Bommana Rajkumar, Rajahmundry v. Assistant Commissioner Of Income Tax, Central Circle, Rajahmundry

These appeals are filed by the assessee against the order of the Commissioner of Income Tax (Appeals) [CIT(A)]-3, Visakhapatnam in ITA.No.29-31/2016-17/CIT-(A)-3/VSP/2018-19 dated 27.06.2018 for the Assessment Year (A.Y.) 2012-13 to 2014-15. For the sake of convenience, I.T.A. No.546-548/Viz/2018, A.Y.2012-13 to 2014-15 Bommana Rajkumar, Rajahmundry these appeals are clubbed, heard together and disposed of by a common order as under : I.T.A. No.546/Viz/2018, A.Y.2012-13

2. The assessee filed originally, seven grounds in this appeal, which are lengthy and argumentative, therefore, later on, the assessee filed the revised grounds of appeal vide petition dated 18.03.2019 during the pendency of appeal and requested to admit the revised grounds for adjudication. After hearing both the sides, we admit the revised grounds for adjudication.

3. Ground No.2 in the revised grounds is related to the validity of addition made by the Assessing Officer (AO) in the proceedings u/s 153C of the Income Tax Act, 1961 (in short Act) without having the incriminating material. Ground No.3 is related to the addition of Rs.7,36,053/- towards the rent paid for business premises. Both Ground 2 &3 are interdependent, hence we take up these grounds first for adjudication.

5. Brief facts of the case are that the assessee is an individual, deriving income from house property and textile cloth business. He filed the return of income admitting total income of Rs.15,46,013/- for the A.Y.2012-13 on

30.09.2012. Subsequently, search and seizure operations wee conducted in I.T.A. No.546-548/Viz/2018, A.Y.2012-13 to 2014-15 Bommana Rajkumar, Rajahmundry the case of M/s G.S.L.Educational Society, Rajahmundry( society in short) on 25.07.2013. During the course of search in the residence of Shri Adapa Rambabu, the Accountant of the society, certain incriminating material was found relating to the assessee, evidencing the undisclosed income. therefore, the AO has initiated the proceedings u/s 153C of the, and issued notice u/s 153C for which the assessee filed the return of income on 31.12.2014, admitting total income of Rs.42,62,970/- including long term capital gains amounting to Rs.28,16,958/-. During the course of assessment proceedings u/s 153C, the AO found that the assessee has claimed the deduction for payment rent of Rs.7,36,053/- u/s 57 of the,i.e. from the income from other sources. Since the rent paid is not an allowable deduction u/s 57 of the, the AO made the disallowance of Rs.7,36,053/- and added back to the income.

6. Against the order of the AO the assessee filed appeal before the CIT(A) and the Ld.CIT(A) confirmed the addition stating that the payment of rent was not an allowable as deduction u/s 57 of the. Hence, the assessee is in appeal before this Tribunal.

7. During the appeal hearing, the Ld.AR submitted that the assessee has filed the return of income for the A.Y.2012-13 on 30.09.2012 and the time I.T.A. No.546-548/Viz/2018, A.Y.2012-13 to 2014-15 Bommana Rajkumar, Rajahmundry limit for issue of notice u/s 143(2) has got expired on 30.09.2013, thus, the assessment for the A.Y.2012-13 was concluded assessment for the purpose of initiation of proceedings u/s 153C by 30.09.2013. In the instant case, the AO had issued notice u/s 153C on 23.07.2014 which was served on the assessee on 05.08.2014. Therefore, by the time, the notice u/s 153C was issued, the time limit for issue of notice u/s 143(2) got expired and the assessment was concluded. In the concluded assessment, the AO is not permitted to make the addition without the support of incriminating material. This issue was decided by this Tribunal also in favour of the assessee in the case of Y.V.Anjaneyulu, Guntur Vs. DCIT, Central Circle, Vijayawada in I.T.A. No.513 & 514/Viz/2013 and I.T.A. No.524/Viz/2014 dated 09.06.2017. Therefore, submitted that the payment of rent was claimed as deduction in the regular return of income and there was no incriminating material found and seized during the course of search relating to the payment of rent, which was claimed as deduction u/s 57 of the. Hence, submitted that the addition made by the AO is unsustainable and hence, requested to set aside the order of the Ld.CIT(A) and allow the appeal of the assessee. I.T.A. No.546-548/Viz/2018, A.Y.2012-13 to 2014-15 Bommana Rajkumar, Rajahmundry

8. On the other hand, the Ld.DR argued that the issue with regard to claim of rent was noticed by the AO during the assessment proceedings taken up u/s 153C of the. In the instant case, the original assessment was completed u/s 143(1) and no enquiries / verifications were made by the AO. Under the head income from other sources, the assessee is not permitted to claim the payment of rent as deduction. Therefore, argued that the AO has rightly made the addition and requested to uphold the order of the Ld.CIT(A) and dismiss the appeal of the assessee.

