GUNDARAPU HARI BABU,VIAJYAWADA vs. INCOME TAX OFFICER, WARD-1(1), VIJAYAWADA

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ITA 28/VIZ/2025Status: DisposedITAT Visakhapatnam30 June 2026AY 2022-2318 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the assessee failed to provide evidence for the sources of funds before the lower authorities. Many documents were filed for the first time before the ITAT, and the explanation for cash deposits was not convincing.

What were the facts?

The assessee purchased a property for Rs. 2.33 crores and faced additions by the AO for unexplained sources of funds, including cash deposits and an unexplained cash balance. The CIT(A) granted partial relief, sustaining an addition of Rs. 1.15 crores.

What were the issues?

Whether the assessee adequately explained the sources of funds for property purchase and cash deposits, and if evidence filed for the first time before the ITAT should be considered.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 69

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM

For Appellant: Shri K.Prasad, Sr.AR

आदेश / ORDER PER OMKARESHWAR CHIDARA, A.M.: This appeal is filed by the assessee against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi vide DIN & Order No. ITBA/NFAC/S/250/2024- 25/1070919421(1) dated 05.12.2024, arising out of order passed by Ld.AO u/s 143(3) of the Income Tax Act, 1961 (“the Act”) dated 21.03.2024 for the Assessment Year 2022-23.

2.

In the above cited appeal, it is observed that the assessee, Mr.Gundarapu Hari Babu is a partner in a construction business and he is also into money lending business and filed a return of income admitting income of Rs.8 lakhs. The case was selected for scrutiny to enquire into the investment into properties and to enquire into the sources of large cash deposits in the bank account. From the assessment order, it is observed that the Ld.AO made addition of Rs.2.16 crores as the assessee has not furnished the sources for purchasing the property worth Rs.2,33,18,225/-. The Ld.AO requested the assessee to explain the source of cash availability as on 31.03.2021, which was also not explained by the assessee. It was mentioned in the assessment order that the Ld.AO gave an opportunity to the assessee through video conference also. Even during this video conferencing facility, the assessee failed to justify the source of income for making such huge cash deposits during the year under consideration. In other words, the Ld.AO observed that the assessee could not explain the source of cash deposits made from 01.04.2021 to 31.03.2022 and also did not explain the source of cash on hand as on 31.03.2021 amounting to Rs.93,39,304/-. In other words, the assessee did not explain the source of cash deposits made in the current year and did not explain the source of cash on hand as on 01.04.2021, which is the opening balance for the current year. Since the appellant did not explain the sources, an amount of Rs.2.16 crores was added by the Ld.AO.

3.

Aggrieved by the addition, an appeal was filed before the First Appellate Authority. While explaining the sources for acquiring the property during the A.Y.2022-23, the appellant has stated before the Ld.CIT(A) that an amount of Rs.84 lakh was paid during the A.Y.2019- 20, which was mentioned in the sale deed also. Since this payment does not pertain to the current assessment year, the appellant has stated before the Ld.CIT(A) that the addition u/s 69 cannot be made in the current year. Further an amount of Rs.37.97 lakh, which was given by way of cheques was not encashed by the seller of the property and hence there is no investment to that extent to justify the purchase of property u/s 69 of the Act. An amount of Rs.72 lakh was paid through banking channels and hence addition cannot be made u/s 69 of the Act. The assessee has stated that an amount of Rs.17.93 lakhs was paid towards TDS on behalf of the seller of the property. As this payment was also done through banking channel, section 69 is not applicable. With these grounds of appeal, the assessee filed an appeal before the Ld.CIT(A). During the assessment year under consideration, the assessee has purchased a house property for an amount of Rs.2,33,18,225/- including stamp duty. Before the Ld.CIT(A), the assessee has given details of payments for purchase of the immovable property, which is reproduced below :

