NANJUNDAREDDY GOPALA REDDY,BENGALURU vs. INCOME-TAX OFFICER, WARD-3(3) (4), BENGALURU

2. That under the facts and circumstances of the case, Ld. CIT(A) has erred in law as much as in fact in holding that the assessee has not explained the source of cash in the hands of Mr. Chandra Kaladhar Reddy as according to law what was required to be furnished by the assessee was an explanation regarding nature and source of the credit in the hands of the assessee and the explanation offered by the assessee should be satisfactory. The assessee was not liable for submitting the explanation with regard to source of cash in the hands of M.r Chandra Kaladhar Reddy which tantamount to explaining source of source, which is not intendment of the statutory provisions applicable for the year under consideration.

Page 3 of 16 to submit explanation regarding other deposits of Rs. 7,00,000/- in Andhra Bank Account.

4. That under the facts and circumstances of the case, Ld. CIT(A) has erred in law as much as in fact in in treating the sum of Rs. 52,48,000/- cash deposited in Karnataka State Apex Co-operative Bank and Rs. 13,00.000/- in Chartered Sehkari Co-operative Bank being cash out of earlier cash withdrawals from these banks aggregating to Rs. 41.27,000/- and upholding the addition. The fact regarding cash withdrawals having been made prior to cash deposits has not bee denied or controverted and nothing has been brought on record to show that the cash withdrawals were utilized somewhere else, therefore, addition has wrongly been upheld in this regard.

5. That under the facts and circumstances of the case. Ld. CIT(A) has erred in law as much as in fact in upholding the addition of Rs. 12,45,000/- comprising of Rs.10,00.000/- being on account of alleged unaccounted commission received from KR Shelters Pvt. Ltd. and also a sum of Rs. 2,4.000/-. The addition is prayed to be deleted.

6. That under the facts and circumstances of the case. Ld. AO has erred in law as much as in fact in levying interest under section 234A. 2343. and 234C of the Act.

7. That appellant craves to leave, alter, amend or modify the grounds of appeal

before or during the hearing of the appeal.

8. That each ground is independent and without preju dice to ether.”

3. The interconnected issue raised by the assessee vide ground Nos. 1 to 4 is that the learned CIT(A), erred in confirming the addition of cash deposit in the banks aggregating to Rs. 2,22,48,000/- as unexplained under section 68 of the Act.

12.6.1 The appellant has sought to explain the cash deposits through such cash withdrawals. The AO has stated that no documentary evidence has been furnished and genuineness of appellant’s claim cannot be verified. 12.6.2 I have considered the matter carefully. The appellant has sought to explain the cash deposit of Rs. 52,48,000/- in Karnataka State Apex Co-op. Bank and Rs. 13,00,000/- in Chartered Sahakari Co-op. Bank by way of earlier cash withdrawals from Andhra Bank account and Chartered Sahakari Co-op. Bank totaling Rs. 41,27,000/-. The total cash deposit is Rs. 65,48,000/- whereas the cash withdrawals are only Rs. 41,27,000/-. Moreover, no evidence has been furnished to link between the cash withdrawals with cash deposits. Some cash withdrawals were made after last cash deposit. As such, it is clear that the explanation given by the appellant is not sustainable and is therefore rejected. Both the cash deposits are held to be unexplained once and the addition made by the AO is upheld. Accordingly, the entire addition of Rs. 2,22,48,000/- made by the AO is hereby confirmed.

17.1 Being aggrieved by the order of the learned CIT(A), the assessee has filed the present appeal before us.

17.2 The learned AR before us filed paper book running from 1 to 126 pages and contended that the amount of ₹1,50,00,000/- was received as an advance from Shri Chandra Kaladhara Reddy towards the proposed sale of an immovable property. However, this amount was subsequently utilized for the purchase of another property in a joint arrangement with Shri Reddy. The explanation was duly supported by documentary evidence, yet the authorities erroneously rejected the assessee’s claim.

17.3 The learned AR further contended that due to strained relations with Shri Chandra Kaladhara Reddy, it was impractical to obtain a confirmation from him regarding the source of the funds. However, the authorities failed to conduct any independent inquiries with Shri Reddy and instead summarily rejected the explanation provided by the assessee.

