ACIT, CENTRAL CIRCLE-1(2), HYDERABAD vs. SURESH PRODUCTIONS, HYDERABAD

Consequent to search, notice under section 153C of the Act dated 08.02.2021 was issued to the appellant- firm. In response, the appellant-firm has filed it’s return of income on 20.09.2021 declaring total income of Rs.33,95,920/-. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer issued show cause letter dated 27.03.2021 and called-upon the assessee to explain as to why addition should not be made towards consideration paid for purchase of property in cash. In response, the assessee explained that, it has paid loan of Rs.6 crore through cheques in the year 2013 and entered into mortgage

The Assessing Officer after considering the relevant submissions of the assessee and also taking note of incriminating material found during the course of search observed that, as per the documents, it is clearly referred to as cash payment of Rs.6 crore for purchase of property from Mr. K. Venkata Ramanaidu. Further, the argument of the assessee that, the exchange agreement of sale was made for exchange of the original sale deed of property for the subsequent property is not acceptable as no mention of loan transaction is found in the exchange agreement. Therefore, the claim of Shri Suresh Babu that, cash of Rs.6 crore was not paid, but, only property documents are being exchanged for replacing the mortgage is not backed by any evidence. The Assessing Officer further noted that, although, both the parties denied of any transaction in cash, but, the fact

Being aggrieved by the assessment order, the assessee preferred appeal before the learned CIT(A). Before the CIT(A), the assessee has filed detailed written submissions on this issue along with certain documents which has been extracted at para-5 of pages 15 to 20 of the learned CIT(A) order. The sum and substance of the arguments of the assessee before the learned CIT(A) was that, the appeallant-firm had given Rs.6 crore loan by cheque in the year 2013 and secured a property by a simple mortgage from Mr. K. Venkata Ramanaidu. Further, an exchange sale of agreement was entered into in the year 2016 to secure the capital, because, the property in question was attached by the Income Tax Department and it was having higher market value. Further, Mr. K. Venkata Ramanaidu has approached the appellant-firm for releasing

Dr. Sachin Kumar, learned Sr. AR for Revenue, supporting the order of the Assessing Officer submitted that, the learned CIT(A) erred in law and on facts in deleting the addition of Rs.6 crore made towards unexplained investment under section 68 and 69 of the Act without appreciating the fact that, as per Clause-2 of Exchange Agreement of Sale, the agreement was primarily entered for advancing loan of Rs.6 crore in cash by the assessee to the 12 ITA.No.265/Hyd./2022 borrower Mr. K. Venkata Ramanaidu which was returnable/ refundable within 3 months by the borrower. The learned CIT(A) erred in not appreciating the fact that, as per clause 2 of the exchange agreement of sale, the built-up area of 30,130 square feet comprising of 35 apartments/units was to be registered in favour of the assessee by executing sale deed only when the barrower fails to return the loan of Rs.6 crore to the assessee. The learned CIT(A) ought to have appreciate the fact that, there is not even a whisper in the exchange agreement of sale either by virtue of loan given by the assessee earlier to Mr. K. Venkata Ramanaidu by cheque or loan agreement entered into on 06.02.2013 is showed that, the amount of Rs.6 crore advance in cash was a distinct transaction having no connection with the loan given earlier by the assessee by cheque. The learned CIT(A) erred in holding that, the exchange agreement of sale was entered into in continuation of agreement earlier entered into between the parties. The Learned DR further referring to simple mortgage deed dated 06.02.2013 and subsequent modified agreement dated 07.03.2016 and exchange 13 ITA.No.265/Hyd./2022 agreement of sale dated 07.032016 submitted that, the property in question were altogether different and different properties and further, the appellant has failed to substantiate the claim that, it has entered into exchange deed for the purpose of securing the capital due to attachment of property by the Income Tax Department under section 281B of the Act. Therefore, he submitted that, the learned CIT(A) without considering the relevant facts, has simply deleted the addition made by the Assessing Officer. Therefore, the order of the Assessing Officer should be upheld.