9. We have heard both the parties and perused the material placed on record. The Ld.AR relied on the decision of Y.V.Anjaneyulu Vs.DCIT, Central Circle, Vijayawada (supra) and argued that in the concluded assessments, the AO is not permitted to make the additions without having seized material. In the cited case, the assessment was made u/s 153A, the date for holding the assessment as concluded assessment was taken as the date of search, but not the date of issue of notice. For a query from the Bench, the Ld.AR submitted that as per proviso to section 153C, the trigger date for reckoning the assessment as concluded assessment or not is the date of receiving the books of accounts or documents or assets seized or I.T.A. No.546-548/Viz/2018, A.Y.2012-13 to 2014-15 Bommana Rajkumar, Rajahmundry requisitioned by the AO. We have gone through the proviso to section 153C of theand the proviso to section 153C of thereads as under : Assessment of income of any other person. 153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that, (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A: Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person :

9.1. Therefore in the case of other than searched person, reference date for initiation of search u/s 132 is to be reckoned from the date of receiving the books of accounts or documents by the AO having jurisdiction over such other person. In the instant case, as noticed from the assessment order, it is found that the case was notified to the AO by notification vide I.T.A. No.546-548/Viz/2018, A.Y.2012-13 to 2014-15 Bommana Rajkumar, Rajahmundry F.No.62/Juris/CIT/Rjy/2013-14 dated 03.03.2014 which has to be considered as the date of receipt of books by the AO having jurisdiction and for reckoning the date of search and for initiation of proceedings u/s153C. There is no material brought on record by the Ld.DR to show that the books of accounts, documents etc. seized from the premises of the searched person were in handed over to the officer having jurisdiction prior to the date of notification dated 03.03.2014. Therefore, in the absence of any evidence to establish that the material was handed over to AO of such other person before the date of notification, the date to be reckoned is the date on which the case was notified to the present AO, hence, the date of search for the purpose of section 153C / 132 is to be taken as 03.03.2014 in the case of the assessee. In the instant case, there is no doubt that the assessee has filed the return of income on 30.09.2012 and the time limit for issue of notice u/s 143(2) was expired on 30.09.2013 prior to the date of transfer of the case to the AO having jurisdiction and the present AO had issued notice u/s 153C on 23.07.2014. By the time, the case was notified to the present AO, the assessment for the A.Y.2012-13 is unabated. Hence, the AO is not permitted to make any addition without having the incriminating material. In the instant case, the addition was made with reference to the rent paid by the assessee, which was accounted I.T.A. No.546-548/Viz/2018, A.Y.2012-13 to 2014-15 Bommana Rajkumar, Rajahmundry in the regular books of accounts and declared in the returns of income already filed and no incriminating material was found during the course of search. Therefore, the AO is not permitted to make any addition in the hands of the assessee relating to the rent paid by the assessee and the case law relied upon by the assessee in the case of Y.V.Anjaneyulu (supra) supports the assessees case. Therefore, we set aside the order of the Ld.CIT(A) and delete the addition by the AO. Accordingly, appeal of the assessee is allowed. I.T.A.No.547/Viz/2018, A.Y.2013-14

10. In this case also, the assessee filed originally, seven grounds which were lengthy and argumentative. Later on, the assessee filed revised grounds of appeal vide petition dated 18.03.2019, during the pendency of appeal and requested to admit the revised grounds for adjudication. After hearing both the sides, we admit the revised grounds for adjudication.

11. All the grounds of appeal filed by the assessee are related to a sum of Rs.56,92,455/-. Search and seizure operation was conducted in the case of M/s G.S.L.Educational Society, Rajahmundry on 25.07.2013. The AO has initiated the proceedings u/s 153C of the, since there was material found and seized during the course of search from the residence Shri Adapa I.T.A. No.546-548/Viz/2018, A.Y.2012-13 to 2014-15 Bommana Rajkumar, Rajahmundry Rambabu, the Accountant of the society, evidencing the undisclosed income. The AO had issued the notice u/s 153C of the act, on 23.07.2014 and in response to the notice, the assessee has filed the return of income on 31.12.2014, admitting total income of Rs.2,28,95,620/- and the AO completed the assessment, accepting the income returned.

