Citation Codes

Equivalent Citations

citation codes

Case Number

I.T.A No. 1457 & 1458.Hyd/2012 Assessment Year: 2004-2005 & 2005-2006 and I.T.A No. 1455 & 1456.Hyd/2012 Assessment Year: 2004-2005 & 2005-2006

Advocates

Appellant by: Shri Samuel Nagadesi
Respondent by: Shri D. Sudhakar Rao

Judges

Chandra Poojari, A.M
Asha Vijayaraghavan, J.M

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Smart Summary

Structured Summary of the Legal Opinion

Factual and Procedural Background

This appeal by the assessee is directed against the Order of the CIT(A)-IV, Hyderabad dated 25.07.2012 for the assessment years 2004-2005 and 2005-2006. Assessment was completed under section 153C of the Income-tax Act on 29.12.2008, determining total incomes at Rs. 3,52,47,380 and Rs. 1,60,53,620 respectively. A consequential order giving effect to an earlier Order of the CIT(A)-1 dated 22.12.2009 resulted in the assessee's total income being determined at Rs. 39,10,833 for A.Y. 2004-2005 and Rs. 54,00,000 for A.Y. 2005-2006.

A search and seizure operation was undertaken at the residential-cum-business premises of the assessee (a partner of M/s. Ahura Holdings) on 27.06.2006. Documents seized indicated that the firm (Ahura Holdings) was engaged in development and sale of property. In the assessment proceedings the Assessing Officer (AO) observed suppression of sale proceeds and estimated undisclosed income of the firm M/s. Ahura Holdings (estimated at Rs. 70,12,094 for A.Y. 2004-05 and Rs. 3,17,88,340 for A.Y. 2005-06). The AO completed the assessee's assessments on a protective basis, adding 50% of those firm estimates to the assessee's income (subject to adjustments for amounts already offered by the assessee as income from sale of flats).

The assessee (Shri Gopal Lal Bhadruka) had filed returns admitting income from sale of properties of M/s. Ahura Holdings (Rs. 22,35,000 for 2004-05; Rs. 31,20,000 for 2005-06) and claimed 40% ad hoc expenses which the AO disallowed for lack of documentary evidence. Several notices for appellate hearings were issued but, according to the CIT(A)-IV, were not complied with and the appeal was decided ex parte on the available record.

Legal Issues Presented

Whether the CIT(A)-IV was justified in upholding additions in the consequential order (stemming from a protective assessment) and in retaining amounts already assessed substantively in the hands of the assessee for A.Y. 2004-2005 and A.Y. 2005-2006.
Whether the Assessing Officer and the CIT(A) were correct in disallowing the assessee's claim of 40% ad hoc expenditure for want of documentary evidence.
Whether the decision of the CIT(A)-IV to decide the appeal ex parte (without a representative of the assessee appearing) was legally correct, or whether the assessee should have been afforded a last opportunity of hearing.

Arguments of the Parties

Appellant's Arguments

The order of the learned CIT(A) is erroneous in law and on facts.
The CIT(A) erred in upholding assessment of Rs. 54,00,000 in the consequential order; the CIT(A)-1 had categorically held that amounts assessed on a protective basis in the original assessment under section 143(3) were not required to be re-assessed, and the Assessing Officer should have deleted the re-assessment.
The CIT(A) erred in deciding the appeal ex parte without anyone present on behalf of the appellant; a last opportunity of hearing should have been afforded.

