Itta/195/2007 Of Konda Ramesh v. Asst. Commissioner Of Income-Tax

[ [34181] IN THE HIGH COURT FOR THE STATE OF TELANGANAAT HYDERABAD FRIDAY ,THE SIXTH DAY OF DECEMBER TWO THOUSAND AND TWENry FOUR PRESENT THE HONOURABLE THE CHIEF JUSTICE ALOK ARADHEANDTHE HONOURAB.LE SRI JUSTICE J. SREENIVAS RAO INCOME TAX TRIBUNAL APPEAL NO: 195 OF 2007 . Appeal filed under Section 2604 of the lncome Tax Act, 1961 aqainst theOrlgr-!a!g{ 10.01.2007 passed in t.T. (SS).A No. B4tHydto3 (Btock period 1989-90to 1999-2000) on the file of the lncome Tax Appellate'Triburial, Hyderabad Benchfl.[V{eg!aq-pr-"j.g{r3q [against ][the ][Order ][dated ][31.03 ][2003 ][passed in ][Appeat ][No.]ss3/TrlDclr, KRM/clr(A-lll/02-03) on the fite of the commissioner of ln66me TaxSpl.":l: [-.lll), ][Hy9erabad ][plgfeqed ][against ][the ][Order ][dated ][30.05.2001 ][passed ][in]PAN/GIR No. R-816 on the file of the Deputy Commissioner of lncome Tai, Circle -1, Karimnagar. Between: Konda Ramesh, 4-1-817, Osmanpura, Karimnagar ...Appellant ANDAsst. Commissioner of lncome-Tax, Circle-, Karimnagar. ...Respondent Counsel for the Appellant : Mr. A.V.A. Siva Kartikeya Counsel for the Respondent : Mr. P. Murali Krishna,Senior Standing Counsel for lncome Tax The Court delivered the following: JUDGMENT -\ THE HON'BLE CHIEF JUSTICE ALOK ARADHEANDTHE HON'BLE SRI JUSTICE J. SREENIVAS R{O ITTA No. 195 of 2007 JUDGMENTi (per the Hon'ble the Chief Justice Alok Aradhe) Mr. A.V.A. Siva Kartikeya, learned counsel appears forthe appellanVassessee. Mr. P. Murali Krishna, leamed Senior Standing Counselfor Income-tax appears for the respondent/Revenue throughvideo conferencing. 2. This appeal under Section 260A of the Income-tax Act,1961 (herein:rfter referred to as 'the Act') is filed by theassessee and pertains to block period 1989-90 to1999-2000. The appeal has been admitted on the followingsubstantial question of law. "Whether the Income-tax Appellate Tribunal committed anerror of law in restoring the addition of Rs.1,50,303/- asinterest received by the assessee without assigning any reasonsand u'ithout any improving reasoning of the Commissioner oflncome-tax (Appeals) in para 2.2 and para 2.3 ol the orderdated I1.03.2003?"interest received by the assessee without assigning any reasonsand u'ithout any improving reasoning of the Commissioner oflncome-tax (Appeals) in para 2.2 and para 2.3 ol the orderdated I1.03.2003?" 3. Facts giving rise to filing of this appeal briefly stated arethat the assessee is the Managing Partner of M/s.HanumanParboiled Rice & Oil Mill, Karimnagar. A search and seizureoperation under Section 132 of the Act was conducted on09.03.1999 in the business and residential premises of theassessee. A survey operation under Sectiort 133,4 of the Actwas also conducted in the premises of Hanuman ParboiledRice & Oil Mill and Nandini Traders of Hanuman Group. Anotice under Section 158BC of the Act was issued to theassessee on 13.08.1999. It was served on him on 18.08.1999.The assessee thereupon filed the return of income for the blockperiod 1989-90 to 1999-2000 on 28.09.1999 and disclosed histotal income of Rs.2,56,7 7 0/ -. 4. Thereafter, a notice under Section 143(2) of the Act wasissued along with a detailed show cause notice dated31.08.2000. The Assessing Officer by an order [dated]30.05.2001 computed the income of the assessee under [the]Head of Interest and quantihedthe sum as fu.1,50,303/-. Theassessee was directed to pay the balance tax amount ofRs.2,34,5091- 4. Thereafter, a notice under Section 143(2) of the Act wasissued along with a detailed show cause notice dated31.08.2000. The Assessing Officer by an order [dated]30.05.2001 computed the income of the assessee under [the]Head of Interest and quantihedthe sum as fu.1,50,303/-. Theassessee was directed to pay the balance tax amount ofRs.2,34,5091- 5. Being [aggrieved, ][the ][assessee ][filed ][an ][appeal' ][The]Commissioner of [Income-tax ][(Appeals) ][by ][an ][order ][dated]31.03.2003 after [taking ][into ][account ][the ][remand ][report]received from [the ][Assessing ][Officer' ][held that the ][assessee ][did]not receive any [interest ][during ][the ][block ][period' It ][was ][further]held that the [.Assessing ][Ofhcer ought not ][to ][have made ][the]addition of [a ][sum ][of ][Rs.1,50,303/- ][without ][making ][an ][enquiry]whether the assessee [had ][received ][the ][interest on the pro-notes]found during [the ][course ][of ][enquiry. ][It ][was ][further held that ][the]assessee is no1 [a ][company and therefore, the interest cannot ][be]assessed on [accrual ][basis.] 