ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada IN INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER I.T.A.Nos.533 & 534/Vizag/2013 (Assessment Years: 2004-05 & 2005-06) I.T.A.Nos.151 to 154/Vizag/2014 (Assessment Years: 2006-07 to 2009-10 respectively) M/s. Srinivasa Auto Financiers, DCIT, Central Circle, Ponnuru, Guntur Dist. Vs. Vijayawada [PAN: AATFS5240B] ( Appellant) ( Respondent) I.T.A.Nos.535 to 540/Vizag/2013 ( Assessment Years: 2004-05, 2005-06,2006-07, 2008-09, 2009-10 & 2010-11 respectively) I.T.A.Nos.150/Vizag/2014 (Assessment Years: 2007-08) M/s. Lakshmi Auto Financiers, DCIT, Central Circle, Ponnuru, Guntur Dist. Vs. Vijayawada [PAN: AATFL96789N] ( Appellant) ( Respondent) Appellant by : Shri D.L. Narasimha Rao, AR Respondent by : Shri G. Gurusamy, DR 1 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada Date of hearing : 22.09.2016 Date of Pronouncement : 30.09.2016 ORDER PER G. MANJUNATHA, Accountant Member: These are appeals filed by two different assessee s against separate, but identical orders of CIT(A), Guntur for assessment years 2004-05 to 2010-11. Since, facts are identical and issues are common, they are heard together and disposed off, by way of this common order for sake of convenience. 2. brief facts extracted from ITA No.533/Vizag/2013 are that assessee is partnership firm, which is engaged in business of auto financing, filed its return of income under provisions of section 139(1) of Income Tax Act, 1961 (hereinafter called as 'the Act') for respective assessment years. search and seizure operation was conducted in assessee s case as part of Movva Group , Ponnur on 15.10.2009. During course of search operation, incriminating documents found and seized reveals that assessee has undisclosed income in form of interest on loans and advances. assessee vide its statement u/s 132(4) of Act, has agreed for offering additional income. Subsequently, case has been notified to Central 2 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada Circle, Vijayawada and accordingly, assessing officer has issued notices u/s 153A of Act, for six assessment years immediately preceding assessment year in which search was conducted, asking assessee to file return of income. In response to notices, assessee firm filed its return of income for assessment year 2004-05 to 2010-11 on 14.3.2011, declaring additional income offered during course of search. case has been selected for scrutiny and accordingly, notices u/s 143(2) & 142(1) of Act were issued. In response to notices, authorized representative of assessee appeared from time to time and filed necessary evidences along with written submissions. A.O. after considering explanations of assessee, has completed assessment u/s 143(3) r.w.s. 153A of Act and determined total income by making additions towards disallowance of interest payments u/s 40(a)(ia) of Act, for non-deduction of tax at source u/s 194A of Act, unexplained cash credits u/s 68 of Act, interest on unexplained cash credits, advances paid to partners of firm and credits in capital account of partners. 3. Aggrieved by assessment order, assessee has preferred appeal before CIT(A). Before CIT(A), assessee has reiterated submissions made before A.O. CIT(A), for reasons 3 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada recorded in his order has upheld disallowance made by A.O. u/s 40(a)(ia) of Act towards interest payment, unexplained cash credit towards sundry creditors u/s 68 of Act and interest on unexplained credits, however, allowed relief towards additions towards advances given to partners by directing A.O. to allow benefit of set off towards additional income offered by partnership firm towards interest on loans to extent investment is covered by additional income offered in hands of firm. Aggrieved by CIT(A) order, assessee is in appeal before us. 4. assessee has filed common grounds for all assessment years. From these grounds of appeals, assessee has agitated five issues as follows: i. Disallowance of interest on loans u/s 40(a)(ia) of Act. ii. Confirmation of addition towards unexplained cash credit u/s 68 of Act. iii. Addition sustained by CIT(A) towards interest on unexplained cash credits. iv. Additions sustained by CIT(A) towards advances given to partners. v. Addition sustained by CIT(A) towards unexplained investment in partner s capital account. 5. assessee also argued legal issue without raising any specific ground in any of years, in relation to validity of assessment order passed by A.O. Ld. A.R. for assessee, submitted that 4 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada A.O. was erred in making additions without seized materials for completed assessment years. A.R. referred to provisions of section 153A and submitted that in case of completed assessments, A.O. has no jurisdiction to make additions without any seized materials. In case of abated assessment, A.O. has jurisdiction to assess total income including undisclosed income found as result of search. In present case, A.O. made additions to returned income without any seized materials, therefore, assessment orders passed by A.O. is invalid, consequently addition are liable to be deleted. Having considered arguments and having considered materials on record, we find that there is no merits in arguments of ld. A.R. for assessee, as assessee did not raised this legal ground before us or even before CIT(A). Hence, legal arguments put-fourth by Ld. A.R. is rejected. 