PRITHVI REDDY KANCHARLA,HYDERABAD vs. DCIT, CIRCLE-2(1), HYDERABAD

Succinctly stated, a survey operation under section 133A of the Act was conducted on 10.02.2017 in the case of M/s Dream Valley Agritech Pvt. Ltd. During the course of survey proceedings, certain loose sheets and scribblings in note pads were impounded. As is discernible from the orders of the lower authorities, statements of Shri K. Santosh Reddy, father of the assessee, were recorded under section 131 of the Act on 17.02.2017 and 20.03.2017, wherein he had in his sworn statement, admitted certain additional income in the hands of himself and his son, i.e., the assessee before us, allegedly on account of unexplained expenditure relating to civil contract activities. Insofar as the assessee is concerned, an amount of Rs. 45,00,000/- is stated to have been offered for A.Y. 2017-18. 3. During the course of the assessment proceedings, the AO observed that the assessee, while filing his return of income, had though declared a total income of Rs. 56,66,610/- comprising salary, business income under section 44AD, long-term capital gains, and 4 Prithvi Reddy Kancharla vs. DCIT income from other sources, but did not separately disclose the additional income of Rs. 45,00,000/-.

On being queried, the assessee submitted before the AO that the declaration during survey proceedings was only an estimated figure made in the absence of complete records and that after verification of bank statements and actual transactions, the correct income was returned. The AO did not accept the assessee's explanation and made an addition of Rs. 45,00,000/- under section 69A of the Act.

Aggrieved, the assessee carried the matter in appeal before the CIT(A), who confirmed the addition, but observed that the same actually represented unexplained expenditure.

The assessee 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.

The Ld. Authorized Representative (for short, “AR”) for the assessee, at the threshold of the hearing of the appeal, submitted that no survey was conducted in the case of the assessee and no money, bullion, jewelry, or valuable article was found from the assessee so as to invoke addition under section 69A of the Act. It was submitted that no incriminating material belonging to the assessee was found, and the 5 Prithvi Reddy Kancharla vs. DCIT addition was solely based on the statement of the assessee’s father recorded during survey proceedings in another case. Elaborating further on his contention, the Ld. AR submitted that the statement recorded during survey proceedings, without corroborative evidence, has weak evidentiary value, as the assessee had already disclosed income based on actual receipts and transactions.

Per Contra, the Ld. Departmental Representative (for short, “DR”) supported the orders of the lower authorities and submitted that the assessee’s father had categorically admitted additional income relatable to the assessee and the admission was based on impounded loose sheets evidencing cash payments. The Ld. DR submitted that the assessee had failed to substantiate that the subject cash payments were from explained sources.

We have given thoughtful consideration to the contentions advanced by the Ld. Authorized Representatives for both parties and perused the material available on record.

Admittedly, the survey under section 133A of the Act was conducted in the case of M/s Dream Valley Agritech Pvt. Ltd. and not in the case of the assessee, and no unexplained cash, bullion, jewelry, or valuable article was found from the assessee, and the addition is substantially based upon statements of Shri K. Santosh Reddy, i.e., the assessee’s father. Section 69A of the Act applies where the assessee is 6

Coming back to the statements of Shri K. Santosh Reddy, i.e., father of the assessee, recorded during the course of the survey proceedings under section 131 of the Act on 17.02.2017 and 20.03.2017, we are of the view that the same have limited evidentiary value and could not have been acted upon on a standalone basis without corroborative material. We find that the Hon’ble Supreme Court in CIT vs. M/s S. Khader Khan Son (2013) 352 ITR 480 (SC) has held that a statement recorded during a survey has limited

We find on a perusal of the record that the AO has treated the addition under section 69A as unexplained money, whereas the CIT(A) held that it was actually an unexplained expenditure and sought to justify the addition on that basis. In our view, the recharacterization of the addition alters its very nature and foundation. Be that as it may, we are of firm conviction that even for invoking section 69C of the Act, the Revenue must establish actual incurring of unexplained expenditure, which, we are afraid, has not been established in the present case before us. We are of the view that, as per the settled position of law, a mere admission, without supporting evidence and without linking the expenditure to the assessee, is insufficient for making the impugned addition in the hands of the assessee.

In our view, the loose sheets relied upon by the Revenue are merely dumb documents unless corroborated by independent evidence.

Considering the totality of facts and circumstances, we are of the view that the addition of Rs. 45 lacs made by the AO in the absence of clinching supporting documentary evidence/material to substantiate the same is unsustainable both in law and on facts. As observed by us hereinabove, the authorities below had failed to establish the conditions necessary for invoking section 69A or section 69C of the Act. Accordingly, the addition of Rs. 45 lacs made/sustained by the lower authorities is deleted.

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

The Principal Commissioner of Income Tax, Hyderabad.

"वभागीय""त"न"ध, आयकरअपील"यअ"धकरण /DR,ITAT, Hyderabad.

The Commissioner of Income Tax 6. गाड"फ़ाईल / Guard file