Revenue's / Respondent's Position (as reflected in the opinion)

The Assessing Officer had completed the assessment on a protective basis by adding 50% of the undisclosed income estimated for the firm to the partners' incomes; where part of those amounts had already been offered by the assessee as income from sale of flats, appropriate adjustments were made.
The assessee's claim of 40% ad hoc expenditure was disallowed because there was no documentary evidence to substantiate incurrence of such expenses.
The CIT(A) relied on earlier findings (including the ITAT, Hyderabad decision and the CIT(A)-1 order) that 'on money' receipts arising from land deals accrued to the firm and therefore were to be considered in the firm's hands, not the partners', and that no deduction for unrecorded expenses could be allowed without evidence.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CIT v. Shelly Products, (2003) 261 ITR 367 (SC)	When an order of assessment is set aside or annulled, no further assessment can be made; the assessee is entitled only to refund of tax paid in excess of liability incurred on the basis of income disclosed (and amendment of section 240 w.e.f. 1 April 1989 by insertion of proviso (b) is declaratory and retrospective).	The court respectfully followed this Supreme Court decision to hold that the consequential orders and the treatment of protective additions did not permit a further re-assessment beyond what had been substantively assessed; this supported upholding the CIT(A) order and rejecting the assessee's grounds.
Order of the Hon'ble ITAT, Hyderabad in the case of Shri Gopal Lal Bhadruka (dated 26.11.2010)	Held that 'on money' receipts arising from land transactions should be assessed in the hands of the firm engaged in the business and not in the individual partners' hands; partners received such receipts in representative capacity as agents of the firm. Also held that no deduction for unrecorded/ad hoc expenses can be granted without evidence of incurrence.	The CIT(A) and this court relied on the ITAT's findings to treat 'on money' as accruing to the firm, to refuse the assessee's contention that on-money should be taxed in partners' hands, and to sustain disallowance of the claimed 40% ad hoc expenditure for lack of evidence.

Court's Reasoning and Analysis

The court examined the assessment records and appellate history and proceeded as follows:

It noted the AO had originally made large additions to the assessee's income on a protective basis (Rs. 3,13,36,547 for A.Y. 2004-05 and Rs. 1,06,94,170 for A.Y. 2005-06), while separately considering the incomes admitted by the assessee in his return (Rs. 22,35,000 for 2004-05 and Rs. 31,20,000 for 2005-06) and making substantive disallowances of ad hoc expenditure from those admitted incomes.
The court accepted the factual finding that amounts of Rs. 37,25,000 (A.Y. 2004-05) and Rs. 52,00,000 (A.Y. 2005-06) had already been offered and assessed as income in the hands of the assessee (substantively) as income from sale of flats belonging to M/s. Ahura Holdings. Because these amounts were substantively assessed in the assessee's hands and retained in the consequential order, the court found no infirmity in the CIT(A)'s treatment of those amounts.
On the claim of ad hoc (40%) expenses, the court reiterated the principle applied by the ITAT that unrecorded expenses cannot be allowed without evidence of incurrence. The Assessing Officer's disallowance for lack of documentary support was therefore sustained.
The court considered the precedential value of the Supreme Court decision in CIT v. Shelly Products. It accepted the principle that when an assessment order is set aside or annulled, no further further assessment can normally be made beyond the liabilities properly attributable, and that related amendments to section 240 are declaratory. Respectfully following that decision, the court found no fault in how the consequential orders and protective additions had been handled in this case.
For the appeals of Avadesh Bhadruka (where the facts were mutatis mutandis because he holds 50% stake in Ahura Holdings), the court applied the same conclusions: the same reasoning and outcome as for Gopal Lal Bhadruka were followed.
Regarding the procedural complaint that the CIT(A) decided the appeal ex parte, the court noted that multiple notices had been issued and that the CIT(A)-IV recorded that no compliance was made even after telephonic reminders; the appeal was therefore decided on the basis of facts and material on record. The court found no procedural infirmity sufficient to overturn the CIT(A)'s order on that ground.

Holding and Implications

Final Holding: The appeals filed by the assessees are dismissed; the Order of the CIT(A)-IV dated 25.07.2012 (giving effect to earlier appellate directions and retaining the specified additions) is upheld for both assessment years 2004-2005 and 2005-2006. The same conclusions are applied to the related appeals of Avadesh Bhadruka.