6. Being aggrieved, [the Revenue ][filed ][an appeal ][before ][the]Income-tax [Appellate Tribunal ][(hereinafter referred ][to ][as ]['the]Appellate Tribunal'). [The ][Appellate ][Tribunal ][by ][an ][order]dated 10.01.2007 inter [aliaheld ][as ][follows:] "6. We have [heard ][the ][leamed Departmental ][Representatlve]and perused the [records ][of ][the ][Tribunal. ][We ][are ][of ][the]considered opinion [that ][the ][leamed Commissioner ][of ][Income-]tax [(Appeals) was ][in error in ][deleting ][the ][above ][addition ][on]the facts and [circumstances narrated above- ][We, ][therefore,]allou this [ground ][ofthe ][Revenue and set aside ][the order ][of ][the]learned Commissioner [of ][Income-tax (Appeals) on ][this ][issue."]b= The Appeal preferred by the Revenue was partly allowed.Being Aggrieved, the assessee has filed this appeal 7. Leamed counsel for the assessee has invited the attentionof this Court to the findings recorded in para 2.2 and para 2.3of the order dated 31.03.2003 passed by the Commissioner ofIncome-tax (Appeals) and has submitted that theCommissioner of Income-tax (Appeals) by placing reliance onthe remand report received from the Assessing Officer hasrightly directed the deletion of a sum of Rs.1,50,303/-. It iscontended that without assigning any reasons, the AppellateTribunal has reversed the aforesaid finding. 8. On the other hand, leamed counsel for the Revenue hassupported the order passed by the Appellate Tribunal and hascontended that the assessee follows the mercantile method ofaccounting. Therefore, the order passed by the AppellateTribunal does not call for any interference. 9. We have considered the submissions made on both sidesand have perused the record. 10. At this stage, it is apposite to [take ]note of [para ]2.2andpara 2.3 of the order dated 31.03.2003 passed by theCommissioner of Income-tax [(Appeals) ]which are extracted below for the faciliry ofreference. -2.2 V'ide by my lettet dt. 14-2-2003, I requested the AO toveri! from the debtors [whether they ][had ][paid ]any interest tothe appellant and his family [members. ][The AO, ]vide by hisletters dr. 13-3-2003 & [25-3-2003, ]has informed that thedebtors had told his [Inspector, ][who ][went ]for enquiries, thatthey had not paid any [interest ][during ][the ]block [period.] 2.3 I have carefully considered the submission. The AO hasmade this addition [without ][making even ]basic enquiries. Ifpromotes were seized during [the ]course of search and if theAO wanr.s [o assess the [interest ]on those [promotes, ]thcminimum enquiry that [the ]AO [has ]to [make ]is to find outwhether the debtors had [paid ]the interest. The appellant is nota company where the interest can be assessed on accrual basis.The appellant is an individual and if an individual has notactually rcceived the interest, [there ][is ]no [question ]of assessingthe same. [n these [circumstances, ]I [deletb ]this addition ofRs. 1.50,3034." 2.3 I have carefully considered the submission. The AO hasmade this addition [without ][making even ]basic enquiries. Ifpromotes were seized during [the ]course of search and if theAO wanr.s [o assess the [interest ]on those [promotes, ]thcminimum enquiry that [the ]AO [has ]to [make ]is to find outwhether the debtors had [paid ]the interest. The appellant is nota company where the interest can be assessed on accrual basis.The appellant is an individual and if an individual has notactually rcceived the interest, [there ][is ]no [question ]of assessingthe same. [n these [circumstances, ]I [deletb ]this addition ofRs. 1.50,3034." Thus, it is evident that the Commissioner of Income-tax (Appeals) on the basis of the remand report of the AssessingOfficer has recorded a finding that the debtors had stated thatthey had not paid any interest to the assessee during the blockperiod. It has further been held that since the assessee is not aCompany, interest cannot be assessed on accrual basis. TheOfficer has recorded a finding that the debtors had stated thatthey had not paid any interest to the assessee during the blockperiod. It has further been held that since the assessee is not aCompany, interest cannot be assessed on accrual basis. The II l III aforesaid finding of fact is recorded on the basis of materialavailable on record. However, the aforesaid finding has beenreversed by the Appellate Tribunal without assigning anyreasons and without any improving reasoning on which theorder of the Commissioner of Income-tax (Appeals)wasbased.order of the Commissioner of Income-tax (Appeals)wasbased. 11. For the aforementioned reasons, substantial question of law framed by this Court is answered in favour of the assesseeand against the Revenue.and against the Revenue. 12. In the result, the order dated 10.01.2007 passed by the Appellate Tribunal is set aside. 13. Accordingly, the appeal is allowed. Miscellaneous applications, if any pending, shall stand closed. There shall be no order as to costs. A.V.S.S.C.S.M. SARMAJOINT REGISTRAR//TRUE COPY// SECTION OFFICER To, 1. The lncorne Tax Appellate [Tribunal, Hyderabad ][Bench ]['A', ][Hyderabad'] 2. The Commissionei bf lncome [Tax (Appeals ][- ][lll), ][Hyderabad.] 3. The Deputy Commissioner [of lncome Tax, ][Circle-1 ], [Karimnagar'] , +. On" CC to'Mr. A.V.A. Siva [Kartikeya, Advocate ] 5. One CC to Mr. P. Murali [Krishna,'senior Standing Counsel ][for ][lncome- ][lax]toPUcl5. One CC to Mr. P. Murali [Krishna,'senior Standing Counsel ][for ][lncome- ][lax]toPUcl6. Two CD [CoPies] Njb/gh HIGH COURT DATED:0611212024 JUDGMENTlTTA.No.l95 of 2007 ALLOWING THE ITTAWITHOUT COSTS ?)^ e[rHE ][SIa][ 14:].i.,.(irc2 [ 0f[ 20aIa*f)c.-I)^- CHE-O