PRABHAKAR REDDY EDULAKANTI, RANGAREDDY vs. ACIT, CENTRAL CIRLCE-2(1), HYDERABAD

Succinctly stated, the assessee had e-filed his return of income for AY 2022-23 on 05/01/2023, declaring an income of Rs.30,09,210/-.

Search and Seizure proceedings under section 132 of the Act were conducted in the case of Malla Reddy group of institutions, CMR group of institutions, MLR group of institutions and Vardhaman Educational Society on 22/11/2022, and the assessee was covered therein.

Thereafter, the case of the assessee was selected for scrutiny assessment under section 143(2) of the Act. During the course of the assessment proceedings, the AO observed that the assessee during the subject year had sold properties for an aggregate sale consideration of Rs.49,80,000/- as under:

Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without success.

The assessee, aggrieved with the order of the CIT(A), has carried the matter in appeal before us.

We have heard the Learned Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record.

Shri K A Sai Prasad, CA, Learned Authorized Representative (for short, “Ld. AR”) for the assessee, at the threshold of hearing submitted that the assessee had failed to participate in the proceedings before the CIT(A) because at the relevant point of time he was attending to his father-in-law, who was suffering from Recurrent Carcinoma Colon and Tuberculosis of Lung. The Ld. AR, to buttress his contention, had placed on record the medical records of Mr. N Krishna Murthy, the assessee’s father-in-law.

Elaborating further on the merits of the case, the Ld. AR submitted that the solitary grievance of the assessee is that though the AO had recharacterized the sale transaction of the aforesaid properties, viz., (i) Flat No.112, sold vide registered deed No.16246/2021; and (ii) Villa No.34 as transfer of short-term capital assets and brought the profit/income arising therefrom to tax under the head STCG, but, while so doing had grossly erred in not excluding the “net profit” arising on the sale of the aforesaid plot/Villa of Rs.9,96,000/- that formed part of the returned income of the assessee. The Ld. AR to buttress his contention had taken us through the computation of income of the assessee for the subject year, which revealed that the business income disclosed by the assessee, inter alia, included the “net profit” from the sale of open plots and buildings at Rs.9,96,000/- , as well as had drawn our attention to the income determined by the AO vide Para-9 of his assessment order, wherein he had while quantifying the assessed income taken the income disclosed by the assessee in his return of income of Rs.30,09,210/- (including Rs.9,96,000/-) as the base figure. The Ld. AR submitted that due to the failure on the part of the AO to exclude the business income while quantifying the assessed income, the assessee had suffered a double addition.

Per contra, Shri Mohan Babu, Learned Senior Departmental Representative (for short, “Ld. Sr. DR”) though relied upon the orders of the authorities below but did not contradict the aforesaid contentions of the Ld. AR.

We have given thoughtful consideration and find substance in the contentions advanced by the Ld. AR.

As observed herein above, the AO had recharacterized the transactions on sale of properties that were received by the assessee through partition deed, viz., (i) sale of plot No.112, vide registered deed No.16246/2021; and (ii) sale of Villa No.34, as transfer of the short term capital assets by the assessee as against that disclosed by him in his return of income as business sale proceeds, However, we find that the AO, while recharacterizing the subject sale transaction and making the addition of the income from capital gains (short term) of Rs.21,79,040/-, had failed to exclude the “net profit” from and sale of the subject open plots and villa of Rs.9,96,000/- (supra) as was disclosed by the assessee in his return of income.

In our view, considering the totality of the facts involved in the present case, the matter in all fairness requires to be set aside to the file of the AO, who is directed to verify the factual position, and in case the claim of the assessee, which prima facie appears to be correct is found to be in order, vacate the addition of Rs.9.96 lakhs (supra).

In the result, the appeal filed by the assessee is allowed for statistical purposes in terms of our aforesaid observations.

