THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1),, VISAKHAPATNAM vs. VASANTHA BABU VALLURI, VIZIANAGARAM

Ground No.1, 6 and 7 are general in nature which does not require specific adjudication.

Ground No.2 is related to the disallowance of amount of Rs.5,74,016/- and Rs.77,000/- as not related to business expenditure. During the assessment proceedings, the AO found that the assessee had claimed the interest expenditure of Rs.5,74,016/- related to the amounts advanced to VVCIPL under the head ‘business income’. Therefore, the AO called for the explanation of the assessee as to why the said expenditure should not be disallowed and brought to tax. In response, the assessee stated that the expenditure of interest was claimed under ‘business income’, however, the assessee had received the interest of Rs. 6,80,516/- from VVCIPL and the same was offered to tax under the head other sources, thus, no expenditure was claimed on amounts advanced to VVCIPL. Assessee has argued that since, the equal amount of interest was received and offered to tax there is no case for making the addition. The AO, not 3 ITA No.34/Viz/2021 and CO No.53 /Viz/2021, A.Y.2017-18 Vasantha Babu Valluri, Vizianagaram

Against which the assessee went on appeal before the CIT(A) and the Ld.CIT(A) found that the assessee has paid the interest on borrowed funds and lent to VVCIPL and at the same time received the equal amount of interest which was offered to income under the head ‘income from other sources’. Since there was excess expenditure incurred by the assessee, the Ld.CIT(A) held that there is no case for making the addition and accordingly deleted the addition.

Against the order of the Ld.CIT(A), the department is in appeal before us.

We have heard both the parties and perused the material placed on record. In the instant case, there is no dispute that the assessee has earned interest income on the amounts lent to VVCIPL and at the same time, the assessee also paid the interest on borrowed funds. Since the assessee has earned interest of equal amounts and offered to tax, there is no loss of revenue. In this regard we also extract para No.4.1.2 of the order of the Ld.CIT(A) which reads as under: “4.1. 2. I have carefully considered the issue and the facts. There is no dispute that the appellant had earned interest income of Rs.10,03,668/-. There is also 4 ITA No.34/Viz/2021 and CO No.53 /Viz/2021, A.Y.2017-18 Vasantha Babu Valluri, Vizianagaram

The second issued in ground No.3 is related to the addition of Rs.77,000/-. During the assessment proceedings, the AO found that the assessee has claimed the amount of Rs.77,000/- on account of profits admitted. Since the assessee could not explain the nature of the expenditure, the AO made the addition of Rs.77,000/- to the returned income.

Against the order of the AO, the assessee went on appeal before the Ld.CIT(A) and the Ld.CIT(A) observed that the assessee is in the business of construction and sale of flats and the interest amount is related to the interest paid on advance received for sale of flats which was cancelled

Against which the department is in appeal before this Tribunal.

We have heard both the parties and perused the material placed on record. Though the assessee has claimed that the interest was paid on advance received on sale of flat which was cancelled subsequently, no details were made available either in the assessment proceedings or in the appeal proceedings. The assessee is supposed to furnish the details with regard to flat No., identify the buyer etc. to claim the expenditure. Without having furnished the above details, the AO cannot verify the genuineness of the expenditure. It also appears that the AO did not make any effort to collect the details. Therefore, we remit the matter back to the file of the AO with a direction to reexamine the issue in detail and decide the issue afresh on merits. Appeal of the revenue on this ground is allowed for statistical purpose.

Ground No.4 is related to the disallowance of expenditure u/s 40(a)(ia) of the Act, amounting to Rs.39,46,426/- for non deduction of tax at source. During the assessment proceedings, the AO found that the assessee has debited the expenditure of Rs.1,31,54,753/- under the head,

Against the order of the AO, the assessee went on appeal before the Ld.CIT(A) and submitted that TDS was liable on commission payments, carpentary works and painting works and the assessee has duly deducted the TDS. However, the assessee argued that other heads of expenditure i.e. salary, electrical works, land development charges, NMR works are out side the purview of TDS , since, each payment was below the prescribed limit. After considering the explanation of the assessee, the Ld.CIT(A) deleted the addition.