6. Having said that, let us discuss issues on merits. first issue that came up for our consideration is disallowance of interest on creditors u/s 40(a)(ia) of Act, for non-deduction of tax at source under provisions of section 194A of Act. facts relating to issue are that assessee is into business of auto finance has paid interest on creditors, however, failed to deduct TDS under provisions 5 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada of section 194A of Act. A.O. observed that as per provisions of section 194A of Act, any person making payment of interest in excess of ` 5,000/-, tax has to be deducted at source at rate applicable under provisions at time of credit or payment to concerned payee. A.O. further observed that though interest payments exceeds ` 5,000/- in each case, assessee has failed to deduct TDS as required under law, therefore, issued show cause notice and asked to explain why interest payment shall not be disallowed under provisions of section 40(a)(ia) of Act, for non- deduction of tax at source. In response to show cause notice, assessee vide its reply dated 12.12.2011, submitted that it had collected amount from farmers and creditors are not assessed to income tax, as they do not have any other taxable income except interest income. Since, creditors do not have taxable income and also on request of creditors, it has not deducted TDS u/s 194A of Act. 7. A.O. after considering explanations of assessee held that though assessee claims to have received advances from farmers, assessee failed to furnish form no.15G as required under Act from concerned persons. A.O. further observed that interest payment in each case has exceeded ` 5,000/- and as per provisions of section 194A of Act, assessee ought to have deducted TDS, 6 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada but, it has failed to deduct TDS, therefore, in view of clear provisions set out in provisions of section 40(a)(ia) of Act, any expenditure in nature of interest paid without deduction of tax at source is not allowable as deduction in computing profits and gains of business. With these observations, made additions towards interest payment under provisions of section 40(a)(ia) of Act. assessee carried matter in appeal before CIT(A), but could not succeed in its attempt. CIT(A) confirmed additions made by A.O., by holding that assessee has failed to deduct TDS as required under law and also failed to file form no.15G from recipients declaring that they do not have taxable income. CIT(A) further held that though assessee claims that no disallowance can be made towards amounts which were paid within financial year, by referring to special bench decision of ITAT, Visakhapatnam in case of Merilyn Shipping & Transports Vs. ACIT 136 ITD 23, but fact is that jurisdictional high court has suspended operation of special bench decision. In view of this, there is no merit in contention of assessee that no disallowance can be made for amounts which were paid within financial year. 8. Ld. A.R. for assessee, submitted that A.O. was erred in disallowing interest on creditors under provisions of section 7 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada 40(a)(ia) of Act, as assessee has paid interest to creditors having taxable income below tax bracket. assessee further submitted that as far as assessment year 2004-05 is concerned, A.O. was completely erred in disallowing interest under provisions of section 40(a)(ia) of Act, as said section was introduced to statute from assessment year 2005-06 onwards, as such no disallowance can be made for assessment year 2004-05 for non- deduction of tax at source. As regards assessment year 2005-06 to 2010-11, assessee has paid interest within same financial year, therefore, in view of special bench decision of ITAT Visakhapatnam in case of Merilyn Shipping & Transports (supra), no disallowance can be made u/s 40(a)(ia) of Act, if amounts have been paid during same financial year. 9. On other hand, Ld. D.R. submitted that A.O. has rightly disallowed interest payment for non-deduction of tax at source, as assessee has failed to deduct TDS, despite interest payments exceeds ` 5,000/- in each case. Ld. D.R. further submitted that as per provisions of section 194A of Act, any person making payment of interest in excess of ` 5,000/-, he shall deduct TDS at rate applicable either at time of credit or payment to respective payee account. There is no merit in arguments of assessee that 8 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada it had paid interest to farmers and creditors does not have taxable income, as assessee required to obtain form no.15G from concerned persons as required under rule 29C of Income Tax Rules, 1962, however, assessee failed to obtain such forms, therefore, A.O. was rightly disallowed interest and his order should be upheld. 10. We have heard both parties, perused materials available on record and gone through orders of authorities below. A.O. disallowed interest paid to creditors under provisions of section 40(a)(ia) of Act, for failure to deduct TDS u/s 194A of Act. A.O. was of opinion that assessee failed to deduct TDS u/s 194A of Act, despite interest payment exceeds ` 5,000/- in each case. It is contention of assessee that A.O. was not correct in disallowing interest payment u/s 40(a)(ia) of Act for assessment year 2004-05, as said provisions has been inserted to statute w.e.f assessment year 2005-06 onwards. assessee further contended that in respect of assessment year 2005-06 to 2010-11, it is covered by special bench decision of ITAT, Visakhapatnam in case of Merilyn Shipping & Transports (supra), wherein ITAT has held that no disallowance can be made u/s 40(a)(ia) of Act, if amounts have been paid within financial year. We find force in arguments of assessee for reason that provisions of section 40(a)(ia) was 9 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada inserted by Finance No.