NORTHSTAR HOMES,,HYDERABAD vs. ACIT., CENTRAL CIRCLE -1(2),, HYDERABAD

Brief facts of the case are that assessee is a firm dealing with infrastructure related projects and contracts. It filed the original return of income for the assessment year 2017-18 on 31/10/2017 declaring income of Rs. 66,38,900/-. Subsequently, there was a survey conducted in the case of the assessee and certain documents were impounded. Basing on one of such documents, which is a loan agreement between one Shri Uttam Kumar Reddy and on one had and one Shri Y. Appa Rao and his wife on the other hand. Learned Assessing Officer found from the document that an amount of Rs. 1 crore was purported to be loan to the assessee and of that Rs. 1 crore, Rs. 80 lakhs was received through banking channels and Rs. 20 lakhs was by way of cash. Learned Assessing Officer further found that only an amount of Rs. 80 lakhs received though banking channels was reflected in the books of assessee towards sale consideration of flats. There is no entry in respect of Rs. 20 lakhs, said to have been received by the assessee in cash component.

When asked, assessee explained that the alleged loan agreement dated 29/09/2016 was between the creditors on one side and Shri Uttam Kumar Reddy on the other side, in their individual capacity and the assessee has nothing to do with the same. Second plea taken by the assessee is that the alleged loan agreement is a dumb document and it does not fasten any liability on the assessee in respect of the amount which was never received. According to the assessee, only a sum of Rs. 80 lakhs was received through banking channels and that was entered in their books and they have nothing to do with the rest of the amount.

Learned Assessing Officer, however, did not agree with the submissions made by the assessee and holding that Shri Uttam Kumar Reddy acted as a representative of the assessee and the very fact that the sum said to have been received by him under the loan agreement was adjusted by the assessee in their books clearly shows that Shri Uttam Kumar Reddy did not act in his individual capacity, but he was only a representative of the assessee. Learned Assessing Officer, derived strength to his opinion from the fact that the requisite stamp paper for drafting the loan agreement was purchased in the name of the assessee. Learned Assessing Officer, accordingly added the said amount of Rs. 20 lakhs to the income of the assessee under section 68, 69, 69A and 69C read with section 115BBE of the Income Tax Act, 1961 (for short “the Act”).

Assessee preferred appeal before the learned CIT(A). It could be seen from the impugned order that the assessee pressed into service the Assessing Officer and further stated that the amounts from the creditors were directly credited to the assessee’s account which shows that insofar as the transaction of sale of flats and adjusting Rs. 80 lakhs towards sale consideration is concerned, this loan agreement has no role to play. It was further contended that the alleged agreement of sale is only a dumb document, because it was not a concluded one inasmuch as the borrower did not sign the document and entry No. 3 of the mode of payment column was scratched and not properly attested. At best this agreement is only a rough document with the parties ever intending to act upon it but the actual transaction that took placed was between the assessee and the alleged lenders under the loan agreement and that too in respect of purchase of flat and not a loan. For these reasons, the assessee prayed to delete the addition.

Learned CIT(A) also declined to accept the contentions of the assessee stating that the very fact of the amount said to have been paid through banking channels under the loan agreement was received and adjusted by the assessee towards sale consideration of the flats clearly establishes that Shri Uttam Kumar Reddy acted as a representative of the assessee and such document was real since it is tallying with all the material particulars in respect of payments. Learned CIT(A) held that the explanation offered by the assessee is only self-serving in nature and was created just to escape the un-recorded cash transaction of Rs. 20 lakhs. He accordingly dismissed the appeal.

Assessee is, therefore, before us in this appeal, contending that the learned Assessing Officer drew only an inference basing on the alleged draft of loan agreement that the assessee received the cash component of Rs. 20 lakhs also without looking into any corroborative evidence and also ignoring the inherent inconsistencies in such presumption. He submits that the alleged loan agreement is a dumb document, because it does not speak anything about the liability of the assessee under the terms of such document, apart from the fact that such a loan agreement was not signed by the borrower himself. Further, at no place of the said document, the name of the assessee is to be found and merely because Shri Uttam Kumar Reddy happens to be one of the partners of the assessee, it cannot be said that each and every transaction entered by him with strangers shall bind the assessee. The fact of assessee subsequently, adjusting the amount sent through the banking channels does not validate a document, which was never singed by all the parties and which does not speak of the name of the assessee when it was prepared. It is only subsequently through said banking channels, the prospective purchasers of flats remitted the amounts to the assessee which were adjusted by the assessee in their books and the cash component of Rs. 20 lakhs never reached the assessee.

Learned AR further submits that when the document was prepared, the parties were agreeing on the terms of payment including cash component, but subsequently, coming to know all the consequences of any payment in cash of any amount more than the threshold limit, the parties have given up the idea of acting upon the alleged document and they directly remitted the amounts through banking channels, giving up the idea of any payment through cash. That is the reason why the agreement of loan was not signed by the alleged borrower and such a document was given a clean quietus and never thought of acting upon.

