RAHUL,CHENNAI vs. ITO, NCW-22(1), TAMBARAM

The brief facts of the case emanating from the records are that the assessee is an individual and doctor, filed his return of income for the AY 2022- 23 on 31.12.2022 by declaring a total income of Rs.32,35,315/-. The case has been selected for scrutiny under CASS for verification of large investment in property as compared to the total income and also large cash deposits in savings bank accounts. During the assessment proceedings, in response to the notices issued by the AO, the assessee submitted the details as and when called for. The assessee furnished computation of income, bank statements, purchase deed and Form 26AS before the AO. The assessee further stated that he is a qualified MBBS doctor and providing parttime consultancy to patients. Further, the assessee stated that to purchase the immovable property, i.e., survey No.56/2B, measuring 5.25 acres in Virudhunagar for a consideration of Rs.4 crores during the year has obtained loan from following three parties to the extent of Rs.4.13 crores. (i) SPS Vaikunth Reality Private Limited Rs.3.1 crores. (ii) NOAH Infrastructure Rs.60 lakhs (iii) Senthilmathi Rs.43 lakhs.

Further, the assessee stated that in respect of cash deposits made to the tune of Rs.11 lakhs and Rs.28.5 lakhs in the saving bank accounts held with Indian Bank and City Union Bank, respectively was made out of cash collections towards consultancy charges from the patients, interest and rent received in cash.

To verify the genuineness of the lenders of Rs.4.13 crores, the AO issued notices u/s.133(6) of the Act. In response, NOAH Infrastructure has submitted balance sheet, audit report and ITR and stated that the company has given interest free loan to the assessee. Similarly M/s.SPS Vaikunth Realty Private Limited stated that it is engaged in the real estate and construction activities and it received advances from the assessee towards proposed property deal earlier but the deal was not executed, and therefore, the amount was returned back to the assessee. In support of the same, the company furnished a copy of the ledger, its ITR and bank statement. Further, Senthilmathi filed a confirmation of loan transaction to the tune of Rs.43 lakhs by showing the ledger account.

On perusal of the above documents, the AO was not convinced with the details, documents and confirmation by the parties in response to notice u/s.133(6) of the Act, and hence, made an addition of Rs.4 crores as unexplained investment u/s.69 of the Act on account of purchase of immovable property. Further, the AO also observed that the assessee has not furnished any authentic concrete and reliable documentary evidences in respect of cash deposits made to the tune of Rs.39.5 lakhs and concluded the assessment by passing an order u/s.143(3) of the Act dated 23.02.2024. 6. Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A). During the first appellate proceedings, in response to notices issued by the ld.CIT(A), the assessee filed its written submissions along with the supporting documents. In support of the investments made in the purchase of immovable property, the assessee filed the bank statements to show that the payments have been made in a proper banking channel along with the source of investments as the amounts received from three parties. Further, the assessee filed confirmation letters duly singed from the parties. Further, the assessee also filed a copy of the sale deed for purchase of immovable property along with the detailed fund flow transaction statements by referring to the bank statement for purchase of the impugned investment in immovable property. In respect of the cash deposits in SB account, the assessee explained the source of the same as rental receipts from property at Tambaram, other sources of income including the part time professional receipts and interest income as admitted in the return of income filed for the AY 2022-23. Further, the assessee submitted that the receipt of amount of Rs.3.1 crores from M/s.SPS Vaikunth, the amount was given to the company for purchase of immovable property as advance on 31.03.2021 of Rs.2.38 crores and on 09.11.2021 of Rs.72 lakhs. However, the transactions could not materialize because the said amount of Rs.3.10 crores, which was paid as advance was refunded in the impugned assessment year and the same has been utilized for purchase of immovable property. In respect of other two loans, the assessee filed the confirmation from the parties. In respect of cash deposits in the savings bank account, the assessee submitted that the source for the same as detailed below:-

On perusal of the submissions made by the assessee, the ld.CIT(A) was not convinced and hence confirmed the additions by passing an order dated 06.01.2025 by holding as under:-

3 I have gone through the submissions of the appellant. The appellant is a Doctor doing part time consultancy activity. The entire receipts received from this part time work was duly admitted in the return at Rs. 9,75,000/-. The appellant is also given small loans to the flower merchants and appellant has received interest from small debtors in cash only, which resulted in Rs 9,46,650/-. He further submitted the total rent received in cash amounting to Rs. 11,49,000/-. So far as the rental receipts by way of cash, the appellant had not furnished any confirmation from any of the tenants stating that they have given the rent in cash. Similarly in the case of interest receipts also the appellant had not furnished any documentary proof in support of his claim. Hence, the amount of the extent of Rs. 9,75,000/- and confirmed the addition of Rs. 29,75,000/- u/s 69A of the Act as the source of which remain unexplained and unsubstantiated. I have no reason to interfere with the decision of the learned Assessing officer and hence the addition of Rs. 39,50,000/- is upheld. Ground No. 2 is herewith Dismissed.”

Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us. In support of the grounds of appeal filed by the assessee, the ld.AR for the assessee submitted the following written submissions :-

Where assessing officer made addition under section 68 as unexplained cash credit on the ground that there was no compliance from loan party to the notice issued under section 133(6), however, the assessee produced relevant details and documents to prove identity and creditworthiness of the loan party and genuineness of transactions; the addition made under section 68 was liable to be deleted.-Vide Vidya Education Investments (P) Ltd. v. Dy. CIT 2021 TaxPub (DT) 2542 (Del- Trib).

Assessee by furnishing loan confirmation duly signed by assessee and the lender, ledger account of assessee in the books of lender, copy of bank account statement of assessee with Canara Bank recording the receipt of loan, loan confirmation of FY 2007- 08 in which said loan was repaid, discharged onus under section 68 to prove identity of and capacity of creditor to advance money; and genuineness of loan transaction. There was enough material before assessing officer to make further inquiry/verification in the matter, but assessing officer had not done even elementary/ preliminary inquiry to verify genuineness of the transaction. Therefore, addition made by assessing officer based on surmises and conjectures could not be sustained.-Vide Khetan Twist Net (P) Ltd. v. ITO 2020 TaxPub (DT) 4943 (Mum-Trib): (2021) 85 ITR (Trib) 47 (Mum- Trib).

Assessee had proved identity, genuineness and creditworthiness of the unsecured loans taken by it from creditors through cheque and in all cases they were assessed to tax, therefore, no addition could be made in assessee's hands on the basis that source of source was not proved. Vide Vishnu Jaiswal v. CIT (2012) 137 ITD 259 (Luck-Trib). Also see, Harish Kawadmal Bajaj v.ITO (2013) 22 ITR (Trib) 411 (Pune 'A'- Trib).

Where assessee filed documentary evidence in respect of all the loan creditors such as confirmation of accounts, their IT Returns for relevant assessment year, balance sheet and copies of bank statements; the assessee discharged burden on him to prove identity and creditworthiness of creditors as well as genuineness of loan transactions and hence, addition made under section 68 on account of unexplained cash credits was liable to be deleted.- Vide Pawan Kumar Gupta v. ITO 2022 (DT) 1769 (Kol-Trib).

The contract could be either verbal or written and simply non availability of a written contract would not make the loan non-genuine and in private arrangement of loan between known persons, no practice of entering into a loan agreement was followed. Lenders were regular tax assessee and had given loan through account payee cheques and confirmed the transaction. Loan party furnished proof of filing of the return. Thus, onus cast on assessee u/s 68 stood discharged and addition made by assessing officer was not sustainable.-Vide Om Builders v. Asstt. CIT 2022 1141 (Ind- Trib).

Where assessee- firm was able to point out the persons, from whom the firm received credits, assessing officer was not justified in making addition to the income of assessee under section 68 on account of alleged unexplained credits.- Vide CIT v. Sree Ganesh Trading Company 2019 TaxPub(DT) 1575 (Ker-HC): (2019) 413 ITR 61 (Ker). Further, Bank Statement along with confirmation and Income Tax return submission copies of the following parties are also submitted as under-

Assessee had discharged its onus and assessing officer had not brought on record cogent material to rebut the documentary evidence submitted by the assessee nor the made any enquiry. Assessee had given all the necessary evidence including the confirmation letters, bank statement, financial statements, of their corporate entities. Hence, identity, creditworthiness, genuineness of the transaction was proved by the assessee and the onus cast upon the assessee was discharged. Therefore, addition made by assessing officer under section 68 was deleted.-Vide Dy. CIT v. Manba Finance Ltd. 2020 TaxPub(DT) 4908 (Mum-Trib).