(2) Act, 2004 w.e.f. 1.4.2005 and accordingly, disallowances provided under said provisions is applicable from assessment year 2005-06 onwards. Therefore, we are of view that A.O. was erred in disallowing interest under provisions of section 40(a)(ia) of Act, for non-deduction of tax at source for assessment year 2004-05. 11. In so far as assessment year 2005-06 to 2010-11, we find that coordinate bench of this Tribunal, in case of Merilyn Shipping & Transports (supra) has examined issue of disallowance of expenditure specified under said provisions for non-deduction of tax at source under respective provisions. coordinate bench, held that no disallowance can be made u/s 40(a)(ia) of Act, if amounts have been paid before end of financial year. Therefore, we are of view that A.O. was not correct in disallowing interest under provisions of section 40(a)(ia) of Act, for non-deduction of tax at source. As regards Ld. D.R. arguments that department has not accepted decision of Merilyn Shipping & Transports (supra), we find that coordinate bench of this Tribunal, in case of Mukundara Engineers and Contractors Vs. ACIT (supra) has considered issue and after considering revenue objection with regard to special bench decision of M/s. Merilyn Shipping & Transports (supra) and also 10 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada considering ratio of Hon ble A.P. High Court, in case of Janapriya Engineering Syndicate (supra), decided issue in favour of assessee. relevant portion is reproduced hereunder: We have carefully considered rival submissions and perused record. Consistent with view taken by ITAT Special Bench Visakhapatnam and also in light of view expressed by Hon ble A.P. High Court in case of Janapriya Engineering Syndicate, we are of opinion that provisions of section 40a(ia) of Act cannot be made applicable in respect of amounts already paid before 31st March. In other words, A.O. is directed to restrict disallowance to amounts payable after 31st March. With these observations, ground no.3 of assessee is treated as partly allowed. 12. In this view of matter and also respectfully following ratio of coordinate bench, we are of view that no disallowance can be made u/s 40(a)(ia) of Act, for amounts which have been paid during financial year. However, assessee has failed to file necessary evidences with regard to paid and payable. Therefore, we set aside issue to file of A.O. and direct A.O. to examine issue paid and payable with reference to books of accounts of assessee and if interest has been paid within end of financial year, then A.O. is directed to delete additions made u/s 40(a)(ia) of Act. In other words, A.O. is directed to restrict disallowances to extent amounts remaining payable at end of financial year. In result, ground raised by assessee for all assessment years is allowed for statistical purpose. 11 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada 13. next issue that came up for our consideration is additions towards unexplained cash credits and interest on unexplained cash credit u/s 68 of Act. During course of assessment proceedings, A.O. observed that in balance sheet filed along with return u/s 153A of Act, assessee has admitted sundry creditors and related interest is shown to have paid to creditors. To ascertain correctness of claim, A.O. issued show cause notice and asked to file details of creditors along with confirmation letters. assessee filed list of creditors without any addresses and confirmation letters to prove identity, genuineness of transactions and creditworthiness of parties. Since, assessee has failed to file necessary evidences to prove creditors, A.O. has made additions towards creditors and related interest under provisions of section 68 of Act. assessee carried matter in appeal before CIT(A) and CIT(A) has confirmed additions made by A.O., by holding that it is well settled law that onus of proving genuineness of credits is on assessee, who has to prove same by establishing identity of creditors, capacity/creditworthiness of creditor and genuineness of transactions. All 3 ingredients are absent and hence, A.O. has rightly made additions towards creditors and related interest under provisions of section 68 of Act. 12 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada 14. Ld. A.R. for assessee, submitted that A.O. was erred in treating creditors appearing in balance sheet as unexplained, as assessee could not file confirmation letters as sought by A.O. at time of assessment, however, fact remains that all creditors have been accepted by cheque and same has been repaid by way of cheque in subsequent financial years. assessee further submitted that assessee could not furnish confirmation letters in support of above creditors at time of assessment, as after search situation has developed around assessee and every person was trying to avoid assessee, so that they won t come to adverse notice of department, consequently persons who have lent amount to assessee are not willing to confirm same in writing. assessee further submitted that during course of search, it has agreed additional income to make good deficiencies contained in books of accounts to satisfaction of authorities and when such disclosure is accepted by them and also when there is no incriminating materials to establish that credits are fictitious in nature, it does not appear reasonable to add back same on some technical reasons enforcing provisions contained in section 68 of Act and such rejection of credits on