SHRI. SUBBAREDDY CHANDRASHEKAR REDDY,BENGALURU vs. INCOME-TAX OFFICER, WARD- INTERNATIONAL TAXATION 1(1), BENGALURU

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

This appeal by assessee is directed against order of CIT(A) dated 18.10.2022 for the assessment year 2017-18. The assessee has raised following grounds of appeal:-

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Page 2 of 13 2. The appellant denies himself liable to be assessed an. 3. total income of Rs. 10,59,7707- as against income returned by the appellant of Rs.29,7707-under the facts and circumstances of the case. 3. The learned assessing officer erred in making an addition of Rs. 10,30,770/-being cash deposited into bank during 09.11.2016 to 30.12.2016 as unexplained investment under section 69 of the Act under the facts & circumstances of the case.

a) The learned CIT(A) failed to appreciate that the source of cash deposit to the tune of Rs.8,00,000/- was the cash gifted by the appellant's mother-in-law and consequently (he learned CIT(A) erred in sustaining the addition made by the assessing officer as unexplained investments U/s 69 of the Act under the facts and circumstances of the case. b) The authorities below are not justified in making an addition of Rs.8,00,0007- being cash deposits into the bank account with ICICI Bank despite the donor confirming the cash gift of Rs.8,00,0007- under the facts & circumstances of the case. c) The authorities below tailed to appreciate that the cash gift of Rs.8,00,000/- was received on 30.10.2016 & the same was deposited into the bank account when the Government demonetised the specified bank notes and thus the said cash deposits cannot be treated as unexplained investment U7s 69 of the Act on the facts of the case. d) The authorities below are not justified in holding that the appellant's mother-in-law could have gifted the same money through banking channels under the facts & circumstances of the case.

e) The learned CIT( A) failed to appreciate that the source of cash deposit to the tune of Rs.2,30,000/- was the funds available with the appellant out of his savings and consequently the learned CIT(A) erred in sustaining the addition made by the assessing officer as unexplained investments under section 69 of the Act under the facts and circumstances of the case.

f) The learned CIT(A) erred in disbelieving the explanation of the appellant and sustaining the addition made by the assessing officer merely based on the suspicion & surmises under the facts & circumstances of the case. 5. Without further prejudice, the rate of tax levied under section 115BBE for the assessment year 2017-18 ought to have been 30% and not 60% under the facts and circumstances of the case.

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Page 3 of 13 6. (a) The appellant denies herself liable to be levied interest under section 234B of the Act, as the computation of interest was not provided to the appellant as regard to the rate, period and method of calculation of interest under the facts and circumstances of the case. The appellant expressly urges that the period of levy of interest is not in accordance with the provisions of the Act. (b) Without prejudice, the interest under section 234B is not leviable and ought to have been waived on the facts of the case. The Appellant craves leave of your Honour to add, alter, delete or substitute any of the grounds urged above. In view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.” 2. Facts of the case are that the assessee had filed his return of income declaring an income of Rs.29,770/-. The case was selected for limited scrutiny to examine cash deposits during the period of demonetization. The assessee had deposited cash amounting to Rs. 8,00,000/- in his bank accounts with ICICI Bank Limited and Rs. 2,30,000/-with UBI Bank during the period of demonetization. The details of the cash deposits as mentioned in the assessment order are reproduced below: ICICI Bank Account No.035701513369

Date Amount in Rs. 13.11.2016 200000 16.11.2016 50000 19.11.2016 49000 19.11.2016 40000 21.11.2016 87000 21.11.2016 10000 22.11.2016 84000 22.11.2016 40000 02.12.2016 50000 06.12.2016 60000 16.12.2016 75000 19.12.2016 55000 Total 800000

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Page 4 of 13

Union Bank Account No.379402060008804

Date Amount in Rs. 22.11.2016 80000 23.11.2016 60000 29.11.2016 90000 Total 230000

2.1 On being asked by the AO, vide notice dated 13.11.2019, about the source of the above cash deposits, the assessee submitted his reply on 29.11.2019, in which he stated that the source of Rs.8,00,000/- deposited in the ICICI Bank was the gift received from his mother-in-law, Smt. Hemavathi K.C He further stated that the cash had been in the custody of his brother, Sh. S. Jayakumar Reddy, who deposited the same on various dates Regarding the source of Rs 2,30,000/- deposited in cash in Union Bank, the assessee stated that it was from earlier withdrawals from his bank accounts and that this cash had been lying with his brother and father.