CA A. Srinivas, Learned Counsel for the Assessee, on the other hand, supporting the order of the learned CIT(A) submitted that, right from the date of search and seizure operation, the appellant claims that, the amount mentioned in the exchange agreement of sale that, it has paid Rs.6 crore in cash is a typographical error. Further, the same has been confirmed by Mr. K. Venkata Ramanaidu in his sworn statement recorded under section 131 of the Act, where he has confirmed that, no cash has been received.

We have heard both the parties, perused the material on record and gone through the orders of the authorities below. During the course of search, at the business premises of M/s. Suresh Productions and Entertainment LLP on 20.11.2019, certain incriminating material was found and seized and statement of the 15 ITA.No.265/Hyd./2022 concerned persons and the Partner of the Partnership Firm were recorded. As per the seized documents, an exchange agreement of sale dated 20.03.2016 between Mr. K. Venkata Ramanaidu and M/s. Suresh Productions was found and seized and as per the said deed, Mr. K. Venkata Ramanaidu has sold 35 units from his share of apartments in a project “Shriram Sameeksha” to the appellant for a consideration of Rs. 6 crore and the same has been paid in cash. The documents found during the course of search was confronted to Shri D. Suresh Babu, Partner of the appellant-firm and called-upon him to explain the contents. In response to a specific question, he has stated that, the Firm had given loan of Rs.6 crore on 08.02.2013 and 19.03.2013 to Mr. K. Venkata Ramanaidu and entered into a simple mortgage deed dated 06.02.2013 as a security for the loan. Subsequently, sworn statement under section 131 of the Act has been recorded from Mr. K. Venkata Ramanaidu on 03.01.2020 wherein he has stated that, cash payment referred to in the exchange agreement of sale is a typographical error and no cash payment was made at the 16 ITA.No.265/Hyd./2022 time of exchange of deed of sale. He further submitted that, income tax survey operation was conducted in his office and provisional attachment Order under section 281B of the Act was made against the property mortgaged to M/s.Suresh Productions and the same has been informed to Shri D. Suresh Babu about the provisional attachment and requested to release the original document of this property to avoid legal complications and also requested him to take alternative security for the loan availed from him. Accordingly, exchange agreement of sale dated 07.03.2016 was made to mortgage the alternative property and released the original document of first mortgaged property and while entering into said deed, a typographical error has been occurred, where the loan given in the year 2013 has been referred to as consideration paid in cash. The Assessing Officer made addition of Rs.6 crore under section 68 and 69 of the Act on the ground that, the transaction in mortgage deed dated 07.02.2013 and exchange sale of agreement dated 20.03.2016 are two distinct transactions and there is no reference of loan given by the appellant-firm to Mr. K.