presumptive basis may tantamount to making of every assessment which is not permitted by 13 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada law. A.R. referred to CBDT instructions no.574 dated 27.7.1973 and submitted that CBDT has directed that assessments have to be made in reasonable and fair manner after considering all relevant circumstances of case that if unjustified over assessment are avoided this will inter-alia future of exaggerated demand which unnecessarily inferred arrears figures. assessee further submitted that additions made by A.O. is not based on any seized materials and A.O. has made additions based on books of accounts and balance sheet filed along with return of income and creditors were appeared in financial statements filed in return of income filed u/s 139(1) of Act for respective assessment years. Therefore, A.O. was completely erred in making additions towards unexplained credits and interest on such credits. 15. On other hand, Ld. D.R. strongly supported order of CIT(A). D.R. further submitted that assessee has failed to discharge initial onus cast upon it by furnishing identity, genuineness of transactions and creditworthiness of parties which is basic requirement of provisions of section 68 of Act. assessee neither furnished confirmation letters nor proved creditors by filing identity, therefore, A.O. has rightly made additions and his order should be upheld. 14 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada 16. We have heard both parties, perused materials available on record and gone through orders of authorities below. A.O. made additions u/s 68 of Act, towards unexplained credits being loan creditors and related interest payment to such creditors. A.O. was of opinion that assessee has not proved identity, genuineness of transactions and creditworthiness of parties. A.O. further was of opinion that assessee has failed to file details of loan creditors and also failed to furnish any confirmation letters. Therefore, opined that assessee has failed to discharge initial burden cast upon it as required under provisions of section 68 of Act. It is contention of assessee that all creditors have been accepted by cheque and same have been repaid by cheque in subsequent years, therefore, A.O. was not correct in doubting genuineness of transactions. assessee further contended that it could not file confirmation letters because after search, loan creditors refused to give any confirmation letters in writing, therefore, just because confirmation letters are not filed, it cannot be held that entire transactions are not genuine. It is further submitted that A.O. made additions based on balance sheet filed along with return of income without reference to any seized materials, 15 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada therefore, A.O. was not correct in making additions towards creditors and resultant interest in absence of any seized materials. 17. Section 68 of Act, provides for addition where any sum is found credited in books of assessee, maintained for previous year and assessee offers no explanation about nature and source there of or explanations offered by assessee are not in opinion of A.O. satisfactory, then sum so credited may be charged to income tax as income of assessee of that previous year. plain reading of section 68 of Act, makes it clear that any sum found credited in books of accounts of assessee, it is duty of assessee to prove to satisfaction of A.O. that credits are genuine. It is responsibility of assessee to prove identity, genuineness of transactions and creditworthiness of parties. Once assessee discharges initial burden cast upon it, then burden shifts to revenue to prove otherwise, but assessee needs to discharge initial burden by filing necessary details to satisfaction of A.O. to prove identity, genuineness of transactions and creditworthiness of parties. 18. In present case on hand, on perusal of facts available on record, we find that assessee has failed to file details of creditors with their addresses and also confirmation letters to prove identity, 16 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada genuineness of transactions and creditworthiness of parties. Though assessee claims that at time of search proceedings, creditors did not come forward to own up loans and subsequently they were unwilling to appear before department is unacceptable, as it is duty of assessee to discharge burden to prove creditors to satisfaction of A.O. Since, assessee failed to discharge initial onus cast upon it, A.O. has rightly made additions towards creditors and related interest u/s 68 of Act. CIT(A) after considering relevant details upheld additions made by A.O. We do not see any error or infirmity in order passed by CIT(A). Hence, we inclined to uphold CIT(A) order and reject ground raised by assessee for all assessment years. 