2.2 The AO then issued a notice u/s 133(6) to the assessee's mother-in- law, who confirmed the gift deed and also submitted her State Bank of India account statement for the period 01.04.2016 to 31.03.2017.

2.3 During the assessment proceedings, the assessee furnished a copy of the authorisation letter dated 13.11.2016 issued by him to the Bank Manager of ICICI Bank, authorising his brother to operate his savings bank account. In the said authorisation letter the assessee had stated that he transfers part of his earnings frequently to India to his ICICI Bank account for making investments through his family members However, the AO, on analysing the assessee's bank statements, observed that the assessee had not made any significant cash deposits into his bank account except during the demonetization period. The cash deposits had been made at regular intervals starting from 13 11.2016 to 19.12.2016.

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Page 5 of 13 Some of the deposits were made at the very end of the window period allowing the deposit of old demonetized currency. Further, the AO noticed that there were regular cash withdrawals from the account, but the same were always in small amounts, appearing to be meant for household and other expenses. The AO, therefore issued a show-cause notice on 18 12.2019, asking the assessee to explain as to why the cash was deposited at regular intervals and some cash at fag end of the waiting period, if the accumulated cash had been available with the assessee. In respect of the amount of Rs.8,00,000/- stated by the assessee to have been received as a gift from his mother-in-law, the AO pointed out to the assessee that his account had been credited with an amount of Rs.8,50,000/- which was transferred from the SBI bank account of his mother-in-law Mrs. Hemavathi K C on 29.08.2016. However, the same had not been disclosed as gift or loan by the assessee in his previous submission. The AO called on the assessee to explain the circumstances in which the gift was received by way of cash, when only two months earlier, the assessee had received an amount of Rs.8,50,000/-from the same person through banking channel. Additionally, the AO noted from the assessee’s ICICI Bank account statement that immediately after the cash deposits, the assessee had made bank transfers to the following persons as under:

Sl.no. Date Name of the Entity Amount (Rs.) 1. 21.03.2017 Aswini J.R. 2,50,000/- 2. 21.03.2017 S. Lava Kumar 2,50,000/- 3. 18.05.2017 J.M.J. Concrete 1,43,500/- Blocks 4. 02.11.2017 M. Subba Reddy 5,00,000/-

2.4 In view of the foregoing facts, the AO concluded that the cash deposited in the assessee's bank accounts during the demonetization period was unexplained cash that was transferred to the assessee's family members subsequently and asked the assessee to show cause as to why the amount

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Page 6 of 13 of Rs.10,30,000/- should not be taxed u/s 69 of the Act. The assessee's response to the AO's show-cause notice is extracted below:

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Page 7 of 13 5. As I have mentioned the cash belonged to me though it was in my brother possession. initially when the deposit was made, there was no plan to use the deposit amount for the house construction as explained in point number 4. But as the need arises. I had to step in and gave this money- the construction of the house. I have transferred around 35.00,000/- from 2014 to 2016 from US to India. attached are my transfer receipts. As you can see the deposit/transfer receipts. That's a significant amount of money.”

2.5 The AO however, did not accept the above explanation of the assessee and holding that the assessee was not able to submit any substantial evidences to explain the source of cash deposit, the AO brought to tax the amount of Rs.10,30,000/- as unexplained investments u/s 69 of the IT Act. Aggrieved by the order of the AO, the assessee has filed the present appeal before ld. CIT(A).

2.6 During the first appellate proceedings {CIT(A)}, the assessee filed a written submission dated 20.04.2022, in which he has reiterated the submissions made during the assessment proceedings and the statement of facts. The assessee's contention is that the source of the cash deposits was the gift of Rs. 8,00,000/- from his mother-in-law and earlier withdrawals made by him. As per the gift deed submitted, the cash was gifted to him on 30th October 2016. The ld. CIT(A) observed that assessee has not given explanation as to why such a large sum of cash was held by him/his family members when the cash could have been deposited into his account immediately. It was only after demonetization was announced that the assessee's family members deposited the cash. According to ld. CIT(A), the assessee has not controverted the AO's finding that his mother-in-law had earlier transferred a sum of Rs.8,50,000/- to him by banking channel and the same could have been done for the gift as well. The assessee has