Particulars Amount (Rs.) Total cost of the property (including stamp duty) 2,33,18,225 Paid as advance prior to registration of sale deed 84,00,000 (Sale deed registered on dt.26.02.2022 and the payment of such advance was recorded as paid during F.Y.2018-19) Cash deposited in the bank and used for purchase 72,00,000 of property out of the opening cash balance already explained Loan taken from Ramisetty Sunitha 5,00,000 Amount not yet encashed by the seller 37,97,883 TDS amount paid 17,93,117 Stamp duty paid 16,27,225 Total value of property including stamp duty 2,33,18,225

3.1. Before the Ld.CIT(A), the assessee has mentioned that despite giving detailed declarations/information regarding the source of funds utilized for purchase of property, the Ld.AO was not satisfied and hence addition was made. The Ld.CIT(A) deleted Rs.84 lakhs stating that this amount was not paid during the year under consideration and hence, the same cannot be added by the Ld.AO. Similarly, an amount of Rs.2,40,000/- was deleted by the Ld.CIT(A) stating that this amount was reflected in the earlier period and hence, cannot be added. An amount of Rs.14.54 lakhs was also deleted by the Ld.CIT(A) stating that the assessee has got source of income to invest in this property. To sum up, out of the cash deposited into the bank account to the tune of Rs.72 lakhs, Rs.2,40,000+Rs.14,54,000 was held as explained and a sum of Rs.55,05,469/-remained unexplained, i.e., addition to the extent of Rs.55.05 lakhs was sustained. An amount of Rs.5,00,000/- claimed to have been taken as a loan from Mrs.R.Sunitha was held as unsubstantiated for want of confirmation letter and proof of identity. Hence, the addition of Rs.5 lakhs was sustained by the Ld.CIT(A). The appellant’s contention that Rs.37.97 lakh was not encashed by the seller was disbelieved by the Ld.CIT(A) as there was no confirmation from the seller and hence the addition was confirmed. Similarly, the source of payment of Rs.16.48 lakhs was also disbelieved by the Ld.CIT(A) and the addition was confirmed as the relevant TDS challan was not produced before the Ld.CIT(A). Thus, out of the total sale consideration of Rs.2,16,91,000/- paid to the vendor, the assessee got a relief of Rs.84 lakhs which belonged to earlier years and a sum of Rs.16.94 lakhs was held to be properly explained and the remaining sum of Rs.1,15,95,469/- was confirmed.

4.

Against the addition of Rs.1,15,96,469/-, which was confirmed by the Ld.CIT(A), the appellant has filed an appeal before the ITAT. Before the ITAT, the Ld.AR of the appellant has stated that the Ld.CIT(A) erred in not giving relief of Rs.1,15,96,469/-. The Ld.AR has stated that an amount of Rs.55.05 lakhs was paid from the available opening balance, Rs.5 lakh was received as gift and cheques of Rs.37.97 lakh was not encashed by the seller and Rs.17.93 lakhs was paid by way of cheque towards TDS payment. If these sources are taken into account, there could not be any unexplained investment and hence pleaded before the Bench that the amount sustained by the Ld.CIT(A) be deleted. During the proceedings before the Bench, the Ld.AR of the appellant filed a paper book, in which it was stated that out of the opening cash balance of Rs.93.39 lakhs, the assessee deposited 72 lakhs in cash on various dates and cheques were issued to the seller of the property. But the Ld.CIT(A) granted partial relief to the extent of Rs.15.94 lakhs only and confirmed Rs.55.05 lakhs, without giving any reason. Since an amount of Rs.72 lakhs was paid to the seller out of the opening balance of Rs.93.39 lakh, the Ld.CIT(A) is incorrect in giving partial relief of Rs.15.94 lakhs only. Remaining amount confirmed by Ld.CIT(A) to the extent of Rs.55.05 lakhs should also be given credit and it was pleaded that the amount confirmed by the Ld.CIT(A) to the extent of Rs.55.05 lakhs may be deleted. The Ld.AR of the appellant has mentioned in the paper book that the opening cash balance as on 31.03.2023 was deposited into the bank account from 15.04.2021 to 29.03.2022 on various dates. The Ld.AR of the appellant claims that the cash balance as on 31.03.2021 is the accumulation of amounts of earlier 3 years from 2018 onwards.