17.4 The learned AR also emphasized that a significant portion of the cash deposits was immediately utilized for the purchase of property, which substantiated the genuineness of the source of funds.

17.5 Additionally, the assessee challenged the addition of ₹7,00,000/- in Andhra Bank, arguing that a proper explanation had been provided but was disregarded by the authorities. Similarly, with respect to the deposits of ₹52,48,000/- in Karnataka State Apex Co-operative Bank and ₹13,00,000/- in Chartered Sahakari Co-operative Bank, the assessee asserted that these amounts originated from prior withdrawals, a claim that had not been disproved by the revenue authorities. Therefore, the assessee argued that treating these deposits as unexplained was unjustified.

17.6 On the contrary, the learned DR before us submitted that it is the onus upon the assessee to justify the source of cash deposit in the bank based on the documentary evidence. There is no document furnished by the assessee that the cash of Rs. 1,57,00,000.00 was received from Shri Chandra Kaladhara Reddy. Likewise, there is no detail furnished by the assessee that the cash withdrawal on the earlier occasion was utilized for the purpose of re-deposit on subsequent date. As per the learned DR, no prudent person withdraws the money from the bank in cash and deposits the same on a later date. The learned DR vehemently supported the finding of the authorities below.

₹2,22,48,000/- made by the assessee in various bank accounts during the relevant financial year have been satisfactorily explained.

18.1 The assessee has maintained that an amount of ₹1.50 crore was received in cash from Mr. Chandra Kaladhara Reddy as an advance for the sale of immovable property through an oral agreement. Subsequently, Mr. Chandra Kaladhara Reddy rescinded the deal on the same day and instead proposed that the assessee should become a co- purchaser in another property. Mr. Chandra Kaladhara Reddy further suggested for adjusting the advance towards the cost of new property to be purchased. The assessee has substantiated this transaction by producing the sale-purchase deed, which clearly reflects that Mr. Reddy was a direct beneficiary of an amount to the extent of ₹ 1,21,33,185/-, as it was utilized for the acquisition of the said property.

18.2 It is a well-recognized fact that real estate transactions in India often take place based on oral agreements, particularly in cases where mutual trust exists between parties. The sale-purchase deed furnished by the assessee before the ld. CIT(A) and in remand proceedings before the AO clearly establishes the flow of funds. This documentary evidence directly supports the assessee’s explanation that the cash received was used towards the cost of acquiring the property for Mr. Chandra Kaladhara Reddy. Despite this crucial fact being on record, both the CIT(A) and the AO have failed to consider it, which constitutes a significant lapse in the assessment proceedings.

18.3 The revenue's objection that the assessee failed to return the entire advance to Shri Chandra Kaladhara Reddy is misplaced. Consequently, treating the entire cash deposit as unexplained cash credit is grossly unjustified given the facts and circumstances of the case. The funds were not retained by the assessee for personal use but were instead utilized for a property transaction in which Shri Chandra Kaladhara Reddy was the primary beneficiary.

18.4 The fact that the money was used for the stated purpose, as corroborated by official sale-purchase documents, validates the genuineness of the assessee’s explanation. Therefore, in our considered opinion, no addition to the extent of ₹1,21,33,185/- should be made in the hands of the assessee concerning the cash deposit of ₹1.5 crore for the reasons stated above.

18.5 With regard to the question raised by the AO and the learned CIT(A) regarding why the entire amount was not returned, it is noted that the assessee explained that, as per the new proposal, Shri Chandra Kaladhara Reddy agreed to purchase the assessee’s property in the future and that an advance of ₹37 lakh was agreed upon. After adjusting ₹1,21,33,185/- from the initial advance of ₹1.5 crore, only ₹28,66,815/- remained with the assessee. Since the agreed advance amount was ₹37 lakh, Shri Chandra Kaladhara Reddy subsequently made an additional cash payment of ₹8,33,185/-, which was later utilized for making a cash deposit of ₹7 lakh on subsequent occasions.