Learned DR placed heavy reliance on the contents of the document to show that a total amount of Rs. 1 crore was transferring under the said document and it is only an after thought that the amount received under the banking channels was received in the accounts of the assessee leaving the cash component un-accounted for.

In reply, learned AR submitted that even assuming for a while that the cash component was not entered into the books of accounts still the same cannot be treated as income of the assessee, because even according to the Revenue, it was a loan and a loan accounted in the books or not can never be the income of the assessee. When the nature and source of any amount is known, then, none of the sections like 68, 69, 69A 69C of the Act cannot be made applicable to the facts of the case, let alone the fact that here the case is reverse that there is no entry in the books of the assessee, revealing any income without explaining the nature and source. 11. Learned AR further submitted that learned Assessing Officer by order dated 21/04/2021 in the case of Shri Uttam Kumar Reddy for the assessment year 2018-19 added this amount of Rs. 20 lakhs under section 69A of the Act and the very same amount is added in the hands of the assessee for the assessment year 2017-18 by order dated 14/03/2022. Having added such amount in the hands of the individual, it is not open for the learned Assessing Officer to add the same amount in the hands of the assessee also. Both are mutually contradicted. 12. We have gone through the record in the light of the submissions made on either side. The agreement of loan is incorporated at pg. 12 and 14 of the paper book and the assessee is not a party to the document either directly or through any representative. Only the stamp paper was purchased by the assessee. A sum of Rs. 1 crore was said to be advanced under this document to Shri Uttam Kumar Reddy through four streams i.e., Rs. 20 lakhs and Rs. 10 lakhs by way of cheques and Rs. 50 lakhs through NEFT. Clause (iii) of this mode of payment is scratched and we are unable to decipher anything there from. However, there is no reason to disbelieve the Revenue that it relates to the payment of Rs. 30,000/- by way of cash. This document is not at all signed by the borrower and whenever any amount is borrowed under any document, the signature of the borrower is essential, without which it cannot be a proper document. 13. This document shows that the amounts received were borrowed by Shri Uttam Kumar Reddy. However, the very fact that such documents were appropriated in the accounts of the assessee clearly shows that the parties of this document were not acted upon at all. If the transaction under this document was entered into by Shri Uttam Kumar Reddy, such a thing would have clearly been mentioned in the document itself. The entire agreement of loan does not speak of such amount being paid as advance for purchase of flat or such amounts to be adjusted subsequently. What all it speaks that the borrower desires to deposit agreement of sale dated 29/09/2016 with the creditors towards security. When Shri Uttam Kumar Reddy does not enter into the transaction without specifically mentioning that he was doing so on behalf of the assessee, such a transaction will not bind the assessee at all. Viewing these facts in gist positions to each other, it clearly establishes that though there was an attempt to enter into a particular transaction under this document, such a transaction was not taken to its logical conclusion. It further shows that the transaction of loan was abundant and another transaction of advancing the amounts towards sale consideration of the flat was taken up and the amounts paid through the banking channels were adjusted accordingly by making relevant entries in the books. Merely because Shri Uttam Kumar Reddy happens to be a partner of the assessee firm, it cannot readily be concluded that whatever he does even in individual capacity can be attributed to the assessee.

Though the stamp paper was purchased on the name of the assessee, when there is no clinching evidence to show that the transaction under loan agreement was taken to its logical conclusion, it cannot be presumed that cash component was received by the assessee. In the event of the loan agreement, reaching its logical conclusion, even then, the assessee cannot be fastened with any liability, because as the document reads as it is, such transaction does not pertain to the assessee at all.

It, therefore, appears that because the assessee appropriated Rs. 80 lakhs in its books of accounts, the transaction entered by the Shri Uttam Kumar Reddy is taken to have been continued. However, as rightly contended by the counsel for the assessee, it does not mean that the loan agreement continued into the purchase of flat.

There is no denial of the fact that by order dated 21/04/2021 such Rs. 20 lakhs was brought to tax in the hands of Shri Uttam Kumar Reddy 2018-19, basing on the same loan agreement. A copy of assessment order of Shri Uttam Kumar Reddy for the assessment year 2018-19 is filed and forms part of record. It shows that by relying upon the same loan agreement, learned Assessing Officer concluded that Rs. 20 lakhs cash component had to be taxed in the hands of Shri Uttam Kumar Reddy for the assessment year 2017-18. We do not know the basis for the learned Assessing Officer to conclude that such cash component under the agreement of loan had become income of Shri Uttam Kumar Reddy during the financial year 2017-18. In such an event it destroys the case of the Revenue that the same amount had become the income of the assessee for the financial year 2016-17.

Learned Assessing Officer does not determine in which year such cash was paid and if so, whether the entire receipt becomes income in that particular year etc. For all these reasons, we are of the considered opinion that addition was made not on any concrete finding basing on any corroborative evidence. We find it difficult to sustain the same. Addition is accordingly liable to be deleted.

In the result, appeal of assessee is allowed.