19. next issue that came up for our consideration is additions towards loans and advances given to partners of assessee. During course of assessment proceedings, A.O. noticed that Managing Partner of firm Sri R.C. Rao admitted to have made certain advances to related parties which were not earlier entered in books of accounts originally prepared. A.O. further observed that assessee claimed to have utilized advances received from M/s. Srinivasa Auto Financiers to invest in unaccounted property/advances. assessee further claimed that it has advanced loans to partners and 17 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada sources for loans and advances are out of additional interest income admitted u/s 132(4) of Act in hands of partnership firms. assessee further claimed that both advances given to partners and interest receipts of partnership firm were outside books of accounts, both transactions were incorporated in books of accounts while filing revised returns. During course of assessment proceedings, A.O. asked assessee firm to file date wise realization of additional interest in order to verify whether on days of investment and unaccounted advances to partners, firm is having sufficient sources. In response to notice, assessee vide its reply dated 12.12.2011 stated that it is not possible to furnish details of date- wise realization of additional interest. However, facts remains that it has unaccounted interest income in hands of partnership firm which was offered to tax in hands of firm u/s 132(4) of Act and same has been utilized to give advances in hands of partners. 20. A.O. after considering explanations of assessee held that assessee has failed to link receipt of interest income in hands of partnership firm and related advances given in hands of partners. Though, assessee had declared substantial additional income in hands of firm to cover up amounts claimed to have used in partners individual capacity, assessee failed to file necessary 18 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada evidences to match sources of income in hands of firm and corresponding advances given by partners. law of evidence mandates that if best evidence is not placed before court, adverse inference can be drawn against person who ought to have produced it. In present case, assessee failed to discharge its onus. In these circumstances, only inference that can be drawn is that assessee firm do not have sufficient disclosed source to make advances. Therefore, total unexplained advances added to total income of assessee. 21. Aggrieved by assessment order, assessee preferred appeal before CIT(A). Before CIT(A), assessee reiterated submissions made before A.O. assessee further submitted that firm has received additional interest from debtors which was not recorded in books of accounts originally and partners have withdrawn amount which is source of investment in their individual capacity. Since, unaccounted interest income and investments made by partners are outside books of accounts, it is appropriate to telescope additional income declared u/s 132(4) of Act to unaccounted advances in hands of partners. CIT(A) after considering explanations of assessee, held that telescoping to unaccounted expenditure against unaccounted income 19 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada offered to tax in course of search proceedings is acceptable, unless there is evidence to contrary. Telescoping of expenditure/investments against additional income disclosed is well established practice. It is seen that assessee has admitted additional income being interest receipts in hands of partnership firm u/s 132(4) of Act, which was not disclosed in original return of income. assessee stated that advances given to partners have not been recorded in books of accounts originally and advances were partly sourced out of additional interest income offered to tax u/s 132(4) of Act. Since, both unaccounted interest income and unaccounted advances in partners account are outside books of accounts, it is appropriate to telescope sources available in form of unaccounted income to unaccounted expenditure/investments to extent of source available in form of additional income declared u/s 132(4) of Act. With these observations, directed A.O. to verify claim of appellant and if it is established that both additional interest and advances given have not been recorded in books of accounts as per original return of income, then A.O. is directed to given benefit of telescoping to said advance to extent of source available. 20 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada 22. Ld. A.R. for assessee submitted that CIT(A) was erred in not considering total sources available in form of additional income offered in hands of partnership firm and also additional income offered by partners in their individual capacity to cover up unaccounted advances given to third parties. A.R. further submitted that assessee has filed cash flow statement for assessment year 2004-05 to 2010-11, wherein it has explained sources of its income and investments, wherein assessee is having sufficient source of income to cover up investments. Therefore, A.O. was not correct in making additions towards advances given to partners. A.R. further submitted that assessee has admitted additional income towards interest on loans, which is advanced to partners and both interest income and advance to partners are outside books of accounts. When such is being case, it is duty of A.O. to telescope investments made by partners to sources available in hands of firm, which is drawn by partners. On other hand, Ld. D.R. strongly supported order of CIT(A) and submitted that CIT(A) has elaborately discussed and allowed relief to assessee to extent of sources available in form of additional income declared in hands of firm on which department is not in appeal. remaining addition 21 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada confirmed by CIT(A) is not covered by sufficient source of income and assessee has failed to offer any explanation with regard to sources of investments in hands of partners. Therefore, CIT(A) has rightly confirmed additions and his order should be upheld. 