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Page 8 of 13 submitted that he had paid for his mother-in-law’s hospital expenses in the U S A in March 2016 and that loan was returned to him when he visited India in October 2016. From the copy of the hospital bill furnished by the assessee, it is seen that the bill was for an amount of $12,040/- . At the prevailing exchange rates, this would have been around Rs.7,50,000/-. Thus, the repayment of the expenses incurred on hospitalization would have been covered by the bank transfer of Rs.8,50,000/- itself. This fact was not submitted by the assessee until the AO pointed it on to him. Further, the assessee has furnished a copy of his mother-in-law's bank statement in support of the cash gift given by her. However, from the bank statement of Smt. Hemavathi, it is seen that the cash of Rs 12,00,0007/- was withdrawn on 26th September 2016, whereas the gift is stated to have been made more than a month later on 30th October 2018. Why such a large sum of money should have been withdrawn for the purpose of making a cash gift more than a month later, when earlier payment had been made through banking channel, has not been explained. The assessee's claim that the cash held by his family members belonged to him from the cash gifted by his mother-in- law appears to have been made to give a cover of legality to the cash deposits made during the demonetization period. The ld. CIT(A) observed that the assessee has also not controverted the AO's findings that there were no substantial cash deposits into his account prior to the demonetization period. Further, as noted by the AO, there were only small withdrawals, apparently for household expenses, which could not have accounted for subsequent cash deposits. The assessee has submitted that between 2014 and 2016, he had made transfers amounting to Ks.35,00,000/- to his accounts in India. However, these transfers were through the banking channel and the withdrawals from the accounts were not substantial and could not have been the source of subsequent deposits. Having considered the assessee's submissions, the ld. CIT(A) was of the view that they fail to meet the test of human

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Page 9 of 13 probabilities as laid down by the Hon'ble Supreme Court in Sumati Dayal vs. CIT 214 ITR 801. Taking the overall facts and circumstances of the case into consideration, I uphold the addition made by the AO. Against this assessee is in appeal before us.

2.7 The ld. A.R. submitted that the source of cash deposit into ICICI bank amounting to Rs. 8,00,000/- was a gift received from mother in law Mrs. Hemavathi. K.C. The assessee submitted the gift deed along with bank statements of his mother in law to the AO to support the evidence of gift received and source of her income. The assessee had to deposit the same on various dates into ICICI bank account due to heavy rush in the bank and the banker was not obliged to take large sum of cash at a time to serve the overwhelming crowd. And also, banker was verbally instructed to use COM facility to deposit cash. Due to this assessee deposited the cash on various dates and some time he used the COM for depositing the same. The assessee submitted the deposit slips for the same to the AO.

2.8 As stated above, there was panic and assessee did whatever was possible at the time and did not think of all the consequences and requested to accept/review all the documentation (including the Tax returns filed by his mother-in-law Mrs. Hemavathi.

2.9 The ld. A.R. submitted that assessee’s mother in law/father in law visited the assessee in US from Nov 24th 2015 to Apr 21st 2016. During her visit, assessee had many expenses and also his mother in law had to be hospitalised in Tomball Regional Medical Center from March 4lh 2016 to March 5lfl 2016. Hospital expenses in US are very high and assessee paid those expenses. Assessee has attached just the hospital bill for that (there are separate doctor bills, lab bills and pharmacy bills which he do not have the receipts). So, some of the amount from 8,50,000/- that was deposited on 29th August 2016 was

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Page 10 of 13 related to that loan. When the deposit of 8,50,000/-was made into assessee’s account, assessee and his wife (Hemavathi's daughter) was not physically present in India. So, they made the deposit through bank account. Regarding the query of AO that, "However, the same has not been disclosed as gift or loan by you in your previous submissions", the assessee stated that here the question was the source of cash deposits to be explained and not the other deposits, so assessee have not mentioned about this amount in his previous submissions. But when assessee came to visit India in Oct 2016, assessee was given the cash directly. Since assessee was given the cash very close to his return dates, assessee had to handover the cash to his brother and the cash was in possession of assessee’s brother.

2.10 Assessee’s father Subba Reddy MJ was building a house so assessee gave him some money and paid some bills to build that building. The building was constructed in Yeduvanahalli (near Anekal). Assesee’s brother Lavakumar Reddy/sister-in-law (Ashwini) were helping assessee’s father to build his house and so assessee transferred money to him. J M J Concrete blocks expense was related to that expense to construct the house. And also, assessee transferred 5,00,000/- for the construction of the house.