The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income Tax (Appeals)-12, Hyderabad, dated 03/11/2025, which in turn arises from the order passed by the AO under section 143(3) of the Act, dated 19/03/2025. The assessee has assailed the impugned order of the CIT(A) on the following grounds of appeal before us:

As is discernible from the record, the assessee had filed his return of income for AY 2023-24 on 31/12/2023, declaring an income of Rs.31,40,540/-.

During the course of the search proceedings conducted at the residence of the assessee on 22/12/2022, cash amounting to Rs.14.50 lakhs was found and seized.

The assessee, in the course of the assessment proceedings, on being queried about the source of the cash of Rs.14.50 lakhs (supra), had stated that the same was the cash balance of M/s. Sri Laxmi Vallabha Poultry Farms, a firm in which he was a partner, and the said amount was sourced out of the sale proceeds of the said firm, which had an average turnover of Rs.3 lakhs per month. Elaborating further, it was stated that as the aforementioned partnership firm was not covered under the search operations, the fact that the subject cash belonged to the firm could not be brought to the notice of the search officials. The Ld. AR, to support his aforesaid claim, had placed before the AO a copy of the cash book of the aforesaid firm up to 22/11/2022 along with its financial statements.

However, the AO did not find favor with the aforesaid explanation of the assessee for the reason that there was no justification for the assessee to withhold his aforesaid explanation for over two years from the date of search, i.e., 22/11/2022. Accordingly, the AO, holding a conviction that the aforesaid explanation of the assessee was nothing but an afterthought, rejected the same and held the entire amount as his unexplained money under section 69A of the Act.

Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without success.

The assessee, aggrieved with the order of the CIT(A), has carried the matter in appeal before us.

We have heard the Learned Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record.

Shri K A Sai Prasad, CA, Learned Authorized Representative (for short, “Ld. AR”) for the assessee, at the threshold of hearing of the appeal submitted that both the authorities below had grossly erred in law and facts of the case in brushing aside the explanation of the assessee regarding the source of the cash amounting to Rs.14.50 lakhs (supra) that was found in the course of the search proceedings conducted at his residence on 22/11/2022. Elaborating on his contention, the Ld. AR submitted that the subject cash belonged to M/s. Sri Laxmi Vallabha Poultry Farms, i.e., the firm in which the assessee was a partner, and was sourced out of its cash sale proceeds, which averaged Rs. 3 lakhs per month. The Ld.AR submitted that though the assessee had brought the aforesaid fact to the notice of the AO in reply to his show cause notice (SCN), dated 20/02/2025, and had also placed on his record the copy of the cash book of the aforesaid firm up to 22/11/2022, i.e., upto the date of search along with its financial statements for the year under consideration, but the same had been summarily rejected by the AO merely for the reason that the same appeared to be an afterthought. The Ld. AR, to buttress his contention that the cash of Rs.14.50 lakhs (supra) found in the course of the search proceedings at the residential premises of the assessee on 22/11/2022 belonged to M/s. Sri Laxmi Vallabha Poultry Farms (supra) had drawn our attention to the cash book of the said firm, which revealed that the seizure of the subject amount of cash was duly accounted for and reflected against the name of the assessee, viz., “E. Prabhakar Reddy-IT Dept”. Also, the Ld. AR had taken us through the “balance sheet” of the aforementioned firm, which revealed that the cash in hand after accounting for the aforementioned seizure of cash of Rs.14.50 lakhs (supra) as disclosed in the cash book at Rs.17,06,106/- on 31/03/2023, was duly recorded in the said “balance sheet”. Apart from that, the Ld. AR had taken us through the copy of the “Loans & Advances (Asset)” (Group Summary) of the aforesaid firm for the Financial Year (FY) 2022-23, which, inter alia, revealed that the amount of Rs.14.50 lakhs (supra) was disclosed against the name of the assessee, viz., “E. Prabhakar Reddy-IT Dept”. The Ld. AR based on his aforesaid contentions submitted that now when the source of the cash of Rs.14.50 lakhs (supra) found from the residence of the assessee during the search proceedings conducted on 22/11/2022 stood explained beyond any doubt, the authorities below had grossly erred in summarily rejecting the said explanation and making an addition/sustaining the same by treating the said amount as the assessee’s unexplained money under section 69A of the Act.

