CH.CHANDRASEKHAR NAIDU ,PRODDATUR vs. DY. COMMISSIONER OF INCOME TAX , CENTRAL CIRCLE-(2), HYDERABAD

The ld. A.R. for the assessee had submitted that the assessee is challenging the additions made by the ld. A.O. and confirmed by the ld.CIT(A) in respect to the amount of Rs. 11 lacs as unexplained cash credit and also the amount of Rs.1 lac towards the unexplained investment.

With respect to the first issue of unexplained cash credit of Rs. 11 lacs, the submission of the assessee was before the ld.CIT(A), the amount was received by the assessee vide cheque bearing No. 745520 through the banking channel from Mr. Kamana Venkata

It was the contention of the ld. A.R. before us that, documents at page 4 to 8, clearly shows the identity, creditworthiness and genuineness of the transactions. In fact the lender had confirmed extending of loan of Rs 11lacs to the assessee .

We have heard the rival contentions of the parties and perused the material available on record. Admittedly in balance sheet at page 4 of P.B., assessee has shown the liability of Kamana Venkata Subbaiah for Rs11,00,000/-and at page 5, there is a confirmation letter from the said K.Venkata Subbaiah confirming that he had given a loan of Rs. 11 lacs to the assessee by cheque. Further, it is also matter of record the said amount was transferred by the said person from the banking channel and the same is further clear from the bank pass book, also having the photograph of the said K. Venkata Subbaiah and other details, which indeed proves the identity of the said person. In our view, once the assessee was able to prove the identity, creditworthiness by way of submitting the documents, then no addition should be made by the revenue authority. In this regard, we may fruitfully rely upon the decisions cited by the assessee in the case of Narendra chandubhai vs ITO in Hon’ble Madras High court in CIT vs. Mark Hospitals Pvt. Ltd. [2015] 58 taxmann.com 226 and Hon’ble ITAT Hyderabad in Rajesh Kumar Malpani vs ITO Ward-8(2) in ITA No.497/H/2018. In view of the 6 Ch.Chandrasekhar Naidu above, the additions sustained by the ld.CIT(A) is deleted with respect to Rs. 11 lacs.

Now, the second issue raised before us pertains to the confirmation of Rs. 1 lacs made by the ld.CIT(A). With respect to unexplained investment of Rs. 1 lac, it is explained by the assessee before the A.O. that the amount was lent by the HUF to the assessee and after receiving the amount from the HUF, the same was duly reflected in the return of income filed by HUF on 28.03.2011. However, despite that the ld. A.O. has confirmed the addition and it was observed by the A.O. that the ITR filled with a view to avoid tax liability in the individual hand. Feeling aggrieved appeal was filed by the assessee before ld.CIT(A). The ld.CIT(A) has confirmed the addition of Rs. 1 lac observing as under:-

Feeling aggrieved, the assessee is in appeal before us. It was submitted by the assessee that the loan amount of Rs. 1 lac was given by the assessee to T.Janardhan Naidu by way of promissory note and the source of fund was from HUF. It was the submission of the assessee that the HUF was having sufficient source of income to offer a loan to the assessee. The said fact was duly mentioned in the return of income of the HUF. Our attention was drawn to page 9 to 11 of the paper book contending that the sums were lent by the HUF to the assessee, which in turn were given to Shri Janaradhan Naidu. The ITR and ledger of HUF are supplied as under:-

Per contra, the ld. D.R., had submitted that the above said explanation is self serving and with a view to come out of the rigors of the section 153A.

We have heard the rival contentions of the parties and perused the material available on record. Undeniably, in this case, the search and seizure operation was carried out in the assessee's premises on 25.11.2010 and during the search, a promissory note relating to F.Y. 2009-10 (AY 2010-11) was found and have been seized.

The A.O. had noticed that the assessee with a view to show the availability of funds , had filled the return of income of HUF after the search had taken place in the case of assessee. In this way the assessee had shown availability of fund with him with a view to lend the same to the borrower. The return of income placed at page 9 clearly shows that the said return of income was filed after the search on 28.03.2011 for the AY 2010-11. In view of the above, the finding recorded by the lower authorities cannot be faulted . The assessee lent the amount during the F.Y. 2009-10 on 13.07.2009 and assessee was required to be prove that the said HUF was having availability of fund before it was given by 9 Ch.Chandrasekhar Naidu promissory note therefore, we do not find any merit in the submission of the A.R. Accordingly, this ground raised by the assessee is dismissed. In a result, this appeal of the assessee is partly allowed.

In this case, the A.O. had made the addition of unexplained cash credit of Rs. 9,36,200/- because the assessee was not able to prove the cash received by the assessee from 64 individuals who had given loan to the assessee, for the amount below Rs20,000/ each (para 2 of the assessment order). The ld. A.O. has repeatedly asked the assessee to furnish evidence to prove the identity and creditworthiness of the creditors and the genuineness of these 64 transactions. However, the assessee failed to prove the same and accordingly, the A.O. has confirmed the addition of Rs. 9,36,200/-.