4.1. The Ld.AR of the appellant has also stated that an amount of Rs.5 lakh was taken as loan from Mrs.R.Sunitha and this amount was taken through banking channel. As the transaction is genuine and verifiable, the Ld.CIT(A) is incorrect in not giving credit to the loan taken from Mrs.R.Sunitha. It was pleaded before the Bench that since the transaction is genuine and made through banking channels, the addition may be deleted. A confirmation letter in this regard from Smt.Sunitha is filed before ITAT, admittedly for the first time and not filed earlier before lower authorities [Ld.CIT(A) disbelieved the version of appellant with reference to this loan by saying that there was no confirmation letter and the required 3 ingredients for proving the loan as genuine were not fulfilled and hence confirmed the addition.]

4.2. As far as the explanation regarding payment of Rs.37.97 lakhs to the seller, the Ld.AR of the appellant has stated that the cheques were presented to the seller, but the payments were made in the subsequent assessment year and the sources for payment in that year can be explained as the transactions are done through banking channels. The Ld.CIT(A) disbelieved this version as the same is very strange because as per the Sale Deed filed before him, entire amount was received by seller of property during this assessment year and generally the immovable property would be transferred only after receiving entire sale consideration. Certain copies of bank statements were filed for the first time before ITAT, (not filed before lower authorities) to substantiate his argument that this money was actually encashed by seller of property in April/May, 2022.

4.3. As far as the source of funds for TDS payment of Rs.17.93 lakhs, the Ld.AR of the appellant has stated that he has taken a hand loan of Rs.4 lakhs from G.Sayamma and an amount of Rs.15 lakhs was withdrawn from partnership firm, M/s Varahi Developers and hence, it was mentioned that all the sources were properly explained with regard to the source of funds for TDS payments. Certain confirmation letters from partnership firm, G.Sayamma are filed before ITAT for the first time and admittedly they were not filed before lower authorities. During the course of hearing before the ITAT, the Ld.AR of the appellant explained the sources of Rs.1.15 crores as follows : (summary by way of chart)

Particulars Amount Remarks Evidence Paid Rs.72,00,000/-, Rs.55,05,469/- Cash balance Page 16-17 this out of opening (ref.pg.23-30 para declared in IT cash balance of 6.8 of CIT(A) order Return & balance Page 18 of PB Rs.93,39,305/- (from sheet filed before out of Rs.72,00,000/- the Dept. CIT(A) gave relief for Rs.16,94,531/- = balance Rs.55,05,469/- confirmed Loan taken from Rs.5,00,000/- (Assessee took Confirmation R.Suneetha (ref.page 30, para loan of letter page 25 6.8 of CIT(A) order Rs.9,00,000/- on of PB dt.26.11.2021 & out of this used Bank Rs.5,00,000/- for statement property pg.26 of PB purchase. The entire loan of Amount Rs.9,00,000/- repaid on dt. was repaid in 17.01.2022 same A.Y. i.e.22- 23) Amount encashed by Rs.37,97,000/- Cheques See enclosure the seller in the next (ref.page 31, para encashed in the year 6.9 of CIT(A) order) next year TDS amount paid Rs.17,93,117/- “A” took funds Page 44 & (ref.page 31, para from a 109 of PB 6.10 of CIT(A) order partnership firm in which he is a partner M/s Varahi Developers Rs.15,00,000/- Total Rs.1,15,96,469/-

