TaxTMI 
TaxTMI 
2014 (6) TMI 72
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....ed counsel in detail and perused the material on record. 5. Briefly stated, search and seizure operations have been conducted u/s 132 of the Act in the residential premises of Sri Ranga Chennappa at Door No.7-119, Madhav Nagar, Dharmavaram on 07-11-2001. Accordingly, notices u/s 158BC of the IT Act, 1961 were issued to Assessee on 18-04-2002, in response to which, Assessee filed return of income on 10-06-2002 declaring undisclosed income of Rs.11,47,100/-. In the said return, Assessee had shown gross total income at Rs.2,47,21,185/- and claimed deduction amounting to Rs.2,35,74,090/- thereby resulting in a net income of Rs.11,47,100/-. This net income had been broken up into assessment years 1996-97 to 2001-02 and also the broken period ending on 7.11.2001. The AO had taken up enquiries with the creditors, verification of seized material and called for explanations from the assessee during the course of assessment. After finalizing all his enquiries, the AO has made additions to an extent of Rs.1,76,32,050/- under various heads as given below: S.No. Head Addition (Rs.) 1 Amounts claimed as due to the so called business associates 1,31,21,950/- 2 Pronotes ....
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.... with a direction to rehear the appeals. Therefore, we do not see any merit in the contention raised by the learned CIT-DR, since the issues were examined after giving due opportunity to the AO in the form of remand report and the entire material was considered by the learned CIT(A). Hence, we do not find any reason to accept the contention of the CIT-DR. Accordingly, preliminary objection raised by the learned CIT-DR is, therefore, rejected. 10. The grounds are considered issue-wise and decided as under: 11. Ground No. 1 pertains to claim of amounts due to business associates. As briefly stated above, Assessee has arrived at his gross assets on the date of search by including various assets in the form of FDRs, postal RD, bank deposits, pronotes, cheques, movable and immovable properties of not only in his name but also in the name of his family members totaling to Rs.2,47,21,185/-. Out of this, based on the seized material alone, he has claimed deduction towards business associates at Rs. 1,31,21,950/- on the reason that the principle amount of Rs. 99,58,900/- was payable to 93 persons from whom assessee has taken funds for circulation in the money lending activity. As per ....
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.... so in a village, this factor needs to be considered specially in the light of the fact that such statements have been recorded by the AO and his Inspectors in the village without the presence of the assessee or his authorized representative to cross examine the statements. Such individuals who have denied the investment with the assessee before the AO have been subjected to cross examination on request by the appellant's AR and in all 27 out of 31 of them had confirmed during the cross examination and nothing has been done by the AO in this regard. Consequently, the finding during the cross examination withstands to the benefit of the assessee as per the principles of rule of evidence. Accordingly, the disallowance made by the AO on this count is based on suspicion and surmises which have not been put to proper process of enquiry for gathering material evidence in support thereof. The remand report also could not cure this defect as the enquiries conducted with the business associates have not brought out any material evidence against the assessee. Hence, it cannot be stated that the suspicious features cannot become the weighty evidence in favour of the Revenue. Thus, the additio....
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....en below: Pronote No. Name of the Party Amount (Rs.) 151 G.Harichandra Prasad 75000 152 G. Harichandra Prasad 50000 176 Ajay Ankam 150000 177 J Ranganayakulu 8000 178 AS Rayudu 10000 179 G. Harichandra Prasad 75000 225 A Saikrishna 400000 226 C Srinivasulu 100000 227 C Srinivasulu 100000 228 K Nagaraju 100000 229 K Nagaraju 125000 Total 1193000 17. Before the learned CIT(A), it was submitted that Assessee filed confirmation letters from all 7 persons stating that they were actually standing guarantors to some others and hence as a practice have also executed the pronotes as a precaution insisted upon by the assessee and they had also confirmed that they did not actually borrow the amounts. It was contended that the AO had dismissed all such letters as self serving and the amount had been added back. It was pointed out that as Assessee had agitated before the then CIT(A) that the AO had without applying his mind to the facts or conducting any enquiries with reference to the statements made by the concerned persons merely dismissed the evidence as self servin....
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.... 231 K Seshappa 100000 234 P Somasekhar Rao 150000 278 AN.Silks 100000 Total 670000 22. Before the CIT(A), it was submitted that amounts in the above 8 pronotes were taken for arriving at the gross receipts in respect of Assessee and his family members and further submitted that each pronote had been properly numbered by Assessee to keep track of them. It was further stated that all this information was filed as enclosure to the return of income filed u/s 158BC of the I.T. Act, 1961. It was also demonstrated with reference to number of said pronotes as to the individual in whose gross receipts such pronotes had been accounted for. It was submitted that the pronotes had become legally unenforceable during the block period as the limitation period could not be got extended by the required endorsement and hence the amount deserves to be allowed as deduction. 23. After considering the submissions, the learned CIT(A) deleted the addition made by the AO observing as under: "7.4 The rival submissions have been carefully analysed. It is not correct for the AO to dismiss the deduction on the ground that such incomes were not i....
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....hen CIT(A) had referred the matter to the AO for his remand report. The AO had mentioned that there were total 297 cheques discounted by the assessee during the block period out of which 105 were claimed to be not encashed due to limitation. He had also stated that based on the information collected, Assessee must be discounting cheques but he had not disclosed any undisclosed income by way of discounting cheques. It was also not clear at what rate the cheque had been discounted for. He had also mentioned that the assessee has not furnished the details of advances made to each borrowal in each case. It was noticed by him that most of the 105 cheques limited by time were issued by 4 concerns as listed below (i) M/s Jayaram Traders, Dharmavaram (ii) M/s Jayaram Textiles, Dharmavaram (iii) M/s Nemi Silks, Dharmavaram (iv) M/s Lakshmi Saraswati Sarees, Dharmavaram 27. Before the learned CIT(A), it was contended that the amounts involved in the cheques had been taken under consideration by arriving at the gross receipts and thereafter the cheques, which were barred by limitation had been deducted. It was also contended b....
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....o defer from the finding of the learned CIT(A). The issue is similar to the earlier two claims of pronotes found but not advanced and time barred pronotes. In the case of time barred cheques also the claim is allowable as the amounts involved in the cheques have been taken into consideration and arrived at the gross assets. Non-recovery of the amounts will certainly make a reduction in the assets availability and there is no allegation that the amounts borrowed to these cheques have been encashed, since the books of account also corroborate the working of the assessee hence, the claim of Assessee is to be allowed. Accordingly, the order of the learned CIT(A) is confirmed and the ground raised by Revenue is dismissed. 29. Ground No. 5 is pertaining to disallowance of deficit cash balance of Rs. 5,69,600/-. 30. Along with the return, Assessee had claimed that on the date of search there was actual cash on hand was less by RS.5,39,240 as against the cash balance as per the books at RS.5,69,600/-. The search team had also noticed that the physically cash available was actually Rs.30,360/- as mentioned in the panchanama. Assessee's claim before the AO that the cash that was not av....