23. We have heard both parties, perused materials available on record and gone through orders of authorities below. A.O. made additions towards advances given to partners by stating that assessee does not have sufficient source of income to cover up advances given to partners. A.O. further observed that though assessee claims to have utilized unaccounted interest income to give advance to partners, assessee failed to link up unaccounted interest receipts to date-wise advances given to partners. In absence of specific details, general conclusion can be drawn that assessee is not having sufficient source of income to give advance to partners. It is contention of assessee that partners have drawn amount from partnership firm out of unaccounted interest income which is source of investment in their individual capacity. assessee further contended that both unaccounted interest income and advances given to partners are outside regular books of accounts, when such being case, A.O. has to telescope sources available to investments/expenditure. We find force in 22 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada arguments of assessee for reason that telescoping of unaccounted expenditure against unaccounted income offered to tax in course of search proceedings is acceptable, unless there is evidence to contrary. Telescoping of expenditure/investments against additional income disclosed u/s 132(4) of Act is well established practice. 24. In present case on hand, on perusal of facts available on records, we find that assessee has offered additional income in form of interest income in hands of partnership firm. We further observed that partners have made certain investments in their individual capacity and claims that source for investment is out of amount drawn from partnership firm. Since, both unaccounted income offered in hands of partnership firm and advances given to partners is outside regular books of accounts, while filing revised return, assessee has recorded both interest income and advances given to partners to cover up investments in hands of partners. Therefore, we are of view that CIT(A) has rightly allowed telescoping benefit to extent of additional income offered u/s 132(4) of Act, to advances given to partners by firm. A.O., based on directions of CIT(A) has allowed benefit of telescoping to advances given to partners to 23 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada extent of sources available in form of additional income offered during course of search. In so far as remaining amount sustained by CIT(A), assessee failed to offer any explanations with regard to sources of investments. Though, assessee claims to have sources, on perusal of cash flow statement filed by assessee, we find that assessee claimed number of receipts without there being any evidences to support sources of income. Therefore, we are of view that assessee has failed to explain sources of income towards investments and accordingly, upheld CIT(A) order and reject ground raised by assessee. 25. next issue that came up for our consideration is additions towards unexplained credits in capital account of partners. During course of assessment proceedings, assessing officer noticed that there are some credits in partner s capital account. To ascertain nature and source of credit in capital account, A.O. asked assessee to furnish sources in hands of partners. In response to notices, assessee submitted that partners have sufficient source of income and they have given amount out of their agricultural income and also sale proceeds of agricultural land. A.O. after considering details filed by assessee, held that assessee failed to adduce any evidences in support of sale of agricultural lands and also failed to 24 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada prove agricultural income with necessary evidences. assessee failed to file either pattadar pass book or details of agricultural land, extent, crops grown and income earned per acre, etc. In view of fact that partners are not assessed to tax and purported source of above credits are by sale of agricultural land, burden of assessee firm in explaining credits appearing in partner s capital account is not discharged. assessee firm failed to discharge its onus in filing evidence to prove availability of funds in hands of partners, genuineness of transactions by filing concerned documents, therefore, assessee firm has not discharged its initial burden as stipulated u/s 68 of Act. Therefore, credits introduced by partners has been treated as unexplained cash credits and brought to tax u/s 68 of Act. 26. Aggrieved by order, assessee preferred appeal before CIT(A) and submitted that partners have sufficient source of income to cover up credits in capital account. assessee further submitted that partners have sold certain agricultural lands, which is source of income and also they are having agricultural income which is sufficient to explain investments in partnership firm. To this effect, furnished copies of sale deeds and pattadar pass books, etc. During course of appellate proceedings, CIT(A) forwarded 25 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada evidences filed by assessee to A.O. for his comments. assessing officer in his remand report has accepted source in hands of M. Poorna Chandra Rao and Smt. M. B. Ratnam is genuine, while in case of Haribabu, out of Rs.9 lakhs, to extent of Rs.8 lakhs is explained. CIT(A) after considering evidences filed by assessee and taken into account remand report of A.O., held that assessee has filed evidences to extent of Rs.15,50,000/- and for remaining amount of Rs.7 lakhs, assessee has failed to discharge sources. With these observations, directed A.O. to delete additions to extent of Rs.15,50,000/- and confirmed balance amount of Rs.7 lakhs. 