Per contra, Shri Mohan Babu, Learned Senior Departmental Representative (for short, “Ld. Sr-DR”) relied upon the orders of the authorities below. It was submitted that as the assessee had never comeforth with the said explanation regarding the source of the cash of Rs.14.50 lakhs found in the course of the search conducted at his residence on 22/11/2022, therefore, the AO had rightly observed that the claim of the assessee so raised in the course of the assessment proceedings, wherein he had related the source of the subject amount to the cash sale proceeds of M/s. Sri Laxmi Vallabha Poultry Farms (supra), as the amount that was lying with him in his capacity as a partner, was nothing better than an afterthought.

We have heard the Learned Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record.

Admittedly, it is a matter of fact borne from record that the assessee in the course of the search proceedings conducted at his residence on 22/11/2022 was found in possession of cash of Rs.14.50 lakhs, which was seized by the Department. At this stage, we may herein observe that the assessee had at no stage in the course of the search proceedings ever stated that the aforesaid amount of cash that was found in his possession belonged to M/s. Sri Laxmi Vallabha Poultry Farms (supra). The fact that the assessee in his statement recorded under section 132(4) of the Act had not informed the income tax authorities that the subject cash belonged to the aforesaid firm had been admitted by him in his reply to the show cause notice (SCN), dated 20/02/2025 filed in the course of the assessment proceedings.

At the same time, we find that the assessee had, in the course of the assessment proceedings, furnished before the AO a copy of the cash book of the aforesaid firm, viz., M/s. Sri Laxmi Vallabha Poultry Farms (supra), dated 22/11/2022, and also filed before him the financial statements of the said firm to support his claim, but the same was summarily rejected by the AO by dubbing the said claim as an afterthought.

We have given thoughtful consideration and, on a perusal of the cash book of M/s. Sri Laxmi Vallabha Poultry Farms (supra) find that the firm had duly recorded the seizure of the cash of Rs.14.50 lakhs (supra) by the Income Tax Department on 22/11/2022 by debiting the said amount against the name of the assessee “E. Prabhakar Reddy-IT Dept”, and the same as can be gathered from the “Loans & Advances (Asset)” (Group Summary) for FY 2022-23 had been disclosed by the said firm in the name of the assessee.

We have given thoughtful consideration and are of a firm conviction that the aforesaid claim of the assessee could not have been summarily discarded by the AO by dubbing it as an afterthought. In our view, the AO ought to have called for the books of account of the aforesaid firm, viz., M/s. Laxmi Vallabha Poultry Farms (supra) and verified the said fact by recording the statements of the other partners under oath so that the correct factual position could have surfaced. Although, we concur with the AO that as the assessee had in his statement recorded under section 132(4) of the Act on 22/11/2022 never stated that the cash of Rs.14.50 lakhs (supra) found in his possession belonged to the aforesaid concern, raises serious doubts regarding his subsequent claim that the same belonged to the said concern, but considering the aforesaid material as was produced by the assessee before him as well as before us, the proper course of action that ought to have been adopted by him was to carry out necessary verifications before forming any view.

Be that as it may, we are of the view that the matter in all fairness requires to be set aside to the file of the AO who is directed to re-adjudicate the aforesaid issue in terms of our aforesaid observations. The AO shall, in the course of the set aside proceedings, carry out any other verifications as he may deem necessary.

In the result, the appeal filed by the assessee is allowed for statistical purposes in terms of our aforementioned observations.

Ex-consequenti, both the appeals filed by the assessee in ITA No.259/Hyd/2025 for AY 2022-23 and the appeal in ITA No.260/Hyd/2026 for AY 2023-24 are allowed for statistical purposes.