11.1. During the assessment proceedings the assessee requested to reduce the sum of Rs.56,92,455/- from the returned income, since the society has expressed its inability to make the payment of outstanding dues to the assessee vide its letter 28/01/2016. The assessees contention is that during the course of search in the case of M/s G.S.L.Educational Society, as per incriminating material marked as Annexure A/ARB/1, page No.81, seized from Shri Adapa Rambabu, the assessee had to receive the interest of Rs.56,92,455/- from the society which was admitted as additional income, in the return of income filed on 31.03.2014 but the society has regretted its inability to make the payment. The AO also has worked out the breakup of the amounts received and receivable from the society as per which the balance amount worked out was Rs.3,50,933/- and proposed for addition. The assessee submitted the copy of letter issued by M/s G.S.L.Educational Society, clarifying that due to financial problems, the management of the M/s G.S.L.Educational Society has decided not to pay I.T.A. No.546-548/Viz/2018, A.Y.2012-13 to 2014-15 Bommana Rajkumar, Rajahmundry the unpaid amount as per the seized material found during the course of search and hence requested not to make the proposed addition and also requested to reduce the amount of Rs.56,92,455/- which was due from the society since it was irrecoverable. The AO examined the assessees request in the light of the societys letter and withdrawn the proposal for making the addition of Rs.3,50,933/-. Therefore, the assessee submitted that the sum of Rs.56,92,455/- was also irrecoverable and in view of the societys inability to make the payment, requested to reduce the sum of Rs.56,92,455/- also from the income admitted in the return of income already filed. The AO did not reduce the said sum, hence, the assessee filed the appeal before the CIT(A) and the Ld.CIT(A) also did not find favour with the argument of the assessee, hence dismissed the appeal of the assessee observing that the AO has not made any addition to the returned income and the hence no interference is called for in the order of the Ld.AO.

12. Against the order of the Ld.CIT(A), the assessee filed appeal before this Tribunal. During the appeal hearing, the Ld.AR submitted that the assessee was to receive interest of Rs.56,92,455/- from GSL Educational Society. Similarly, further sum of Rs.3,50,933/- was also worked out by the AO which is receivable from the society. GSL Educational Society has I.T.A. No.546-548/Viz/2018, A.Y.2012-13 to 2014-15 Bommana Rajkumar, Rajahmundry informed their inability to make the payment. Accordingly, they have written letter to the assessee to accept the Societys request for nonpayment of the remaining sum of Rs.56,92,455/-. The AO, having accepted the assessees submission and withdrawn the proposed addition of Rs.3,50,933/-, the AO also ought to have considered for reducing the of amount of Rs.56,92,455/- from the returned income. The AR argued that theAT is being appellate court permitted to accede the assessees request for reduction of the returned income admitted by the assessee, and hence, requested to allow the appeal of the assessee and reduce the sum of Rs.56,92,455/- from the income already admitted and allow the appeal of the assessee.