27. Ld. A.R. submitted that CIT(A) was erred in confirming additions of Rs.7 lakhs, despite A.O. in his remand report admitted that assessee has proved sources of investment. A.R. further submitted that CIT(A) has only considered sale deed, whereas assessee has received amount which is recorded in sale agreement, however, CIT(A) has ignored sale agreement filed by assessee by stating that sale agreement is unregistered. But, fact is that assessee has received cash which is source for investment in capital account, therefore, CIT(A) was erred in ignoring evidences filed to confirm additions. On other 26 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada hand, Ld. D.R. strongly supported CIT(A) order. D.R. further submitted that CIT(A) has recorded categorical finding in his order to effect that wherever assessee has proved sources with evidences, he had accepted and remaining amount has been confirmed with observation that assessee has failed to prove sources for credits in capital account, therefore, order of CIT(A) should be upheld. 28. We have heard both parties, perused materials available on record and gone through orders of authorities below. A.O. made additions towards credits in partner s capital account for reason that partners does not have sufficient source of income to explain credits in capital account. A.O. observed that partners are not assessed to income tax and they do not have sufficient source of income to cover up credits in capital account. A.O. further was of opinion that though, assessee claims to have sold certain agricultural land and also earned agricultural income, failed to furnish evidences to justify sale of agricultural land and earning of agricultural income. It is contention of assessee that partners have sufficient source of income, in as much they have sold certain agricultural lands and also having regular agricultural income. assessee further contended that it has furnished copies of sale 27 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada deeds along with sale agreements and also pattadar pass books to prove sources of agricultural income and also sale of agricultural land. However, CIT(A) has ignored evidences filed in form of sale agreement by stating that sale agreement is unregistered. But, fact is that whether sale agreement is registered or unregistered, assessee has received amount which was not disputed by A.O., therefore, CIT(A) was erred in not considering evidences filed and confirm additions. 29. Having heard both sides, we do not find any merits in arguments of assessee for reason that CIT(A) has recorded his categorical finding to effect that wherever assessee has furnished evidences, he had accepted and directed A.O. to delete additions. In respect of additions confirmed by CIT(A), assessee has failed to prove sources for investment in capital account with necessary evidences. assessee claims that it has received cash towards sale of agricultural land, however, property was registered for consideration of Rs.1,20,000/- each, but in sale agreement Rs.4 lakhs consideration has been shown. CIT(A) has examined sale agreement copies filed by assessee and finds that sale agreements are unregistered and consideration is received in cash. When sale agreements are unregistered and consideration 28 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada received in cash, genuineness of transactions is definitely doubtful. Therefore, we are of view that CIT(A) has rightly rejected evidences filed by assessee and confirmed additions. We do not see any reason to interfere with order of CIT(A), hence we inclined to uphold CIT(A) order and reject ground raised by assessee. 30. next issue that came up for our consideration for assessment year 2010-11 is addition towards interest income of Rs.19 lakhs. facts relates to issue are that during course of search proceedings, in statement u/s 132(4) of Act, assessee has admitted additional income of Rs.25 lakhs towards unaccounted interest for A.Y. 2010-11. However, while filing return of income u/s 153A of Act, assessee has admitted Rs.6 lakhs and not declared balance amount of Rs.19 lakhs which was offered to tax u/s 132(4) of Act. During course of assessment proceedings, A.O. made additions of Rs.19 lakhs being difference between incomes admitted during course of search u/s 132(4) of Act and income admitted by assessee in revised return filed u/s 153A of Act. A.O. was of opinion that assessee has retracted its admission without valid grounds. assessing officer had relied on several case laws which reiterated that admission of income u/s 132(4) of Act before 29 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada Income Tax authorities cannot be retracted, unless there are cogent and convincing reasons for same. 31. Aggrieved by assessment order, assessee carried matter in appeal before CIT(A). Before CIT(A), assessee submitted that additions cannot be made based on admission alone and admission made by assessee u/s 132(4) of Act for assessment year 2010-11 has been split into income up to date of search and subsequent to date of search. assessee has maintained regular books of accounts and determined total income which is separately assessed by A.O., therefore, A.O. was not correct in making additions based on admissions u/s 132(4) of Act. assessee further submitted that admission u/s 132(4) of Act should be taken to mean covering undisclosed income of period till date of search and to go back into books of accounts and proposing further additions on basis of entries in books of accounts will result in unjust double jeopardy to assessee for reason that mistakes/omissions in books is direct