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Dy. CIT Central Circle, Tirupati Vs. M/s. P. Hari Babu Tirupati,Appellant Respondent
July, 26th 2012


                       ITA No. 1463/Hyd/2010
                      Assessment year - 2008-09

M/s. P. Hari Babu                   Vs.   Asst. CIT
Tirupati, PAN: AIKPP6931D                 Central Circle, Tirupati
Appellant                                 Respondent

                       ITA No. 1653/Hyd/2010
                      Assessment year - 2008-09

Dy. CIT                             Vs.   M/s. P. Hari Babu
Central Circle, Tirupati                  Tirupati, PAN: AIKPP6931D
Appellant                                 Respondent

                      Assessee by: Sri S. Rama Rao
                      Revenue by: Sri M.S. Rao

                Date of hearing: 25.05.2012
        Date of pronouncement: 24.07.2012



      These are cross appeals directed against the order of the
CIT(A)-VII, Hyderabad dated 30.10.2010 for assessment year

2.     The assessee raised the following grounds of appeal:

      1. The order of the learned CIT(A) is erroneous to the extent it is
         prejudicial to the appellant herein.
      2. The learned CIT(A) erred in confirming the action of the
         Assessing Officer in making an addition of Rs. 70,00,000 to the
         income admitted.
      3. The learned CIT(A) erred in confirming an addition of Rs.
         3,00,000 made by the Assessing Officer towards disallowance
         of development expenses. The learned CIT(A) ought to have
         seen that the entire expenditure is properly vouched and was
         incurred for the purpose of business.
      4. The learned CIT(A) ought to have considered the fact that the
                                     2           ITA Nos. 1463 & 1653/ Hyd/2010.
                                                                 Sri P. Hari Babu

         appellant offered an income of Rs. 82,27,840 while filing the
         return of income for the year under consideration and the
         Assessing Officer did not point out any omission in the income
         admitted by the appellant.
      5. The learned CIT(A) ought to have deleted the addition
         considering the fact that there is no basis for the addition
         made by the Assessing Officer.
3.    The grounds of appeal raised by the Revenue are as follows:

      1. The learned CIT(A) has erred on law and fact while allowing
         appeal of the assessee on account of quantification of short
         term capital gains.
      2. The CIT(A) ought to have considered the fact no builder shall
         deposit such a huge advance with the landlord before
         developing the land and in turn the sale consideration could
         have given under the colour of deposit by the builder.
      3. The CIT(A) ought to have admitted those evidences that are
         not produced before the AO at the time of assessment
         proceedings and by admitting the additional evidences Rule-
         46A was violated.

4.    First we will take the assessee's appeal for adjudication.
Brief facts of the first ground raised by the assessee are that there
was a search action in the case of the assessee on 27.9.2007 of the
Income-tax Act, 1961. In this case the assessee received a sum of
Rs. 5,97,06,479 from M/s. Aishwarya Homes, Bangalore for the
development and sale of his land. This amount was not offered to
tax. The Assessing Officer observed that this is a transfer of capital
asset and he brought the same to tax.              Further the assessee
claimed an expenditure of Rs. 80,44,959 for which requisite
vouchers were not produced and the same has been disallowed.
The assessee offered income of Rs. 70 lakhs during the search
operation and the same has been treated as undisclosed income of
the assessee.

5.    On appeal, the CIT(A) observed that the assessee is in real
estate business. The sale of land is reflected in trading and Profit
and Loss A/c.        The assessee has been claiming incidental
                                   3         ITA Nos. 1463 & 1653/ Hyd/2010.
                                                             Sri P. Hari Babu

expenses involved in the process of purchase and development of
land. The sale proceeds which are reflected in Profit and Loss A/c.
and corresponding credit appearing in the name of M/s.
Aishwarya Homes , Bangalore is only an advance appearing in the
Balance Sheet and it cannot be considered as undisclosed income
of the assessee. Accordingly, the CIT(A) deleted the same. Against
this the Revenue is in appeal before us. Regarding unexplained
expenditure of Rs. 80,44,959 the CIT(A) sustained an addition of
Rs. 3 lakhs. Against this action of the CIT(A), the assessee is in
appeal before us. Further regarding the addition of Rs. 70 lakhs
sustained by the CIT(A), though the assessee himself offered Rs.
82,27,840, the assessee is in appeal before us.

6.       We have heard both the parties and perused the material on
record. Regarding the addition of Rs. 5,97,06,479, the plea of the
assessee is that it represents the sale of land reflected in the Profit
and Loss A/c. and the gross amount itself cannot be considered as
income of the assessee.       We find the plea of the assessee is
reasonable. In our opinion, if it is a sale of land reflected in the
Profit and Loss A/c. and the corresponding creditor is reflected in
the Balance Sheet and disclosed to the Department in the return
of income of the assessee, the same cannot be considered as
undisclosed income of the assessee. In other words, the assessee
being a dealer in real estate, buying and selling of lands is his
business activity, only the net income generated from these
transactions has to be considered as income of the assessee rather
than gross sale value of land as income of the assessee.
Accordingly, we direct the Assessing Officer to reconsider the

7.       With regard to sustenance of addition of Rs. 3 lakhs out of
Rs. 80,44,959, the assessee is not able to show that the entire
expenditure was supported by proper bills and vouchers. Being
                                     4       ITA Nos. 1463 & 1653/ Hyd/2010.
                                                             Sri P. Hari Babu

so, we are not in a position to entertain the claim of the assessee.
Accordingly, this ground is dismissed.

8.      Regarding sustaining of addition of Rs. 70 lakhs, we are of
the opinion that if the assessee offered Rs. 70 lakhs during the
course of search operation and later not disclosed the same
amount in his return of income, the assessee is duty bound to
explain the reason for not disclosing the same in his return of
income. If the retraction is corroborated by sound evidence then
addition cannot be made. In other words, to sustain the addition
there should be seized material. Without seized material, just by
confession statement made by the assessee during the course of
search operation, addition cannot be made.              We direct the
Assessing Officer to establish nexus between the seized material
and this addition and decide the same accordingly.

9.      In the result, both the Revenue appeal and assessee appeal
are allowed for statistical purposes.

      Order pronounced in the open court on 24th July, 2012.

              Sd/-                              Sd/-

Hyderabad, dated the 24th July, 2012

Copy forwarded to:
1.      Shri P. Hari Babu, Plot No. 8, Vidya Nagar Main Road,
2.      The Asst. Commissioner of Income-tax, Central Circle,
3.      The Deputy Commissioner of Income-tax, Central Circle,
4.      The CIT(A)-VII, Hyderabad.
5.      The CIT (Central), Hyderabad.
6.      The DR ­ B Bench, ITAT, Hyderabad.
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