SRI. MUTHAIAH SANNASURAYYA,DAVANGERE vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(3), BANGALORE

Briefly stated facts of the case are assessee working as Deputy Conservator of Forests, Bellary Division, Bellary was searched on 25.10.2010. The following premises of the assessee were included in the search proceedings:

During the course of search, cash of Rs.4 lakhs was seized. Consequent to this, the case was notified Vide notification F.No.90/Notification/CIT-GLB/2010-11. Thereafter, notice under section 153A of the Act was issued on 14.05.2012. Another notice under section 142(1) of the Act dated 21.01.2013 along with Annexure was issued on 21.01.2013 and 04.02.2013. The assessee’s AR appeared and submitted the return of income filed on 03.11.2009 admitting a total income of Rs.4,17,240/-. It was noticed that the assessee has not declared any other income other than salary income. It was also noticed that Mr. Nagaraj Eti, working as computer operator for the assessee had given a statement on oath before the CBI Magistrate. On perusal of the statement, it was noticed that Mr. Nagaraj Eti had admitted to having received some amounts from miners and their associates on behalf of the assessee. His statement was recorded under section 131 of the Act on 25.02.2013 where he reiterated that, to the best of his memory he had received the following amounts from miners and their associates on behalf of the assessee:

His statement was communicated to the assessee. Assessee was asked to explain as to why the amount of Rs.23 lakhs received from Mr. Nagaraj Eti for the Assessment Year 2009-10 should not be treated as undisclosed income. In response, the assessee replied that the money collected from Mr. Nagaraj Eti was done on the behest of the then Minister, Shri. G. Janardhana Reddy and the money collected was handed over to Shri. G. Janardhana Reddy himself. The learned AO, in the absence of any proof of such money being transferred to Shri. G. Janardhana Reddy, considered the amount as undisclosed income and added to the total income of the assessee under the head “Income from Other Sources”.

On being aggrieved by the Order of the learned AO, assessee filed an appeal before learned CIT(A) which was granted. Before the learned CIT(A), the assessee reiterated similar submissions and also sought an opportunity to cross-examine Mr. Nagaraj Eti. In this connection, a report was sought from learned AO on the statement recorded on 20.02.2024 during the cross-examination of Mr. Nagaraj Eti. Subsequent to the cross-examination, assessee submitted a written submission stating that the validity of relying solely on the statement of Mr. Nagaraj Eti for making substantial additions to the assessee’s income without any corroborative evidence is not justifiable. Considering the submission of the assessee subsequent to the cross-examination of Mr. Nagaraj Eti, the learned CIT(A) observed that assessee has failed to substantiate the claim that the amount was handed over to Shri. G. Janardhana Reddy. The learned CIT(A) also observed that the corroborative evidence in this case is derived from the consistency of Mr. Nagaraj Eti’s statement including the cash seizure of Rs.4 lakhs and the assessee’s own submission during the assessment proceedings held that the evidence sufficiently meets the legal threshold and therefore dismissed appeal of the assessee.

On being aggrieved by the Order of the learned CIT(A), assessee is in appeal before us by raising various grounds. The learned AR submitted that addition was made based on the statement recorded under section 131 of the Act from Mr. Nagaraj Eti. He further submitted that Revenue has not produced any material on record or seized any material during the search proceedings to corroborate the statement by Mr. Nagaraj Eti. He further submitted that the cash seized of Rs.4 lakhs was substantiated by the earlier withdrawals by the assessee which was upheld by the Tribunal in assessee’s own case for the Assessment Year 2011-12 in ITA Nos.257, 258/Bang/2024. He further submitted that no other incriminating material was found during the course of search and therefore the addition made by the AO based on the statement of Mr. Nagaraj Eti is not tenable. He therefore prayed that the addition made by the learned AO be deleted since no other evidence was detected in the form of asset or otherwise and neither the cash of Rs.23 lakhs found in the assessee’s premises.

Per contra, the learned DR heavily relied on the Orders of the lower authorities and also filed written submissions stating that the sworn statement of Mr. Nagaraj Eti recorded under section 131 of the Act who has also reaffirmed the same during the cross- examination and in the surrounding circumstances and conduct of the parties proves that the addition made by the learned AO is justified. He further submitted that Mr. Nagaraj Eti who was working as a computer operator in the Office of the Deputy Conservator of Forests identified the entities from whom such amounts were received and stated the approximate amount and time period which forms the basis for addition by the learned AO. He also further submitted that the assessee alleged that the money was given to Shri. G. Janardhana Reddy which does not have any evidence and therefore not acceptable. He submitted that mere assertion without supporting material cannot displace otherwise the credible evidence brought on record by the Revenue. He therefore prayed that the Order of the learned CIT(A) be upheld.

We have heard the rival submissions and perused the material available on record including the written submissions filed by the Revenue. In the instant case, the learned AO has relied on the sworn statement of Mr. Nagaraj Eti recorded under section 131 of the Act and reaffirmed during the cross-examination for making the additions in the hands of the assessee for the Assessment Year 2009-10 amounting to Rs.23 lakhs. However, the contention of the assessee is that his employee Mr. Nagaraj Eti who is working as a computer operator collected the covers containing cash and handed over to Shri. G. Janardhana Reddy. It is also noticed that Mr. Nagaraj Eti has alleged to have received the amounts from the mine owners has roughly remembered to the best of his memory. The Revenue has relied on such vague statements for making additions in the hands of the assessee. No corroborative evidence was found during the search proceedings except the reliance placed on the statement recorded by Mr. Nagaraj Eti. The amount received from Miners has not been substantiated by any tangible material by the Revenue. Moreover, the Revenue has not conducted any further enquiries by examining the entities from whom cash received has been alleged in the statement given by Mr. Nagaraj Eti. Therefore, we are of the view that addition made in the hands of the assessee is purely based on assumptions and surmises by the learned AO and solely relying on the statement of Mr. Nagaraj Eti without any corroborative evidences cannot be justified. We therefore direct the learned AO to delete the addition made without any cogent evidence on notional basis. Thus, the grounds raised by the assessee are allowed.

The facts are similar in quantum appeals in ITA Nos.469 and 471/Bang/2024, hence, the decision taken in ITA No.469/Bang/2024 shall apply mutatis mutandis to the appeal in ITA No.471/Bang/2024. Since the additions made in quantum appeals in ITA Nos.469, 471/Bang/2024 are deleted, the penalty appeals filed by the assessee in ITA Nos.470, 472/Bang/2024 does not survive.

In the result, appeals of the assessee are allowed.