DR. BHASKAR PEDDI,WARANGAL vs. INCOME TAX OFFICER, WARD-1, WARANGAL

Brief facts of the case are that the assessee, an individual, deriving income from salary and profession, filed his return of income for the A.Y 2009-10 on 29-07-2009 admitting total income of Rs.4,46,640/-. During the assessment proceedings u/s 143(3) of the Act, the AO observed that the assessee has made several cash deposits into his SB A/c maintained at SBH, Shivanagar, at Warangal Branch. The assessee was asked to explain the sources for the said cash deposits. The assessee explained that he was employed with Kakatia Medical College,Warangal and received salary through SB A/c No.30309445755 at the SBI, Industrial Estate Branch, Warangal. It was submitted that he was also doing private practice and the amounts therefrom were deposited into his SB A/c in SBH, Shivanagar Branch, Warangal and from this A/c the assessee made regular payments therefrom. The AO, after examining the above reply, further directed the assessee to explain the sources for cash deposits of Rs.18.00 lakhs, since his gross total receipts from his profession was shown at Rs.3.00 lakhs only. Therefore, he was asked to explain as to why this amount should not be treated as his unexplained income. The assessee replied that an amount of Rs.9.00 lakhs was drawn from his SB A/c of ICICI Bank, Hanamakonda on 1.10.2008 and that the same was deposited in SBH A/c to repay loans. The assessee also submitted that the receipts to the extent of Rs.2,76,330/- has been shown from his private practice. The AO however, did not accept the assessee’s contention and therefore, he observed that the assessee has not explained the sources for the cash deposits to the extent of Rs.9,42,500/- and treated the same as unexplained income of the assessee.

Thereafter, he also proceeded to consider the sources for the cash deposits made into his A/c maintained with ICICI Bank. The assessee explained that the sources for these deposits are the withdrawals from SBI Shivanagar Branch A/c and further that he has taken loan of Rs.22.00 lakhs from his friends and relatives. He did not accept this contention of the assessee holding it to be an afterthought and brought it to tax.

Further, the AO noticed that the assessee has debited an amount of Rs.96,000/- on account of interest paid to borrowers. The AO, having not accepted Rs.2.00 lakhs to be loan from friends and relatives, disallowed the interest also and brought it to tax. He also brought to tax the income from trading of shares admitted by the assessee at Rs.1,27,584/-. Page 2 of 5

Aggrieved, the assessee filed an appeal before the CIT (A), against the additions of unexplained cash deposits in SBH Shivanagar Branch and the unexplained cash deposits in ICICI Bank A/c and the interest paid on borrowed capital. The CIT (A) confirmed the order of the AO and the assessee is in second appeal before the Tribunal by raising the following grounds of appeal. “1. The CIT(A) as well as the Assessing Officer erred in law and facts of the case in adding Rs. 9,42,500/- as unexplained cash deposit in the SBH, Shivanagar Branch, Warangal. Your Appellant objects to the addition. 2. The CIT(A) as well as the Assessing Officer ought to have accepted the loans taken from friends and relatives as the source for deposit in ICICI bank account of Rs. 2,00,000/-, therefore the addition may be deleted. 3. The CIT(A) as well as the Assessing Officer ought to have appreciated the fact that all the friends and relatives have confirmed to have given loan to your Appellant, Rs. 2,00,000/- cannot be considered as unexplained cash credit. 4. The CIT(A) ought to have allowed the interest paid on borrowed capital of Rs. 96,000/- and appreciated the fact that unsecured loans are genuine. For these and such other grounds that may be urged at the time of hearing your appellant prays that the addition may be deleted”.

The learned Counsel for the assessee submitted that the additions made by the AO are on account of cash deposits into his two Bank A/cs though the assessee has clearly explained the cash withdrawals from one Bank A/c in ICICI Bank to be the sources for cash deposits into the other Bank A/c in SBH A/c. He submitted that in view of the same, only the peak credit should be considered for making the addition and not the entire cash deposits as made by the AO.

The learned DR, on the other hand, supported the orders of the authorities below.

Having regard to the rival contentions and the material on record, I find that the additions are on account of un-explained sources for the cash deposits into Bank A/cs of the assessee in SBH and ICICI. The total of the deposits were Rs.18.00 lakhs, out of which the AO has accepted the sources for Rs.9 lakhs only and the balance have been brought to tax as unexplained cash. Through cash flow statement the assessee has explained as to how the amounts withdrawn from ICICI Bank A/c have been deposited into the SBH Bank A/c. I find that the AO has not recorded that he the assessee having any other source of income. In such circumstances, I feel that the AO ought not to have treated the entire deposits as unaccounted income of the assessee. If the said cash deposits are treated as “income from profession”, then only net income ought to have been brought to tax and if the sources of deposits are not accepted, then only peak credit has to be considered. Having gone through the cash flow statement submitted by the assessee and I am satisfied that the withdrawals from one Bank A/c are the sources of deposits into the other Bank A/c as the dates and amount of withdrawals and deposits coincide. Therefore, I agree with the learned Counsel for the assessee that the peak credit alone the source of which is not explained by the assessee is to be brought to tax. The AO is directed accordingly.

As regards the hand loan of Rs.2.00 lakhs which remained unexplained, I find that the assessee has not filed any evidence even before the Tribunal, to prove that they are hand loans. Hence the same is confirmed and disallowance of interest thereon is also confirmed.

In the result, assessee’s appeal is partly allowed.