Submissions against Addition on account of cash deposit in the bank account Rs.39,50,000/-. The appellant is doing part time consultancy activity and from the said part time work receipts Rs.9,75,000/- and Net Interest towards Loans (Rs.9,47,300/- less Rs.650/-) etc Rs.9,46,650/-, Bank SB Interest Rs.33,045/- from the Appellant has received in aggregate, a Income of sum of Rs. 19,55,345/-. The entire said amount

Anbu Arasan Muthurangam Street, Chennai 45 1,80,000.00

Raja Muthurangam Street, Chennai 45 1,68,000.00 11,49,000.00

During the hearing, the ld.AR also filed a paper book consisting of 95 pages containing sale agreement and sale deed of the immovable property purchased, extract of bank statement of the assessee, loan confirmation issued by Empee Distilleries and SJN Distilleries Limited dated 27.12.2023, declaration of winners of Falcon Evening Lottery, Nagaland, claim of lottery along with the prize tickets, ITR of SPS Vaikunth along with the ledger account of the assessee and bank statement to show the transaction, ITR, confirmation, bank statement of NOAH Infrastructure and also the ITR filed of Senthilmathi, confirmation and the financials. Further, the ld.AR submitted that the assessee had proved the genuineness, identity and creditworthiness of the parties, who had given loans, and hence, the additions made by the AO, which has been confirmed by the ld.CIT(A) not sustainable in the eyes of law. The ld.AR drew our attention to the computation of income in page No.46 of the paper book, wherein the assessee had shown the income from profession under the head other sources along with the interest income and rental income to prove the cash deposits made in the bank account. Further, the ld.AR took us through the bank statements to sh ow that the payment of Rs.3.96 crores for purchase of property after deducting Rs.4 lakhs of TDS out of the total sale consideration of Rs.4 crores. The said payments were shown in the paper book page No.49 by explaining the sources, which has received from SPS Vaikunth, NOAH Infrastructures and Senthilmathi.

The ld.AR also drew our attention to the paper book and shown that the audited financials of SPS Vaikunth, confirmation of MP Distilleries (page 71 to :-10-:

The ld.DR supported the orders of the authorities and prayed for dismissing the appeal of the assessee by confirming the order of the ld.CIT(A).

We have heard the rival submissions, perused the orders of the authorities below and carefully considered the material placed on record, including the paper book filed by the assessee. The issues arising for our consideration are:—

The undisputed facts are that the assessee purchased an immovable property for a total consideration of Rs.4,00,00,000/-. The assessee explained that the consideration was paid out of amounts received from M/s.SPS Vaikunth Realty Private Limited, M/s.NOAH Infrastructure and the assessee’s family members. It is also not in dispute that the payments towards purchase of the property were made through regular banking channels. The assessee furnished before the lower authorities the purchase deed, bank statements, confirmations from the concerned parties, copies of their returns of income, ledger accounts and a detailed fund-flow statement correlating the receipt of funds with the payments made to the seller. The AO had also issued notices u/s.133(6) of the Act to the principal parties. In response thereto, M/s.NOAH Infrastructure furnished its balance sheet, audit report and return of income and confirmed that it had advanced an interest-free loan to the assessee. M/s SPS Vaikunth Realty Private Limited also responded to the notice and explained that the amount represented refund of advances earlier received from the assessee in :-11-:

The bank statement and fund-flow statement produced by the assessee show that amounts received from the concerned parties were, within a proximate period, utilised for making payments towards purchase of the property. The assessee has specifically demonstrated the following transactions: Rs.1,00,00,000/- received from M/s.SPS Vaikunth Realty Private Limited • on 02.12.2021 and transferred to the seller on the same day; Rs.1,00,00,000/- received from the said company on 03.12.2021 and • transferred to the seller on the same day; Rs.40,00,000/- and Rs.20,00,000/- received from M/s.NOAH • Infrastructure; Rs.1,10,00,000/- received from M/s.SPS Vaikunth Realty Private Limited • on 06.12.2021; amounts received from the assessee’s mother, sister and father through • banking channels; and payment of Rs.3,96,00,000/- to the seller and Rs.4,00,000/- towards tax • deducted at source, aggregating to the total consideration of Rs.4,00,00,000/-. The assessee also furnished the PANs, income-tax acknowledgements and confirmations of the persons from whom the funds were received.

Section 69 of the Act can be invoked where an investment is found to have been made by the assessee which is not recorded in the books of account, if any, maintained by him and the assessee either offers no explanation regarding the nature and source of the investment or the explanation offered is not found satisfactory. In the present case, the assessee has not merely offered a general or unsupported explanation. The assessee has identified the persons from whom the funds were received and furnished documentary evidence in the form of confirmations, bank statements, income-tax returns, financial statements and ledger accounts. Further, the movement of funds has been :-12-:

Once the assessee had furnished the primary evidence establishing the identity of the parties, the nature of the transactions and the movement of funds through banking channels, the initial burden cast upon the assessee stood discharged. Thereafter, if the AO entertained any doubt regarding the financial capacity of the parties or the genuineness of the transactions, it was incumbent upon him to undertake further enquiries and bring on record cogent material to dislodge the evidence furnished by the assessee. However, neither the assessment order nor the order of the ld.CIT(A) refers to any independent enquiry demonstrating that the money received by the assessee belonged to the assessee himself or that it was introduced through the concerned parties by way of accommodation entries. No defect has been specifically pointed out in the bank statements, confirmations or ledger accounts furnished by the assessee. No material has been brought on record to establish that the documents furnished by the parties in response to notices u/s.133(6) were false or fabricated.

