SAMBASIVA RAO CHAGARLMUDI,GODAVARIKHANI vs. ACIT, CIRCLE-1, KARIMNAGAR

This appeal filed by the assessee is directed against the order dated 6.9.2022 of the learned CIT (A)-NFAC, Delhi, relating to A.Y.2016-17.

There is a delay of 18 days in filing of this appeal by the assessee for which the assessee has filed a condonation application along with an affidavit explaining the reasons for such delay which is due to sudden death of the Authorised Representative due to Terminal Cancer. After considering the contents of the condonation application filed along with the affidavit and after hearing the learned DR, the delay in filing of ITA 658 of 2022 Sambasiva Rao Chagarlmudi this appeal by the assessee is condoned and the appeal is admitted for adjudication.

Although a number of grounds have been raised by the assessee, however, these all relate to the order of the learned CIT (A) NFAC in confirming the addition of Rs.40,97,808/- made by the Assessing Officer as unexplained cash credit u/s 68 of the I.T. Act.

Facts of the case, in brief, are that the assessee is an individual and filed his return of income declaring a total income of Rs.43,34,130/-. The assessee derives income from house property, income from other sources and interest and remuneration from partnership firms. The case was selected for scrutiny under CASS and statutory notices u/s 143(2) & 142(1) were issued and served on the assessee to which the AR of the assessee appeared before the Assessing Officer and filed the requisite details.

During the course of assessement proceedings, the Assessing Officer observed from the statement of total income that the assessee has claimed an amount of Rs.40,97,808/- being share of profit received from the partnership firm M/s. CH. Kishore Kumar, Ramagundam (CHKK in brief) as exempt u/s 10(2A). The same was credited to his capital account on 16.10.2015. He observed from the balance sheet as on 31.3.2016 that the capital balance in the name of firm M/s. CH. Kishore Kumar is not appearing therein. From the various details furnished by the assessee, he observed that the assessee has retired from the partnership firm M/s. CH. Kishore Kumar and the amount receivable from the said firm is shown at Page 2 of 8

In response to the same M/s. CH. Kishore Kumar submitted information enclosing copy of the retirement deed

The ledger account of the assessee in their books of account was also submitted to the Assessing Officer.

However, the Assessing Officer was not satisfied with the explanation given by the assessee and made addition of Rs.40,97,808/- by recording the following:

Distinguishing the various decisions relied on by the assessee and relying on certain other decisions, the Assessing Officer made addition of Rs.40,97,880/- as unexplained credit and added the same to the total income of the assessee.

In appeal, the learned CIT (A) NFAC upheld the addition.

Aggrieved with such order of the learned CIT (A) the assessee is in appeal before the Tribunal.

The learned Counsel for the assessee at the outset drew the attention of the Bench to the balance sheet of M/s. CH Kishore Kumar as on 31.3.2015 and submitted that an amount of Rs.6,61,83,483/- has been shown as FSD which has gone down to Rs.11,45,646/- as on 31.03.2016. He submitted that the Assessing Officer has obtained information u/s 133(6) from the firm M/s. CH Kishore Kumar who have confirmed that they have given the amount of Rs.40,97,808/- which is the share of the assessee from FSD Account. According to the learned AR, once the identity and capacity of the payer is established and the amount has been received through banking channels and the genuineness of the transaction is not in doubt, invoking the provisions of section 68 is not called for.

The learned DR, on the other hand, heavily relied on the order of the Assessing Officer and the learned CIT (A).

We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the AO in the instant case made addition of Rs.40,97,808/- u/s 68 of the I.T. Act which is the surplus amount of Rs.40,97,808/- received by the assessee from the firm and credited to his capital account. While doing so, the Assessing Officer observed that the opening balance of Rs.1,13,55,590/- in the capital account in the books of M/s CH Kishore Kumar is tallying with the balance shown in the books of the assessee. Page 6 of 8

We find some force in the above argument of the learned Counsel for the assessee. In the instant case, the Assessing Officer himself, incidentally he is the Assessing Officer of the partnership firm also has obtained the information u/s 133(6) from the said firm. The firm in its reply has submitted that the surplus amount received by the assessee represent assessee’s share in deposits/FSD returned to the firm after completion of contract work. Therefore, once the partnership firm M/s CH Kishore Kumar has confirmed the payment amount of Rs.40,97,808/-, their identity and creditworthiness is not in dispute, the amount has been transferred through proper banking channels, therefore, merely because the opening balance of Rs.40,97,808/- in assessee’s capital account appearing in the books of M/s CH Kishore Kumar which is not there in the books of the assessee cannot be a ground to make the addition u/s 68 of ITA 658 of 2022 Sambasiva Rao Chagarlmudi the I.T. Act. The assessee cannot be held responsible for the manner in which the partnership firm maintains its record after he retires but it is an undisputed fact that the firm has confirmed that the amount of Rs.40,97,808/- is the share of profit of the assessee out of the FSD returned to the firm after completion of the contract work. Once the firm has confirmed the same to be the assessee’s share of profit, addition u/s 68 in the hands of the assessee, in our opinion, is not justified. The order of the learned CIT (A) is accordingly set aside and the grounds raised by the assessee are allowed.