13. On the other hand, the Ld.DR supported the orders of the lower authorities.

14. We have heard both the parties and perused the material placed on record. In the instant case, the assessee has filed the return of income admitting total income of Rs.2,29,95,620/- on 31.12.2014. A search u/s 132 was carried out in the group cases of GSL Educational Society which runs the GSL Medical College. During the course of search, material was found and seized as page No.81 of Annexure A/ARB/1 from the residence I.T.A. No.546-548/Viz/2018, A.Y.2012-13 to 2014-15 Bommana Rajkumar, Rajahmundry of Sri Adapa Rambabu. The scanned copy of which is placed in page No.2 of the assessment order shows that the amounts received and receivable by the assessee as per which the sum of Rs.56,92,455/- was due from the GSL Educational Society towards the interest. On confrontation, the assessee admitted said sums recorded in loose sheets as income and filed the return of income on 31.12.2014. On the basis of the return of income filed by the assessee and scrutiny of the seized material, the AO compiled the details of amounts received and receivable and the interest for the period from15.10.2012 to 31.12.2012 and arrived at the difference of Rs.3,50,933/- which was proposed for addition. However, the assessee filed a letter from GSL Educational Society wherein the society expressed their inability to make the payments in respect of the amounts found in the seized material. Hence, the AO dropped the proposed addition of Rs.3,50,933/-. Since the AO had dropped the proposed addition of Rs.3,50,933/- on the basis of the letter of GSL Educational Society dated 28.01.2016, the assessee requested for reducing the sum of Rs.56,92,455/- which was also forms part of irrecoverable advance as per the letter of the society.. It is a fact that the assessee has advanced the sums to the GSL Educational Society from unaccounted sources and receiving the interest from GSL Educational Society. As per the evidence found, the assessee has I.T.A. No.546-548/Viz/2018, A.Y.2012-13 to 2014-15 Bommana Rajkumar, Rajahmundry to receive the sum of Rs.56,92,455/- from GSL Educational Society which was not disputed by the assessee. Merely because GSL Educational Society decided not to make payment, accrued income cannot be reduced. The income has to be computed as per the provisions of the and as per which the amount accrued as per the system of accounting followed by the assessee required to be taxed. In the instant case, there is no dispute that the assessee had advanced the sums to the GSL Educational Society and also receiving the interest and received the substantial amount from GSL Educational Society as per the incriminating material found and seized. The said sums were not accounted in the books of accounts, therefore, the said sums were admitted as income in the hands of the assessee. No evidence found during the course of search with regard to write off of the advance. The letter was received by the assessee on 28.01.2016 relevant to the F.Y.2016-17 which has no relevance in the impugned assessment year. The assessment required to be made as per the incriminating material found during the course of search and method of accounting followed by the assessee each year independently. If the assessee accepts to forego the advance merely on the basis of letter it would take the character of donation but not the allowable expenditure. Merely because the GSL Educational Society is not inclined to make the payment, the same cannot I.T.A. No.546-548/Viz/2018, A.Y.2012-13 to 2014-15 Bommana Rajkumar, Rajahmundry be allowed as expenditure deduction. Therefore, we are unable to accept the contention of the assessee that on the basis of letter issued by GSL Educational Society to reduce the return of income. The assessee is free to follow the procedure laid down under the Income Tax Act to make efforts collect the outstanding dues and write off as bad debt n in the subsequent years as per law. Thus we, decline to interfere with the order of the CIT(A) and dismiss the appeal of the assessee. I.T.A. No.548/Viz/2018, A.Y.2014-15

15. For the A.Y. 2014-15, the assessee filed the return of income admitting total income of Rs.17,21,010/-. The AO completed the assessment accepting the income returned. During the assessment proceedings, the AO proposed for addition of Rs.6,79,666/-, however, on the basis of the letter received from G.S.L.Educational Society, the AO dropped the proposal for making the addition of Rs.6,79,666/-.

16. The assessee filed appeal before the CIT(A) and again made a request to reduce the amount of Rs.56,92,455/- in this year also, as discussed in detail in the appeal for the A.Y.2013-14 in the preceding paragraphs. The Ld.CIT(A) found that the AO did not make any addition, hence, dismissed the appeal of the assessee. I.T.A. No.546-548/Viz/2018, A.Y.2012-13 to 2014-15 Bommana Rajkumar, Rajahmundry

17. Against the order of the Ld.CIT(A), the assessee filed appeal before this Tribunal.

18. We have heard both the parties and perused the material placed on record. In the instant case, the AO completed the assessment accepting the income returned. Thus, there is no grievance for the assessee. With regard to assessees request for reduction of the sum of Rs.56,92,455/-, it is relevant to the A.Y 2013-14 but has no relevance for the impugned assessment year, Hence, we do not find any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. Accordingly, the appeal of the assessee is dismissed.

19. In the result, appeal of the assessee in (i) I.T.A.No.546/Viz/2018, for the A.Y.2012-13 is allowed (ii) I.T.A.No.547/Viz/2018 and 548/Viz/2018 for the A.Y. 2013- 14 and 2014-15 respectively are dismissed. Order pronounced in the open court on 8 th November, 2019. Sd/- Sd/- (. ) ( . . ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /Visakhapatnam /Dated : 08.11.2019 L.Rama, SPS I.T.A. No.546-548/Viz/2018, A.Y.2012-13 to 2014-15 Bommana Rajkumar, Rajahmundry /Copy of the order forwarded to:-

1. / The Assessee - Bommana Rajkumar, Prop.Bommana Rajkumar & Co, Main Road, Rajahmundry

2. /The Revenue - Asst.Commissioner of Income Tax, Central Circle Rajahmundry

3. The Pr.Commissioner of Income Tax (Central), Visakhapatnam

4. The Commissioner of Income Tax (Appeals)-3, Visakhapatnam

5. , , /DR, ITAT, Visakhapatnam 6 . / Guard file / BY ORDER // True Copy // Sr. Private Secretary ITAT, Visakhapatnam