Implications:

The additions reflecting amounts already substantively assessed in the assessee's hands (Rs. 37,25,000 for A.Y. 2004-05 and Rs. 52,00,000 for A.Y. 2005-06) were properly retained; the court found no infirmity in this treatment.
The claim of 40% ad hoc expenditure was correctly disallowed for want of supporting evidence; the court followed the ITAT principle that unrecorded expenses require proof to be deductible.
No new legal precedent was laid down by this opinion; the court relied on existing authorities (notably the ITAT decision in the assessee's case and the Supreme Court decision in CIT v. Shelly Products) in reaching its conclusion. The direct effect is that the CIT(A) orders are affirmed and the assessees' appeals dismissed.

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Gopal Lal Bhadruka Hyderabad () v. Dcit, Central Circle 2 Hyderabad ().

Asha Vijayaraghavan, J.M:— This appeal by the assessee is directed against the Order of the CIT(A)-IV, Hyderabad dated 25.07.2012 for the assessment years 2004-2005 and 2005-2006.

2. Brief facts of the case are that assessment was made in this case under section 153C of the Act on 29.12.2008 determining total income for the assessment years 2004-2005 and 2005-2006 at Rs. 3,52,47,380/- Rs. 1,60,53,620/- respectively. Subsequently, consequent to the Order passed by the CIT(A)-1, Hyderabad dated 22.12.2009 a consequential order was passed which was appealed against before the CIT(A). The total income of the assessee was determined at Rs. 39,10,833/- for A.Y 2004-2005 and Rs. 54 lakhs for the A.Y 2005-2006 in the consequential order. A search and seizure operation had been undertaken at the residential cum business premises of the assessee who is partner of M/s. Ahura Holdings on 27.06.2006 From the documents seized it was revealed that the father and son were actively engaged in developing the property at Secunderabad Contonment belonging to M/s. Ahura Holdings. In response to the notice issued by the Assessing Officer, Shri Gopal Lal Bhadruka filed its return of income, admitting income at Rs. 22,35,000/- for A.Y 2004-2005 and admitting income of Rs. 31,20,000/- for A.Y 2005-2006 from the business of sale of properties belonging to M/s. Ahura Holdings besides income from salary, interest and other sources. During the course of assessment proceedings, the Assessing Officer noticed that the main issue involved in the assessments of the group was suppression of sale proceeds and estimation of undisclosed income of the firm M/s. Ahura Holdings in whose case an Order has been passed for the assessment years 2004-2005 estimating income at Rs. 70123094/- and for A.Y 2005-2006 estimating income of Rs. 3,17,88,340/-. The Assessing Officer proceeded to complete the assessment in the case of the assessee on protective basis. The Assessing Officer proceeded to add 50% of Rs. 70123094/- for the A.Y 2004-2005 and 50% of Rs. 3,17,88,340/- for the A.Y 20052006 as the undisclosed income of Shri Gopal Lal Bhadruka which worked out to Rs. 3,61,547/- for A.Y 2004-2005 and Rs. 1,58,94,170/- for A.Y 2005-2006. However, the Assessing Officer noted that an amount of Rs. 37,25,500/- for the A.Y 2004-2005 and Rs. 52 lakhs for the A.Y 2005-2006 has already been offered in the hands of Shri Gopal Lal Bhadruka as income from sale of flats of M/s. Ahura Holdings in his own hands. While furnishing details regarding such admission it was submitted that as per the documentary evidence found and seized, the same is belong to Shri K.B Ramesh Kumar and Raj Kumar Jain. Part of the ‘on money’ received from the said buyers did not offered as income by Shri Gopal Lal Bhadruka. He also claimed 40% adhoc expenditure thereon and thereby, admitted income of Rs. 22,35,000/- for the A.Y 2004-2005 (Rs. 37,25,000/- (-) Rs. 14,90,000/-) and for the A.Y 2005-2006 Rs. 31,20,000/- (Rs. 52,00,000 (-) Rs. 20,80,000). In the absence of documentary evidence, the claim of adhoc expenditure of 40%, was disallowed by the Assessing Officer out of Rs. 3561547/- for the A.Y 2004-2005 and Rs. 1,58,94,170/- for the A.Y 2005-2006. The Assessing Officer added the balance amount of Rs. 31336547/- i.e, (Rs. 35061547 (-) Rs. 37,25,000/-) for A.Y 2004-2005 and Rs. 1,06,94,170/- (Rs. 1,58,94,170/- (-) Rs. 52 lakhs) for A.Y 2005-2006 as estimated, suppression of sale receipts in the hands of the assessee on protective basis.