The ld.CIT(A) relied upon the decision of the Hon’ble Supreme Court in the case of NRA Iron and Steel Private Limited and observed that the assessee had failed to establish the identity, creditworthiness and genuineness of the transactions. However, the ld.CIT(A) has not examined the evidence pertaining to each creditor separately. The general observation that routing a transaction through banking channels would not, by itself, establish genuineness cannot be disputed. At the same time, a transaction cannot be treated as non-genuine merely on suspicion when it is supported not only by banking channels but also by confirmations, returns of income, financial statements, ledger accounts and direct responses to notices issued u/s.133(6) of the Act. The ld.CIT(A) has also referred to the parties as “investor-companies”, whereas the case of the assessee is that the amounts represented refund of an earlier advance and :-13-:

It is also relevant that the addition has been made u/s.69 of the Act for unexplained investment. The existence and value of the investment are not in dispute. The sole dispute relates to the source thereof. The bank statements and fund-flow statement establish a direct nexus between the funds received and the payments made to the seller. In the absence of any contrary material, the explained sources cannot be rejected merely on the basis of conjectures or general observations.

In view of the above facts and circumstances, we are satisfied that the assessee has satisfactorily explained the source of the investment made in the immovable property. The addition of Rs.4,00,00,000/- made u/s.69 of the Act is therefore unsustainable. Accordingly, the order of the ld.CIT(A) on this issue is set aside and the AO is directed to delete the addition of Rs.4,00,00,000/- by allowing the grounds raised by the assessee on this issue.

Then next issue for our consideration is of addition of Rs.39,50,000/- made by the AO u/s.69A of the Act on account of cash deposits made in the assessee's savings bank accounts. The assessee explained that the deposits were made out of the opening cash balance and cash generated during the year from professional receipts, interest income and rental income, all of which were stated to have been duly disclosed in the return of income.

The assessee has furnished the following cash availability during the relevant previous year:

It is an undisputed fact that the assessee is a qualified medical practitioner carrying on part-time consultancy and has disclosed professional receipts of Rs.9,75,000/- in the return of income. Likewise, the assessee has also offered rental income and interest income to tax. The computation of income placed before the authorities indicates that these receipts have been duly reflected in the return of income. Merely because such receipts were initially received in cash and subsequently deposited into the bank, the same cannot automatically assume the character of unexplained money. Once the income has been disclosed and subjected to tax, redeposit of the same cash into the bank account cannot again be brought to tax u/s.69A of the Act in the absence of any contrary evidence.

The ld.CIT(A) rejected the explanation mainly on the ground that confirmations from the tenants and borrowers were not furnished. In our considered opinion, although supporting confirmations would certainly strengthen the assessee's explanation, the absence thereof alone cannot be a valid ground to disregard the entire explanation when the receipts themselves have been accounted for in the books and offered to tax. The Revenue has not brought any material on record to establish that the professional receipts, rental receipts or interest income disclosed by the assessee are fictitious or inflated. Nor has any enquiry been conducted with the tenants or other persons to rebut the explanation offered by the assessee.

However, with regard to the opening cash balance of Rs.10,25,400/-, except making a general claim, the assessee has not produced sufficient contemporaneous evidence to establish the availability of the entire cash balance as on the first day of the previous year. Though the opening cash balance cannot be rejected outright without any material, the assessee has also not substantiated the availability of the entire amount through cash book or other supporting records. Considering the totality of the facts and :-15-:

Having regard to the nature of the assessee's activities, the availability of disclosed cash receipts during the year and the surrounding facts, we consider it fair and reasonable to accept 50% of the opening cash balance as explained. Consequently, the balance 50% of the opening cash balance, amounting to Rs.5,12,700/-, remains unsubstantiated and is liable to be sustained as unexplained money under section 69A of the Act.

Accordingly, out of the addition of Rs.39,50,000/- made by the AO and confirmed by the ld.CIT(A), we direct the AO to restrict the addition only to Rs.5,12,700/-, being 50% of the opening cash balance claimed by the assessee. The balance addition of Rs.34,37,300/- is directed to be deleted since the assessee has satisfactorily explained the source of the deposits with reference to professional receipts, rental income and interest income already disclosed in the return of income by partly allowing the grounds of appeal of the assessee.

In the result the appeal of the assessee is partly allowed.