RAGHUPATHI REDDY SAMPATH,HYDERABAD vs. ACIT., CENTRAL CIRCLE-1(1), HYDERABAD

Succinctly stated, the assessee had filed his return of income for the year under consideration declaring an income of Rs.3,00,000/-, which was processed under Section 143(1) of the Act. Thereafter, pursuant to search proceedings conducted under Section 132 of the Act on 26.01.2018, a receipt signed by the assessee’s brother, Sri Sampath Lakshma Reddy, evidencing receipt by the latter of an amount of Rs.4,00,000/-, viz. (i). Rs.2,00,000/-: in cash; and (ii). Rs.2,00,000/-: through cheque in connection with the family settlement was found and seized.

During the course of the assessment proceedings, the AO called upon the assessee to explain the source of the aforesaid payment. As the AO was not satisfied with the explanation furnished by the assessee, he treated the amount of Rs. 4 lac as an unexplained expenditure under Section 69C of the Act.

The AO further observed that the assessee during the subject year had claimed to have received a loan of Rs.3,50,000/- from M/s Sri Mahalakshmi & Company. As the assessee failed to establish the creditworthiness of the lender and the genuineness of the transaction to the satisfaction of the AO, the said amount was treated as an unexplained cash credit under Section 68 of the Act.

Accordingly, the AO vide his order passed under Section 153A of the Act, dated 28.04.2021, framed the assessment after making the aforesaid additions.

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

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

We have heard the Ld. Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record, as well as considered the judicial pronouncements pressed into service by them.

Shri P. Murali Mohan, CA, Ld. Authorized Representative (for short, “AR”) for the assessee, at the threshold of the hearing of the appeal, submitted that as the assessment for the year under consideration had attained finality prior to the date of search, no addition in the absence of any incriminating material could have been made while framing the assessment under Section 153A of the Act.

We have thoughtfully considered the aforesaid contention but are unable to persuade ourselves to accept the same. Admittedly, the receipt acknowledging payment of Rs.4 lac in connection with the family settlement was found and seized during the course of the search proceedings. Admittedly, the said document, which was not part of the regular assessment record, constituted incriminating material qua the impugned additions. We are, therefore, of the considered view that the AO was justified in examining the transactions reflected therein while framing the assessment under Section 153A of the Act. Accordingly, the aforesaid ground based on which the validity of the jurisdiction assumed by the AO for making the impugned addition is rejected.

We shall now deal with the addition made by the AO under Section 69C of the Act. On a perusal of the seized receipt, we find that it comprised of two distinct components, viz, (i). payment of Rs.2,00,000/- through Cheque No.053090 dated 19.03.2014; and (ii). payment of Rs.2,00,000/- in cash. As regards the cheque payment, it is an admitted position that the said cheque is duly reflected in the assessee’s bank account held with Axis Bank. We find that the sole reason that weighed with the AO for making the addition was that the cheque had been issued in favor of Sri Dhirendra Bahadur Singh and not in favor of the assessee’s brother, Sri Sampath Lakshma Reddy.

In our considered view, the aforesaid fact, by itself, could not have justified the addition under Section 69C of the Act. The AO, after observing that the cheque had been issued in favor of another person, did not carry out any further inquiry either from the assessee or from Sri Sampath Lakshma Reddy (supra) to ascertain the circumstances in which the payment had been so made. We find that no effort was made to verify whether the payment had been made at the instance or under the directions of the assessee’s brother or whether any corresponding payment had separately been made to him. In the absence of any such inquiry or corroborative material, the addition has been made merely on the basis of assumptions and presumptions. We are, therefore, unable to sustain the addition of Rs. 2,00,000/- made on account of the cheque payment and direct the AO to delete the same.

Coming to the balance addition of Rs.2,00,000/- representing the cash payment, we find that the assessee had claimed that the same was made out of accumulated funds available with him. The Ld. AR, in support of his said claim, had relied on the income disclosed by the assessee in the earlier assessment years as well as on the cash withdrawals aggregating to Rs.6,00,000/- made from his bank account. However, the Ld. AR has not been able to conclusively establish the availability of cash in hand as on the date of the impugned payment by placing on record any cash flow statement or other cogent evidence irrefutably establishing his said claim. At the same time, having regard to the financial position of the assessee, the income returned by him over the years and the cash withdrawals placed on record, we are of the considered view that the availability of cash to the extent of Rs.1,00,000/- can safely be accepted. Our aforesaid view that there may be accumulated funds sourced out of the secret fund of the assessee, even though concealed, from which he may draw subsequently for meeting expenditure or introducing amounts in his account books is supported by the judgment of the Hon’ble Supreme Court in Anantharam Veerasingaiah & Co. Vs. CIT (1980) 123 ITR 457 (SC). We, therefore, in all fairness and interest of justice direct the AO to scale down the addition under Section 69C of the Act from Rs.2,00,000/- to Rs.1,00,000/-.

We shall now advert to the addition of Rs.3,50,000/- made under Section 68 of the Act. As is discernible from the record, it is not in dispute that the amount was received through banking channels. However, mere routing of the amount through a bank account would not, by itself, discharge the onus cast upon the assessee under Section 68 of the Act. In our view, the assessee was required to 6 establish the identity and creditworthiness of the lender as well as the genuineness of the transaction. We find that the confirmation relied upon by the assessee was furnished only during the appellate proceedings and the same too pertained to the preceding year. We find that confirmation for the relevant previous year, financial particulars of the lender, or any other material substantiating the lender’s creditworthiness, was not placed on record. We are, therefore, unable to find any infirmity in the observations of the authorities below that the assessee had failed to discharge the primary onus cast upon him under Section 68 of the Act. Accordingly, the addition of Rs.3,50,000/- made by the AO, which, thereafter, has been sustained by the CIT(A), is upheld.

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