Against the order of the Ld.CIT(A), the department is in appeal before the Tribunal.

We have heard both the parties and perused the material placed on record. In the instant case, there is no dispute that the assessee is maintaining the books of accounts and the books of accounts were duly audited by qualified Chartered Accountant and given his findings on TDS

The next ground is cash deposits made in the bank account during demonetization period. The AO asked for the sources for cash deposits of Rs.11,50,000/- made in the bank account. Since the assessee could not explain the source of the cash deposit to the satisfaction of the AO, he made the addition u/s 69A r.w.s. 115BBE of the Act.

Against the order of the AO, the assessee went on appeal before the CIT(A) and explained the source of cash deposit as withdrawals from the bank account which were duly recorded in the books of accounts. Since the assessee has explained the source of cash deposits as withdrawals from the bank account, the Ld.CIT(A) deleted the addition.

Against the order of the Ld.CIT(A), the department is in appeal before this Tribunal.

We have heard both the parties and perused the material placed on record. The AO made the addition of Rs.11,50,000/- cash deposits made in the bank account during the demonetization period u/s 69A of the act. The assessee is maintaining regular books of account and the cash deposits were sourced from the cash book. The issue is identical to the appeal in the case of Mr.Jaya Prakash Babu in ITA No.31/Viz/2021. The addition was deleted placing reliance on the order coordinate bench of ITAT, Mumbai in of M/s Karthik Constructions(Supra) in I.T.A.No.2292/Mum/2016 dated 23.02.2018. Since the facts are identical respectfully following the view taken by this Tribunal in Mr.Jaya Prakash Babu in ITA No.13/viz/2021, M/s Karthik Constructions (supra) we uphold the order of Ld.CIT(A) and dismiss the appeal of the revenue.

The next issue in this appeal in ground No.5 is the addition of Rs.2,10,61,012/- made u/s 68 which was deleted by the Ld.CIT(A). The AO found that there was an increase in capital account of the assessee to the extent of Rs.2,10,61,012/- which was explained to be the amount given by Mr.Jaya Prakash Babu and submitted the ledger account . Since the assessee did not prove the increase in capital with the substantial evidence the AO treated the same as unexplained cash credit and made the addition u/s 68 of the Act.

Against the order of the AO the assessee went on appeal before the Ld.CIT(A) and the Ld.CIT(A) deleted the addition observing that the amount was transferred from the account of Mr.Jaya Prakash Babu and assessee furnished the ledger account copy evidencing the credit. TheLd.CIT(A) further observed that AO did not cause any enquiries with regard to the transaction and has not discharged the burden. Against the order of the LD.CIT(A) the department filed the appeal before us.

We have heard both the parties and perused the material placed on record. The source for infusion of capital was the amount given by his father Shri Jaya Prakash Babu through transfer from his capital account. As per the ledger account, the said sum was credited in the capital account on 10 ITA No.34/Viz/2021 and CO No.53 /Viz/2021, A.Y.2017-18 Vasantha Babu Valluri, Vizianagaram

The assessee filed cross objections in support of the order of the Ld.CIT(A). Since the appeal of the revenue is partly allowed the cross objections of the assessee also stand partly allowed.

In the result, appeals of the assessee is partly allowed and cross objections of the assessee are partly allowed.

The Pr.Commissioner of Income Tax-1, Visakhapatnam

The Commissioner of Income Tax (Appeals)-1, Visakhapatnam 5. तवभागीय प्रतितितर्, आयकर अिीिीय अतर्करण, तवशाखािटणम/DR, ITAT, Visakhapatnam 6.गार्ाफ़ाईि / Guard file आदेशािुसार / BY ORDER ////