3. Several notices were issued fixing the case for hearing intimating the change of charge by the CIT (A)-1, CIT(A)-VI, Addl. CIT, Range-VI and CIT(A)-V. CIT(A)-IV observed that the notices were unheeded and no compliance has been made even after telephonic reminders and therefore, decided the case ex-parte on the basis of facts and material available on record.

4. In the Order of the CIT(A)-IV dated 24.04.2012, the CIT (A) observed that by the Order dated 22.12.2009, the CIT(A)-1, Hyderabad noted that it had been held by him in the case of Ahura Holdings that on money receipts were to be considered in the hands of the firm only and not in the hands of the partner as the said on money had accrued to the firm on account of land deals executed on behalf of the firm. He, therefore, held that there was no merit in the grounds taken by the assessee that on money should be treated as income in the hands of the partners. The CIT(A) confirmed the disallowance of the claim of the adhoc expenditure. The Hon'ble ITAT, Hyderabad in their Order dated 26.11.2010 in the case of Shri Gopal Lal Bhadruka held that on money receipt was to be assessed in the hands of the firm since the firm is engaged in the business of land transactions and since regular income generated from undisclosed business of sale of plots has been offered for assessment in the hands of the firm. It was further held by the ITAT that on money receipts though received by partners, it was received on behalf of the firm in their representative capacity as its agents. As regards adhoc expenses, the ITAT held that no deduction towards un-recorded expenses could be given unless there was evidence on record regarding incurrence of such expenditure for the purpose of business. The CIT(A) while deciding the appeal against the Order giving effect to the Order of the CIT(A) in the first round held as follows for the A.Y 2004-2005 & for the A.Y 2005-2006:

5.1 “It is seen that while giving effect to the order of the CIT(A), the Assessing Officer has given relief of Rs. 31336557/- for the A.Y 2004-2005 Rs. 1,06,94,170/- for the A.Y 2005-2006 by deducting the said amount from the total income as per the assessment order dated 29.12.2008 of Rs. 35247380/- for the A.Y 2004-2005 and for A.Y 2005-2006 at Rs. 1,60,53,620/-. It is clear that in the order dtd. 29.12.2008, the total income was determined after making an addition of Rs. 3,13,36,547/- for the A.Y 2004-2005 and Rs. 1,06,94,170/- for the A.Y 2005-2006 only on ‘protective basis’. On the other hand, the income of Rs. Rs. 22,35,000/- for the A.Y 2004-2005 and Rs. 31,28,000/- for the A.Y 2005-2006 offered by the appellant in the return of income was separately considered and a separate disallowance of adhoc expenditure of Rs. 14,90,000/- for the A.Y 2004-2005 and Rs. 20,80,000/- for the A.Y 2005-2006 out of such income was made in the hands of the appellant on substantive basis. It is also clear that in his order, the CIT(A)-1, Hyderabad had directed not to make any additions/disallowances in respect of ‘on money receipts’ which have already been considered substantively in the hands of the firm. Since the income out of the receipts of Rs. 37,25,000/- for A.Y 2004-2005 and Rs. 52,00,000/- for A.Y 2005-2006 was substantively assessed in the hands of the appellant only, no infirmity can be said to be exist in retaining the same in the consequential order. The grounds raised in this appeal are, therefore, decided against the appellant.”

4. Aggrieved, by the Order of the CIT(A), the assessee has preferred an appeal before us and raised the following grounds:

1. “On the facts and in the circumstances of the case the order of the learned CIT(A) erroneous in law and facts of the case.