source of undisclosed income. To support his arguments, relied upon decision of Hon ble Supreme Court in case of Sutluz Cotton Mills Vs. CIT 116 ITR 1 and also decision of Bombay High Court in case of CIT Vs. Gopal Purohit 336 ITR 287. CIT(A) after considering submissions of 30 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada assessee, held that assessee has failed to offer any cogent reasons for not disclosing additional income admitted during course of search proceedings in statement recorded u/s 132(4) of Act. In fact, assessee, for earlier years has offered to tax income disclosed u/s 132(4) of Act in return of income filed subsequently, thereby implying that declaration made in course of search proceedings has been done correctly and there is no basis for retraction of same. When assessee itself has thus offered to tax income disclosed u/s 132(4) of Act for earlier years, there is no justification for it not to do likewise for current year without any cogent reasons. With these observations, upheld additions made by A.O. 32. Ld. A.R. for assessee submitted that CIT(A) erred in sustaining additions of Rs.19 lakhs without considering assessee s claim that declaration made by assessee u/s 132(4) of Act was not liable to be acted upon, in view of retraction made on valid grounds. assessee further submitted that assessee has quantified undisclosed income of Rs.6 lakhs up to date of search and remaining period is covered under regular assessment, wherein assessee has maintained books of accounts and determined correct income. Therefore, A.O. was not correct in making additions towards 31 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada income as per regular return and also towards admissions made u/s 132(4) of Act, which results double additions. D.R. on other hand strongly supported order of CIT(A). 33. We have heard both parties, perused materials available on record and gone through orders of authorities below. factual matrix of issue is that during course of search proceedings, assessee has admitted additional income of Rs.25 lakhs towards unaccounted income for assessment year 2010-11. However, while filing return of income, assessee has admitted amount of Rs.6 lakhs and balance amount of Rs.19 lakhs has not been admitted as agreed u/s 132(4) of Act. A.O. made additions of Rs.19 lakhs on ground that assessee has not offered any cogent reasons for not admitting income as agreed at time of search. A.O. has given his own reasons and also relied upon certain judicial precedents, wherein it was held that assessee cannot retract its admissions without any cogent reasons. 34. It is contention of assessee that it has retracted its admissions with valid reasons, as assessee has admitted additional income for assessment year 2010-11 for whole year. However, it has quantified amount of Rs. 6 lakhs for period up to date of search and remaining period, it has maintained normal books of 32 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada accounts and determined total income which was separately assessed. A.O. has made additions as per income admitted by assessee in books of accounts and also made additions towards admissions made u/s 132(4) of Act. According to assessee, additions made by A.O. amounts to double additions, as it has given declaration of Rs.25 lakhs for whole year. Since, it has separated income for year up to date of search and subsequent to date of search, A.O. was not correct in making separate addition to regular income declared by assessee. We do not find any merits in arguments of assessee, for reason that assessee has admitted additional income of Rs.25 lakhs at time of search in statement recorded u/s 132(4) of Act. assessee has not offered any reasons for not disclosing amount as agreed at time of search. Though, assessee claims to have stated that it has agreed income of Rs.25 lakhs for whole period, in view of fact that assessee has admitted additional income offered during course of search in earlier years, thereby implying that declaration made in course of search proceedings has been done correctly and there was no basis for retraction of same. When assessee itself has offered additional income and agreed to disclose u/s 132(4) of Act, there is no justification for assessee for not disclosing amount for 33 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada current assessment year. CIT(A) after considering relevant submissions of assessee has rightly upheld additions made by A.O. We do not see any reasons to interfere with order of CIT(A) and hence, we inclined to upheld CIT(A) order and reject ground raised by assessee. 35. In result, appeals filed by both assessees in ITA Nos.533 & 534/Vizag/2013, 151 to 154/Vizag/2014, 535 to 540/Vizasg/2013 & 150/Vizag/2014 are partly allowed for statistical purposes. above order was pronounced in open court on 30th Sept 16. Sd/- Sd/- (V. DURGA RAO) (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Visakhapatnam: Dated : 30.09.2016 VG/SPS & Copy of order forwarded to:- 1. Appellant M/s. Srinivasa Auto Financiers, 14-11-117, Ramnagar, GBC Road, Ponnuru, Guntur Dist. 1. Appellant M/s. Lakshmi Auto Financiers, 14-11-117, Ramnagar, GBC Road, Ponnuru, Guntur District. 3. Respondent DCIT, Central Circle, Vijayawada 4. CIT(Central), Hyderabad 34 ITA Nos.533 to 540/Vizag/2013 & 150 to 154/Vizag/2014 Srinivasa Auto Financiers & Lakshmi Auto Financiers, Ponnur, Vijayawada 5. CIT (A), Guntur 6. CIT (A), Vijayawada 7. DR, ITAT, Visakhapatnam 8. Guard file BY ORDER // True Copy // (Sr.Private Secretary) ITAT, VISAKHAPATNAM 35 M/s. Srinivasa Auto Financiers v. DCIT, Central Circle, Vijayawada