THE INCOME TAX OFFICER, WARD-3(2),, VISAKHAPATNAM vs. POTLURI PHANENDRS BABU , VISAKHAPATNAM

This appeal is filed by the revenue against the order of the Commissioner of Income Tax (Appeals) [CIT(A)]-1, Visakhapatnam in VSP/2019-20 dated 23.04.2019 for the Assessment Year (A.Y.) 2012-13 and cross objections are filed by the assessee.

All the grounds of appeal are related to the addition deleted by the CIT(A) amounting to Rs.2,00,28,550/- out of the total addition of Rs.2,27,70,750/-. Brief facts of the case are that the assessee is a partner of the firm MANASA, filed the return of income disclosing total income of Rs.11,42,000/- on 30.03.2013. During the course of assessment proceedings, the Assessing Officer (AO) found that the assessee made cash deposits of Rs.1,76,28,550/- and made the investments for purchase of car, introduction of capital in firms, expenditure incurred on foreign tours and some amount was given to his son, Shri P.Pavan Kumar and the total sums representing cash deposits, the investments and the expenditure incurred aggregated to Rs.2,27,70,550/-, which was brought to tax as income from undisclosed sources.

Against the order of the AO, the assessee went on appeal before the CIT(A) and submitted that the assessee is a wealth tax assessee having opening cash balance of Rs.59,76,000/-and made withdrawals from the bank account on various dates and having sufficient source to meet the cash deposits. The assessee also explained before the AO as well as the CIT(A) that the source of deposit was receipt of cash from Late Sri TMV Prasada Rao, Vijayawada out of sale consideration agreed at Rs.2.50 crores for purchase of property i.e. 6000 sft. of built up area in a commercial complex by name Victory Complex, Peda Waltair, Visakhapatnam, jointly owned by Sri Phanendra Babu and his wife Smt.P.Lakshmi, which was received by the assessee during the financial years 2006-07, 2007-08 and 2008-09 and the funds were transferred by Sri Prasad Rao’s daughter Ms Indira. The assessee further submitted that the funds of Late Shri TMV Prasad Rao were lying with the assessee due to death of Sri Prasada Rao, which was used for making deposits in the bank account. To support the contention of the receipt of money from Late TMV Prasada Rao, the assessee furnished confirmation from his daughter Smt.Indira and also copy of bank account maintained by late TMV Prasada Rao jointly with his wife Smt.Tummala Vidyadhari. In the confirmation letter, the daughter of Late Shri TMV Prasada Rao has confirmed the payment of Rs.1.60 crores to CO No.132/Viz/2019, A.Y.2012-13 Sri Potluri Phanendra Babu, Visakhapatnam the assessee. However, the AO did not believe the contention of the assessee and held that it is an afterthought. Accordingly rejected the assessee’s explanation and made the addition.

Against which the assessee went on appeal before the CIT(A) and argued that the source of cash deposit was the amount received from late Sri TMV Prasada Rao as well as opening balance which is evidenced by the confirmation letter and wealth tax returns, hence, requested to delete the addition made by the AO. The Ld.CIT(A) considered the submissions and observed that as per the confirmation letter given by Smt.Y.Indira, daughter of Late Shri TMV Prasada Rao, she confirmed having given the amounts to the assessee towards the advance for sale of property. It is further observed that there was opening cash balance of Rs.8,59,76,000/- which is available to the assessee. The Ld.CIT(A) also found that while taking the cash deposits as undisclosed income, the AO did not consider the cash withdrawals made from the bank which is amounting to Rs.1,39,23,009/-. The total cash available to the assessee worked out to Rs.2 crores against the cash deposits of Rs.1,76,28,550/- leaving the balance of Rs.27,42,000/- which remained unspent. Therefore, the CO No.132/Viz/2019, A.Y.2012-13 Sri Potluri Phanendra Babu, Visakhapatnam Ld.CIT(A) allowed relief of Rs.2,00,28,550/- consisting bank withdrawals and the opening balance and sustained the remaining addition.

Against which the department is in appeal before this Tribunal. During the appeal hearing, the Ld.DR argued that the receipt of money from Sri TMV Prasada Rao is an afterthought and there is no evidence available to support the contention of the assessee. Therefore, argued that the contention of the assessee that he has received on money from late TMV Prasada Reddy required to be rejected. Similarly, the Ld.DR argued that the cash deposits were made in the bank accounts prior to the date of withdrawals made, therefore, the Ld.CIT(A) erred in allowing relief to the assessee. Thus argued that the Ld.CIT(A) erroneously allowed relief, therefore, requested to set aside the order of the Ld.CIT(A) and restore the assessment order.

On the other hand, the Ld.AR argued that the assessee’s only source of income was house property, i.e. rents collected by the assessee, there was no other source of income. The AO while making addition has not taken any support of Income Tax provisions i.e. either section 68 / 69 to make the additions. By not invoking the provisions itself, the additions made by the AO needs to be deleted. Since the Ld.CIT(A) has examined the CO No.132/Viz/2019, A.Y.2012-13 Sri Potluri Phanendra Babu, Visakhapatnam source of funds and application of funds in detail, the Ld.AR argued that no interference is called for in the order of the Ld.CIT(A) and requested to uphold the order of the Ld.CIT(A).

We have heard both the parties and perused the material placed on record. In this case, the Ld.CIT(A) has examined the issue in great detail with regard to availability of source and application of fund and given relief of Rs.2,00,28,550/- and confirmed the addition of Rs.27,42,000/-. For the sake of clarity and convenience, we extract para No.6.2.1 to 6.2.6 which reads as under. “6.2.1. Ground No.2 : Unexplained cash deposits / investment / expenditure : Rs.2,27,70,550The assessing officer did not appreciate the issue properly. He proceeded on the basis that the appellant sought to explain these amounts from out of advance received from Sri TMV Prasada Rao against sale of property. However, as per the confirmation tenet submitted by the appellant and Sint. Y.Indira, it is very much evident that the amount towards advance against sale of property were received only from 2006 to 2009. It is not the case of the appellant that he has received any advance for the impugned assessment year in respect of the said transaction. However, the assessing officer narrated the facts relating to claim of the appellant in respect of advance received from TMV Prasada Rao and proceeded to examine the said claim on similar lines as that of A,Y,2007-08. As such, the very approach of the assessing officer is found to be erroneous. 6.2.2. Having said that, I have examined the bank statements and the submissions of the appellant. I have also perused the assessment order u/s 16(3) r.w.s. 17 of the Act dt.31.03.2016 for AY.201 1-12. The total wealth was assessed at Rs.4,92,36,670 including cash in hand of Rs.59,76,000 (net amount after deduction of Rs.50,000 exempt under Wealth Tax Act, 1957). Thus. I found the contention of the appellant that there was an opening balance ofRs.59,76,000 as correct. 6.2.3. The next contention of the appellant is that there were withdrawals in the bank account and the same were ignored by the assessing officer while arriving at CO No.132/Viz/2019, A.Y.2012-13 Sri Potluri Phanendra Babu, Visakhapatnam

The assessee filed cross objection in support of the order of the Ld.CIT(A). Since the appeal filed by the department is dismissed, the cross objections of the assessee become infructuous, hence dismissed.

In the result, appeal of the revenue as well as the cross objections of the assessee are dismissed.