. However, for other assessment years under consideration, same as original returns of income were filed in response to notice u/s. 153A, except for the AYs. 2006-07 and 2007-08. However, for the AYs. 2006-07 and 2007-08, higher income was returned in response to notice u/s. 153A. Against the said return of income, the assessment was completed by the ACIT Circle-6(1), Hyderabad vide order dt. 30-11-2009 at a total income of Rs. 1,23,233/- (AY.2004-05), Rs. 7,20,938/- (AY.2005-06), Rs. 20,74,498/- (AY.2006-

07) and Rs. 15,31,487/- (AY.2008-09).

9. The disparity between the returned income and assessed income on account of estimating the income from the business of trading the scrap at a percentage of 6%. Being aggrieved by the addition, appeals were filed before the CIT(A), who vide common order dt. 17-01-2014, dismissed the appeal on the ground that the appellant had agreed for estimation of profit at 6% before the AO and when addition is being made based on the concession made by the assessee. The appeal is not maintainable and in support of this proposition, the Ld.CIT(A) had relied on the following decisions:

i. D. Raja Rao (HUF) ( ITA No. 718/Hyd/02, dt. 02-09-2004); ii. Magni ram Laddha (ITA No. 1000/Hyd/03, dt. 29-09-2004); iii. M/s. Kabalavai Jewellers Pvt. Ltd., (ITA No. 1039/Hyd/05, dt. 13- 04-2006);

iv. Citizen Estates (ITA No. 484/Hyd/05, dt. 31-10-2007) and v. Harikishan Bagri (ITA No. 567/Hyd/09, dt. 28-08-2009). Being aggrieved, the appellant had come up with the present appeals before us.

ITA Nos. 357 to 361/Hyd/2014 & :- 8 -: 1397/Hyd/2010 Sri Vinod Kumar Agarwal

10. It was argued before us that in the case of assessments made u/s.

153A, the estimation of profit is not tenable in the absence of any seized material indicating the Books of Accounts maintained by the assessee are defective etc., and false proposition. He relied upon the following decisions of the co-ordinate benches:

i. M/s. Midwest Gold Ltd., (ITA Nos. 1062 to 1064/Hyd/2014 and 1288 to 1293/Hyd/2014) ; and ii. Kishoresons Detergents Pvt. Ltd., (ITA Nos. 1817 to 1820/Hyd/2012).

11. On the other hand, Ld. DR had placed reliance on the orders of the revenue authorities and submitted that no interference by this Hon'ble Tribunal is required.

12. We heard the rival parties. Admittedly there is no incriminating material seized as a result of search and seizure operations indicating that the Books of Accounts maintained by the assessee are either defective or the appellant had inflated the expenditure or suppressed the sale resulting in a lower profit. Hence, we are of the opinion that the estimation of profit in the given facts of the case is not justified. The CIT(A) had dismissed the appeal on the ground that the appellant himself had agreed for the estimation of profit @ 6% during the course of assessment proceedings before the AO. But the fact to be appreciated is that there is no estopel against the assessee from agitating the issue before the appellate proceedings if the issue goes to the root of the matter. Since it is trite law that the assessments u/s. 153A cannot be made in the absence of incriminating material and this forms part of jurisdiction. Therefore the issue can be adjudicated for the first time ITA Nos. 357 to 361/Hyd/2014 & :- 9 -: 1397/Hyd/2010 Sri Vinod Kumar Agarwal

even by this tribunal. Hence, we allow the grounds of appeal raised by the appellant. In the result, all the appeals are allowed.

13. In the result, appeals in ITA Nos. 357 to 361/Hyd/2014 and 1397/Hyd/2010 all are allowed.

Order pronounced in the open Court on 29th May, 2015

Sd/- Sd/-

(ASHA VIJAYARAGHAVAN) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated 29th May, 2015

TNMM

Copy to :

1. Sri Vinod Kumar Agarwal, C/o. P. Murali & Co. Chartered Accountants, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad.

2. The Asst. Commissioner of Income Tax, Circle-6(1), Hyderabad.

3. CIT(Appeals)-IV, Hyderabad.

4. CIT-III, Hyderabad.

5. D.R. ITAT, Hyderabad

6. Guard File