4.4. With regard to source of payments made/encashed by seller of property in subsequent Assessment Year, the appellant claims that he has taken a loan of Rs.4.5 lakhs from his daughter, G.Pujitha and a confirmation letter is filed for the first time before the ITAT. Similarly, the appellant claims that he has taken loans from G.Sayamma, cousin and Samba Siva Rao for an amount of Rs.19.47 lakhs and confirmation letters were filed from them for the first time before the ITAT. On 06.05.2022, the assessee claims Rs.2 lakh cash was paid out of the available cash balance and also Rs.1 lakh on 10.05.2022. Again on 06.05.2022, the assessee claims that a further amount of Rs.10 lakhs was withdrawn from M/s Varahai Developers and he filed account statement of the partnership concern. From the order of Ld.AO/Ld.CIT(A), it is seen that there is no discussion nor any enquiry about these sources, genuineness of loans taken etc. The Ld.AR has fairly admitted that all these confirmation letters, bank statement etc. were filed for the first time.

5.

The Ld.DR relied on the orders of Ld.AO and Ld.CIT(A). It is also argued that as many of the confirmation letters, bank statements and ledger account of partnership firm, with regard to the loans / withdrawals claimed to have been taken were filed for the first time, enquiries have to be conducted. Moreover, the Ld.DR argued that the appellant did not file balance sheet, cash flow statement of the current year to demonstrate that the amounts were paid during the current year out of the earlier year cash balance. It was also not known whether appellant filed Balance Sheets in the earlier years also. It was also argued that if the appellant is having huge cash balance of Rs.94 lakh plus, being a builder, it is not known why he has taken loans from others during that period. It is also not in consonance with human probability that the appellant has got huge cash balance of Rs.93 lakhs in the beginning and he went on depositing this cash for the entire year from 01.04.2021 to 31.03.2022. The appellant did not mention why the entire cash balance was not deposited into the bank account at once. The Ld.DR has argued stating that even a copy of sale deed was also not filed before the ITAT to demonstrate that the appellant’s arguments are correct. Moreover, the current year Balance Sheet copy or cash flow statement was also not filed in the paper book. The Ld.AR of the appellant could not furnish the reasons as to why all these confirmation letters, ledger extracts from the partnership firm could not be filed before the lower authorities. For the first time, the appellant filed certain bank statements to buttress his argument that Rs.37.97 lakhs was encashed by the seller in the subsequent year. Generally the Sale deed mentions that entire sale consideration is paid and then only the Registration of property takes place. Before the Registrar of immovable properties, the seller of property will say that the sale consideration is received fully and the buyer says entire amount is paid on the date of Registration itself. There is no confirmation letter from the seller that they encashed an amount of Rs.37.97 lakh in the subsequent year and the sources for payment of Rs.37 lakh was neither explained by appellant nor examined by Department. The Ld.DR, thus argued that the additions should be confirmed as all these evidences were not filed before the lower authorities.

6.

After hearing both sides, the Bench decides to remit back all these issues to the file of Ld.AO for further verification and enquiries for the following reasons :

(a) Admittedly, the confirmation letters from R.Sunitha, G.Pujitha, G.Sayamma and Samba Siva Rao were filed for the first time before the ITAT. These loans were taken during the current Financial Year.

(b) From the paper book filed by the Ld.AR of the appellant, it is observed that the Sale Deed copy also was not enclosed .

(c) There is no cash flow statement to demonstrate that loans taken were utilized for purchase of property.

(d) It is also seen from the paper book filed by the Ld.AR of the appellant that no confirmation letter was filed from the seller of the property, stating that the cheques were encashed in the subsequent financial year.

(e) Very surprising feature observed by the Bench is the claim of appellant that he is accumulating such huge cash balance from the last 3 years, because, no prudent businessman, especially a builder will keep such huge cash idle.