We have given our thoughtful consideration to the reasons given by the Assessing Officer to make the impugned addition of Rs.6 crore under section 68 and 69 of the Act in light of reasons given by the learned CIT(A) to delete the addition and we are in full agreement with the reasons given by the learned CIT(A) to delete the addition made by the Assessing Officer for the simple reason that, the first relevant document is dated 06.02.2013 in which an 18 ITA.No.265/Hyd./2022 agreement was made between Mr. K. Venkata Ramanaidu and the appellant-firm and as per the said document, the appellant-firm had given Rs.6 crore loan on 06.02.2013 through RTGS and the relevant documents has been placed in the paper book filed by the assessee in pages 2 and 3. Further, as per the simple mortgage deed dated 06.02.2013, a charge on property to the extent of 72,000 square feet was made in lieu of Rs.3 crore advance on 06.02.2013 and further, as per the terms of agreement, Mr. K. Venkata Ramanaidu agreed to pay a sum of Rs.9 crore and profits of 12% over and above the sum of Rs.75 crore realised by Mr. K. Venkata Ramanaidu. Further, the agreement provides for interest on default, in repaying the said sum, if not repaid in that year. It is seen that, the appellant-firm has accounted for interest of Rs.5.8 crore in financial year 2014-2015 and interest of Rs.2.15 crore in financial year 2015-2016 on this amount of Rs.6 crore and offered to tax. The second document found during the course of search proceedings is, exchange agreement of sale between Mr. K. Venkata Ramanaidu and the appellant-firm and as per the said deed, 19 ITA.No.265/Hyd./2022 the appellant-firm is agreed to purchase 30,130 square feet comprising of 23 units of 1 BHK apartments and 12 units of 2 BHK apartments for a consideration of Rs.6 crore and the same has been paid by cash in the presence of the witnesses. The Assessing Officer took support from the said documents and claimed that, assessee has paid consideration of Rs.6 crore in cash and the same has not been accounted for in the books of accounts. However, it was the argument of the assessee right from the beginning that, it is a typographical error while entering into an agreement, but, actual fact is, the appellant-firm has paid loan of Rs.6 crore in the year 2013 and secured property by a simple mortgage deed dated 06.02.2013 and because of request from Mr. K. Venkata Ramanaidu an exchange sale of agreement was entered into in lieu of earlier property by giving 30,130 square feet super built-up area in “Shriram Sameeksha” property. The appellant has further explained that, the property in question given as security in light of mortgage deed which was attached by the Income Tax Department and because of legal complications Mr. K.

Upon careful consideration of relevant submissions including mortgage deed, amended mortgage deed dated 07.03.2016 and subsequent exchange agreement of sale, it is very clear that, the appellant-firm has given Rs.6 crore loan to Mr. K. Venkata Ramanaidu in the year 2013 and secured property by mortgage deed. Further, the said mortgage deed has been replaced by entering into exchange agreement of sale because of provisional attachment by the Income tax Department on the said property in terms of section 281B of the Act. Going by both the documents executed on 07.03.2016 which was seized during the course of search, the bonafides of the same, cannot be disputed because, the document is effectively in-continuation of the previous two agreements dated 06.02.2013 and 07.03.2013. From the above, it is undisputedly clear that, the amount mentioned in the 21 ITA.No.265/Hyd./2022 document as sale consideration paid in cash, is the same loan given in the year 2013 by cheque and, therefore, this is not a co-incidence, as the previous document executed on the same date mentioned about a further right of 30,130 square feet super built-up area in “Shriram Sameeksha”. It is important to note that, 35 apartments/units with cumulative area of 30,130 square feet were already attached by the Income tax Department vide order under section 281B of the Act dated 13.04.2015 and when the property itself is attached by the Department, any further transaction would become abinitio void and no one would pay any consideration for the attached property as this would go as a void transaction under section 281B of the Act. Therefore, the reasons given by the Assessing Officer that, the subsequent exchange agreement of sale dated 07.03.2016 is altogether a different transaction is devoid of merit and cannot be accepted. Further, the document executed on the same day, gives a different narration of events and the assessee was only trying to secure capital by executing such a document in return of original papers and thus, creating a 22 ITA.No.265/Hyd./2022 charge in anticipation that, demand raised by the Department would not be equal to the charge of the value of the property. The veracity of the document cannot be doubted going by the contents of the document, where it is very clear that, appellant-firm has created a pressure on the borrower by putting a condition of the refund of the loan amount within 03 months, so that, the borrower resolves it's disputes as soon as possible with the Department who had made the attachment, otherwise, the charge of the appellant-firm turns into “Title” though to an extent disputed one in view of attachment by the Department. From the sequence of the events, it is undisputedly clear that, amount referred to in exchange of agreement of sale dated 07.03.2016 that, it has paid sale consideration of Rs.6 crore is nothing, but, same amount of loan given in cheque in the year 2013 and further, it is only a typographical error while entering into agreement and, therefore, in our considered view, the Assessing Officer is erred in making addition towards consideration of Rs.6 crore under section 68 and 69 of the Act. The learned CIT(A)

In the result appeal of the Revenue is dismissed.