2. The learned CIT(A) erred in law and facts of the case in upholding the assessment of Rs. 54,00,000/- in the consequential order passed by the Assessing Officer giving effect to the order of the CIT(A)-1 categorically held that the same amount which was assessed on protective basis in the original assessment order under section 143(3) is not required to be assessed once again. On the facts and in the circumstances of the case, the learned CIT(A) ought to have directed the Assessing Officer to follow the said order and delete the same.

3. On the facts and in the circumstances of the case the learned CIT(A) erred in law and facts of the case in deciding the appeal ex-parte without anybody present on behalf of appellant to present arguments on merits. On the facts and in the circumstances of the case the learned Commissioner ought to have afforded a last opportunity of hearing to the appellant.”

5. We find that the vide assessment orders dated 29.12.2008 the total incomes were determined after making additions of Rs. 3,13,36,547/- for the A.Y 2004-2005 and Rs. 1,06,94,170/- for the A.Y 2005-2006 on protective basis. The incomes of Rs. 22,35,000/- for the A.Y 2004-2005 and Rs. 31,20,000/- for the A.Y 2005-2006 offered by the assessee in the return of income, were separately considered and separate disallowances in respect of adhoc expenditure, of Rs. 14,90,000/- for the A.Y 2004-2005 and Rs. 20,80,000/- for the A.Y 2005-2006, out of such incomes were made in the hands of the assessee on substantive basis. In our considered opinion, the incomes admitted by the assessee cannot be disturbed. Since the incomes from receipts of Rs. 37,25,000/- for A.Y 2004-2005 and of Rs. 52,00,000/- for A.Y 2005-2006 were substantially assessed in the hands of the assessee only and the same had been retained while passing the consequential orders, we find no infirmity in the Order of the CIT(A) in retaining the addition of Rs. 37,25,000/- for A.Y 2004-2005 and Rs. 52,00,000/- for the A.Y 2005-2006. At this juncture, we may refer to the decision of the Hon'ble Supreme Court in the case of CIT v. Shelly Products, (2003) 261 ITR 367 (SC) wherein it has been held that when an Order of assessment is set aside or annulled, no further assessment can be made. The assessee would be entitled only to the amount of tax paid in excess of the liability incurred by him on the basis of income disclosed but not the tax paid by him by way of advance tax or self-assessment tax. Amendment of section 240 w.e.f 1 April, 1989, by insertion of proviso (b) is declaratory of the law and therefore, retrospective. In this view of the matter and respectfully following the decision of the Hon'ble Supreme Court (supra), we find no infirmity in the Order of the CIT(A) for these two assessment years viz., 2004-2005 and 2005-2006. We accordingly uphold the same rejecting the grounds of the assessee in these appeals.

6. Now, coming to the other set of appeals viz., ITA. No. 1455 & 1456.Hyd/2012 we find that the facts and circumstances of the case and also issues involved in the case of Avadesh Bhadruka son of Gopal Lal Bhadruka are mutatis mutandis with that of Gopal Lal Bhadruka, as 50% of the stake in M/s. Ahura Holdings is held by Avadesh Bhadruka, whereas the other 50% is held by Gopal Lal Bhadruka. Hence, the conclusions drawn by us in the case of Gopal Lal Bhadruka for the A. Ys. 2004-2005 and 2005-2006 shall be followed in case of Avadesh Bhadruka for the A. Ys. 2004-2005 and 2005-2006 as well. Hence, for the reasons discussed in the preceding para, we uphold the Order of the CIT(A) and reject the grounds of the assessee in these two appeals as well.

7. In the result, appeals of both the assessees are dismissed.

Gopal Lal Bhadruka Hyderabad () v. Dcit, Central Circle 2 Hyderabad ().

Structured Summary of the Legal Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Revenue's / Respondent's Position (as reflected in the opinion)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Gopal Lal Bhadruka Hyderabad () v. Dcit, Central Circle 2 Hyderabad ().

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