(f) In the absence of cash flow statement, copy of income and expenditure account, copy of Sale Deed and copy of balance sheet of current year or copy of Sale Deed, it is not possible to verify/cross verify the source for purchasing such a huge immovable property for a consideration of Rs.2.33 crore, especially, when the assessee is admitting income in the range of Rs.9 lakhs to Rs.14 lakh only for the last 3 years. One of the scrutiny reasons as mentioned in the assessment orders is to verify large cash deposits and in the absence of any corroborative evidence that huge cash balance is available and no details were filed before the Ld.AO, the Bench decides to remit all these issues relating to sources of property purchase and source of cash deposits in the bank account.

(g) On the one hand, the appellant claims that there is huge cash balance of Rs.93 lakh on hand as on 01.04.2021 (opening balance) but again the appellant claims that he has taken a hand loan of Rs.5 lakhs on 26.11.2021 from Mrs.R.Suneetha, loan of Rs.4,50,000/- on 11.04.2022 from his daughter, G.Pujitha, loan of Rs.4,50,000/- on 11.04.2022 from his mother, G.Sayamma, loan of Rs.3,57,000/- on 18.04.2022 from M.Sambasiva Rao, which defies the logic and rationale i.e., no prudent businessman will take loans when he has got huge cash on hand. It is a settled law that courts have held time and gain that Income Tax Department/Appellate Authorities should think how a prudent businessman conducts his business. The Courts also have held that the Ld.AO is not only an adjudicator, but also investigator for framing assessment order and to make assessment, he should not put up blinkers. The Ld.AO should make the assessment afresh after taking all the evidences which were filed before ITAT for the first time.

(h) In order to find out the veracity/genuineness of opening balance, The Bench has asked the Ld.AR a specific question as to whether appellant had filed Balance Sheets along with Returns of Income showing the Cash balance. The Ld.AR has stated that he is not aware whether Balance Sheets were filed in earlier years, but there is a column in the Income Tax Return which mandates the appellant to mention the details of “cash on hand” at the end of Financial Year and in that column, this “cash on hand” was mentioned. If no Balance Sheets were filed, the authenticity of “cash on hand” figures in same column of Income Tax Return requires thorough examination. As far as current year is concerned, the Ld.AR of appellant has stated that no Balance Sheet was filed along with the Return of Income.

(i) An opportunity should be given to the assessee to explain all these sources with documentary evidences. The appellant is directed to file a copy of balance sheet of current year, cash flow statement, bank statement, confirmation letters, which were filed before ITAT for the first time and also confirmation from seller of the property that Rs.37.97 lakh was encashed by the seller of the property in the subsequent year. It is not known whether loans are taken by cash/cheque. As mentioned above, several important documents on which the appellant relied on to explain the sources were not filed before the Ld.AO and hence, the appellant is directed to file all these documents before the Ld.AO. The Ld.AR of appellant could not answer/argue as to why these loans were taken when the appellant claims to have such huge cash is there on hand. Hence, the Ld.AO is directed to take into consideration all these evidences and pass an order afresh and needless to say that an opportunity should be given to appellant to explain the sources for investment in property before passing assessment order.

7.

In the result, appeal filed by the Assessee is allowed for statistical purpose.

Order pronounced in the open court on 30th June, 2026.

Sd/- Sd/- (विजय पाऱ राि) (ओम्कारेश्िर धिदारा) (OMKARESHWAR CHIDARA) (VIJAY PAL RAO) ऱेखा सदस्य/ACCOUNTANT MEMBER उपाध्यक्ष / VICE PRESIDENT Visakhapatnam dated 30.06.2026. L.Rama/Sr.PS Copy to:

SHRI GUNDARAPU HARI BABU 1-3-68 A/2 PERUMALLA KUTUMBA RAO 1 VIDHYADARAPURAM VIJAYAWADA 2 THE INCOME TAX OFFICER, WARD-1(1), C.R.BUILDING, VIJAYAWADA 3 THE PCIT, VIJAYAWADA 4 THE D.R., ITAT, VISAKHAPATNAM BENCH 5 GUARD FILE

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