2.11 The ld. A.R. submitted that the cash belonged to assessee though it was in his brother’s possession. Initially when the deposit was made, there was no plan to use the deposit amount for the house construction as explained in para 2.10 above. But as the need arised, assessee had to step in and gave this money for the construction of the house.

2.12 Assessee has transferred around Rs.35,00,000/- from 2014 to 2016 from US to India which is a significant amount of money. And as per assessee’s submissions the ld. A.R. submitted that as per the

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Page 11 of 13 above explanations, assessee gave enough evidence for the source of cash deposits of Rs.10,30,000/-. And also, assessee was not in India and he did not have any other source of income except some ancestral undivided agricultural properties. As such it is not an unexplained cash deposit. Hence, the ld. A.R. requested not to treat this cash deposit as unexplained investment u/s.69 of the Income Tax Act, 1961, and tax the same by considering all the evidences submitted.

4.1 The assessee explained the source of deposit of Rs.8 lakhs deposit into the bank account with ICICI bank as a gift received from his mother-in-law Smt. Hemavathi K.C. and another Rs.2,30,000/- deposit into Union bank was the earlier withdrawal from his own bank account. The lower authorities disbelieved this explanation offered by the assessee. The assessee furnished the SB bank account statement of Smt. Hemavathi K.C. for the period 1.9.2016 to 13.10.2016 which is placed in the paper book page nos.14 to 17 which shows that various withdrawals made by her and thereafter the same has been given to the present assessee by way of gift evidenced by the gift deed dated 30.10.2016, which is kept on record in page 23 of the assessee’s paper book. The lower authorities

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Page 12 of 13 disbelieved this evidence and stated that it is humanly improbable to keep such huge amount and deposit the same during the period of demonetization. The assessee having regular account in India and the ld. A.R. explained before us that the assessee and assessee’s wife were not in India and because of demonetization, assessee was forced to deposit the cash received from his mother-in-law into assessee’s bank account. In our opinion, the withdrawal by assessee’s mother- in-law could be seen from the bank statement and gifting an amount of Rs.8 lakhs to the assessee by way of gift deed by assessee’s mother- in-law evidenced by the gift deed cannot be doubted in the absence of contrary evidence brought on record by department. Hence, the apparent to be considered as real unless proved otherwise and to be believed that his mother-in-law has gifted the said amount to assessee vide gift deed cited (supra). The deposit of Rs.2,30,000/- by assessee which is sourced by the past savings cannot be doubted as the assessee is a non-resident working abroad and due to demonetization, he forced to deposit this amount into bank account. In our opinion, the assessee has properly explained the source of Rs.10,30,000/- and the addition sustained by lower authorities is to be deleted. Further, the assessee’s case is also supported by following decisions:- Particulars Citation Authority* SL Nos. 1 S.R. Venkata Ratnama 6 Taxmann.com 263 High Court of Karnataka 2 Indrajit Singh Suri vs. CIT 33 Taxmann.corn 281 Gujarat High Court 3 Mallika lyengar vs ITO Ward- ITANo. 512/Bang/2021 Bangalore 6(3){2), Bengaluru dated 13. 12.2021 Tribunal 4 Karan Sharma vs ITO Ward- ITANo.465/Bang/2018 Bangalore 7(2)(4), Bengaluru dated 22.02.2021 Tribunal

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Page 13 of 13 5 Narayana Shibaroor Shibaraya ITANo. 684/Bang/2022 Bangalore dated Tribunal 23.03.2022 Dheeraj vs ITO Ward- 1(4), Gargon 6 129 Taxmann.com 169 Delhi Tribunal 7 Kuldeep Singh vs. Income Tax 113 Taxmann.com 265 Chandigarh Officer, Ward-1, Jagron Tribunal 8 Atul H. Patel vs ITO 138 Taxmann.corn 454 Ahmedabad Tribunal 9 Smt. Tapasi Singh vs ITO Ward- 128 Taxmann.corn 318 Kolkata 2(3) Burdwan Tribunal

4.2 Accordingly, we delete the addition made by AO sustained by the ld. CIT(A). The other grounds of appeal raised by the assessee in this appeal are only academic and do not require any adjudication.

Sd/- Sd/- (N.V. Vasudevan) (Chandra Poojari) Vice President Accountant Member

Bangalore, Dated 15th Feb, 2023. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order

Asst. Registrar, ITAT, Bangalore.