KRISHNA REDDY PAGIDI,HYDERABAD vs. ITO, WARD -4(1), HYDERABAD

Succinctly stated, the assessee had filed his return of income for A.Y. 2021-22, declaring an income of Rs.8,56,060/-. Subsequently, the assessee's case was selected for complete scrutiny through CASS to verify large cash deposits in his bank account and property transactions.

During the course of assessment proceedings, the AO observed that the assessee had, during the subject year, made cash deposits aggregating to Rs. 20,01,000/- in his bank account. On being queried, the assessee submitted that the subject cash deposits were sourced from, viz., (i) rental income received from tenants occupying a jointly

As is discernible from the record, the AO accepted the assessee’s explanation relating to the amounts received from his parents aggregating to Rs. 12,00,000/-, but was not satisfied with his explanation regarding rental receipts. As the assessee had failed to furnish the rent agreements and rent receipts, the AO rejected his explanation regarding the source of the cash deposits made in his bank account and treated the entire sum of Rs.8,01,000/- as an unexplained cash credit under section 68 of the Act and completed the assessment at an income of Rs.16,57,060/-.

Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) concurred with the view taken by the AO and sustained the addition of Rs.8,01,000/- made by the AO under section 68 of the Act.

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

We have heard the Ld. Authorised Representatives of both parties in the backdrop of the orders of the authorities below.

The Ld. AR further submitted that documentary evidence evidencing co-ownership of the property was furnished by the assessee in the course of the assessment proceedings with the AO. Also, the details of tenants, along with their PAN particulars and the rental income received from each tenant, were placed on record during the

Carrying his contention further, the Ld. AR submitted that as the AO had accepted the returned income disclosed by the assessee, including his income from house property, and had adopted the same as the starting point for quantifying his assessed income. The Ld. AR submitted that the AO, having accepted the rental income disclosed by the assessee in his return of income, was not justified in drawing adverse inferences regarding the claim of the assessee of having received rental income during the subject year, for the reason that the rental receipts and rental agreements were not filed before him. Accordingly, the Ld. AR submitted that the AO had, without any justification, rejected the assessee’s explanation regarding the source of the cash deposits made in his bank account and held the same as unexplained cash credit under Section 68 of the Act.

Per Contra, the Ld. Departmental Representative (for short, “DR”) relied upon the orders of the lower authorities and submitted that, as the

We have heard the Ld. Authorise Representatives of both parties in the backdrop of the orders of the authorities below.

As observed by us hereinabove, the AO had made the addition of Rs.8,01,000/- under section 68 of the Act on account of the cash deposits made during the subject year in the bank account of the assessee. Although the explanation of the assessee throughout has been that the impugned cash deposits were sourced from the rental collections from tenants occupying a jointly owned commercial property, including the share of rent belonging to his brother, who was residing abroad, but the AO had rejected the same.

On a careful perusal of the assessment records and the orders of the authorities below, we find that certain facts therein involved are not in dispute, viz. (i). the assessee and his brother were co-owners having equal shares in the property situated at Plot No.101, H.No.32-227, L.B.

We find that the sole basis on which the explanation of the assessee has been rejected is that rent agreements and rent receipts were not produced. However, we find that neither the AO nor the CIT(A) has brought any material on record to establish that the property was not let out or that the tenants were non-existent, that the rental income disclosed by the assessee was fictitious, or that the cash deposits represented income from any undisclosed source.

We find that though the assessee had furnished details of the tenants and their PAN particulars, the AO, despite such information being available with him, had not conducted any enquiry to verify the correctness of the explanation furnished by the assessee. Rather, it transpires from the record that no adverse material has been brought on

Also, we find substance in the Ld. AR’s contention that the AO has adopted an internally inconsistent approach. On the one hand, he has accepted the rental income disclosed by the assessee under the head "Income from House Property" and used the returned income as the foundation for computing the assessed income, but on the other hand, without demonstrating that such rental income was fictitious or non- existent, he has rejected the explanation of the assessee and proceeded to treat the corresponding cash deposits as unexplained cash credits. In our view, such an approach adopted by the AO cannot be sustained. We are of firm conviction that once the existence of the property, the co- ownership thereof, the disclosure of rental income by both co-owners and the collection of rent by the assessee on behalf of his non-resident brother stood explained and supported by documentary evidence, the burden shifted upon the Revenue to disprove the explanation by bringing cogent material on record, which we find it had failed to do.

We are of the considered view that the explanation furnished by the assessee was reasonable, plausible and supported by the surrounding circumstances. In our view, the rejection of such an explanation of the assessee merely because formal rent agreements or

We may also observe that the impugned addition has been made under section 68 of the Act in respect of cash deposits appearing in the bank account of the assessee. Ostensibly, neither the assessment order nor the appellate order records any finding that the impugned amount was found credited in any books of account maintained by the assessee. Be that as it may, even assuming that the provisions of section 68 could be invoked, the explanation offered by the assessee stands satisfactorily established on the basis of the material available on record.

We thus, considering the totality of the facts and circumstances of the case, are unable to sustain the addition of Rs.8,01,000/- made by the AO, which, thereafter, had been confirmed by the CIT(A), and accordingly direct the AO to delete the same.

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