18.6 We note that while the assessee’s explanation is not entirely corroborated by documentary evidence, a substantial portion of it is . supported by facts and circumstances. Specifically, the deposit of ₹1.5 crore was utilized for the joint purchase of a property in the names of both the assessee and Shri Chandra Kaladhara Reddy. Furthermore, no contrary material has been brought on record by the Revenue to disprove the assessee’s explanation under the given facts and circumstances.

18.7 Additionally, the Revenue failed to conduct any independent inquiry with Shri Chandra Kaladhara Reddy, despite all relevant details being available on record. In view of the above, we hold that the assessee has duly discharged the primary onus under Section 68 of the Act concerning the cash deposit of ₹1.57 crore in Andhra Bank. Since the Revenue has not controverted this explanation through independent inquiry or contrary evidence, we hereby set aside the findings of the lower authorities and direct the AO to delete the addition of ₹1.57 crore.

19.1 In this regard, we have examined the bank statements of the assessee maintained with various banks, including Andhra Bank, Chartered Sahakari Co-operative Bank, Karnataka Apex Co-operative Bank, Corporation Bank, and SBI, as available on pages 52 to 70 of the . paper book. Upon reviewing these statements, we observe that the assessee has made cash withdrawals from these banks throughout the year. The details of the same is available in paper book, particularly on page 5 of the paper book. Similarly, we also note that there was balance cash receipt of Rs. 50 lacs (200 lacs less 150 lacs) against the sale of the property discussed above. The aggerate of all these cash is sufficient to justify the deposit of cash discussed above. At the same time, the revenue has not brought anything on record suggesting that the amount of cash available in his hands discussed above has been utilised for any other purposes i.e. personal expenses or investments other than the deposit in the impugned bank accounts. Given these facts and circumstances, we are inclined to set aside order of the learned CIT-A with the direction to the AO to delete the addition made by him on account of cash deposits in the bank. Accordingly, the assessee’s grounds of appeal concerning the additions made on account of cash deposits in Chartered Sahakari Co-operative Bank and Karnataka Apex Co-operative Bank are hereby allowed.

20. The next issue raised by the assessee is that the learned CIT(A) erred in confirming the addition of Rs. 12.45 Lakh.

24.1 The learned AR further submitted that the amount of Rs. 2.45 lakh was not representing the interest as alleged by the revenue. As such the impugned amount represents the encashment of the LIC which was duly disclosed in the books of accounts.

27.1 In this regard, we examined the assessee’s bank statement with Andhra Bank, placed on pages 52 to 57 of the paper book, and observed . that a total of ₹29 lakh was credited from M/s KR Shelter Pvt. Ltd. on three different dates, as detailed below: Date Amount Credited 09-04-2013 ₹10 Lakh 24-04-2013 ₹10 Lakh 27-05-2013 ₹9 Lakh 27.2 Furthermore, upon reviewing the assessee’s profit and loss account and balance sheet for the year under consideration, as well as the balance sheet for the immediately preceding year (placed on pages 21 to 24 of the paper book), we note that the assessee has reported commission income of ₹9 lakh from KR Shelter Pvt. Ltd. and has shown ₹10 lakh as an advance received from the said party. Therefore, out of the sum of ₹29 lakh credited from M/s KR Shelter Pvt. Ltd., only ₹19 lakh is accounted for in the books as commission income and advance. However, the accounting treatment for the remaining ₹10 lakh is not substantiated in the profit and loss account or balance sheet. Based on the facts emerging from the above discussion, we conclude that the assessee has failed to establish that the amount of ₹10 lakh credited to his bank account was duly accounted for and offered to tax. Accordingly, we confirm the same.

27.3 Similarly, we note that on 27-08-2013, the assessee’s Andhra Bank account was credited with ₹2.45 lakh, with the transaction description reading "Inst03551 Clg Axis Bank Ltd," which was treated by the authorities below to be an interest credit. However, upon reviewing the same, we note that Inst03551 represents the “instrument” and not . the interest as alleged by the revenue. Accordingly, we are of the view that such amount of Rs. 2.45 lacs do not represent the undisclosed interest income of the assessee as alleged by the authorities below. Accordingly, we set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him for Rs. 2.45 lakhs on account of interest income. Hence, the ground of appeal raised by the assessee is hereby partly allowed.