Before us, feeling aggrieved by the order passed by the A.O., the assessee preferred an appeal before the ld.CIT(A). The assessee has filed the additional evidence and the remand report was called by the ld.CIT(A) and however, the ld.CIT(A) was not persuaded by justification the assessee gave; accordingly, he confirmed the addition of Rs. 9,36,200/-.

Feeling aggrieved by the order passed by the ld.CIT(A), the assessee, is before us. It was contended by the assessee that the ld.CIT(A) have failed to appreciate that the assessee provided the confirmation letters during the assessment proceedings as well as remand proceedings before the ld.CIT(A), which proves the identity of the creditor. All the persons have accepted to have given such loans. It was argued that since the assessee had discharged his onus, the impugned order is required to be 10 Ch.Chandrasekhar Naidu annulled and relief to be granted to assessee. The ld. A.R. relied upon the following judgments

On the other hand, the ld. D.R. had submitted that though the assessee had filed confirmation letter from 64 labours along with their election voter I card. Still, it cannot be believed the labours, who were hands to mouth would be giving the loans to the assessee, which is less than Rs.20,000/-.

We have heard the rival contentions of the parties and perused the material on record. Undoubtedly, the assessee is a man of means and has filed the list of 64 unsecured creditors along with their respective election cards and confirmation letter to the lower authorities.

Though it is correct that the assessee has filed the election card/identity proof of the 64 creditors along the confirmation letter, but the question which arises is whether it can be believed these 64 persons, who were men of limited means have given loans to the assessee. Tribunal cannot close its eyes to the gross root reality and accept identical self-serving evidence filed by the assessee. The revenue could have quickly demolished the justification of the assessee by examining creditors by using their power under section 133(6) of the Act; therefore fault also lies with the lower authorities as, despite the availability of details of these persons, the authorities have not exercised their statutory power to summon few of them on sample basis to find out whether there was actual lending of the amount by such persons

The second ground raised by the assessee pertains to the addition made by the A.O. for unexplained investment of Rs. 10 lacs. In this regard, it was the contention of the assessee that the A.O. has made the above said addition without considering the explanation of the assessee.

On appeal ld.CIT(A) had confirmed the addition of Rs. 10 lacs in the hands of the assessee. Before us, Ar drew our attention to paragraph 4.2 and 4.3 of the order passed by the ld.CIT(A).

In view of the above, we are satisfied that no substantial question of law arises out of the order of the Tribunal for interference by this Court. Dismissed. II 7.6 In this connection, it is to submit that the appellant has submitted ledger copy of Sri G Prasad Rao in the books of C. Chandrasekhar Naidu in individual status of the appellant through paper book vide pg no-21-22 and ITR, computation of income for kind perusal. In view of the above, we request the Ld. CIT (A) to delete the addition made towards unexplained investment of the Act for the Assessment Year 2009-10.

Ar submitted, that assessee had submitted that the assessee has produce the balance sheet of the assessee shown he amount of loan to Shri Prasad Rao and our attention was drawn to the following extract to the balance sheet BALANCE SHEET AS ON 31.03.2009. LIABILITIES AMOUNT ASSETS AMOUNT Capital Account of Site Ward No.20, 109300 S.No.493 Rameshwaram, Proddatur Sri c.Chandra 1682580 s.No.95, 305200 Sekhar Naidu Nanganurupalle 5.00 acres, Agril. Land c.M.gopal 330000 Kapil chits 462800 Kapil chit funds- 194543 contribution 1964543 Sravan chiffin (P) Ltd. Deposits 440000 Unsecured Loans 936200 Loans & Advances- 1738814 Prasad Rao C.Sreedevi 492800 TDS A.Y.2009-10 226600 TDS A.Y.2008-09 34710 TDS A.Y.2007-08 10810 BANKbALANCE-SBI 10558 Cash & bank 181535 Balance 3574380 3574380

The A.R. contended that once the investment made by the assessee was duly reflected and recorded in the books of the accounts (balance sheet) as on 31.03.2009, then the same cannot be treated as an unexplained investment.

The ld. A.R. relied upon following judgments:-

We have heard the rival contentions of the parties and perused the material on record. Undoubtedly, it is undeniable that the assessee in the balance sheet prepared on 31.03.2009, has mentioned the amount of Rs.17,38,814/- being due to G.Prasad Rao. The ledger of Shri G.Prasad Rao at page 7, confirms the same . We find that in the preset case, the search action was initiated in the premises of the assessee on 25.11.2010. Before that the assessee had filed the return of income for the AY 2009-10 on 05.02.2010 declaring the income of Rs.1,60,000/- and thereafter, the assessee had filed the return of income in response to the notice under section 153A of the Act on 16.03.2012 declaring the return of income of Rs. 2,67,000/- and agricultural income of Rs. 1,36,000/-. The earlier return of income filled on 5.2.2010 was filled on the basis of the balance sheet and P&L account prepared as on 31.03.2009 wherein amount was duly recorded. In our view the explanation of the assessee can not be said to be an afterthought, once the assessee had shown the investment in the balance sheet and further based on that ROI was filed. Therefore, the action on the part of the revenue, making the addition as an unexplained investment, can not be upheld. The law requires the revenue to prove that the 15 Ch.Chandrasekhar Naidu investments were made by the assessee outside the books of account. In view of the above, we find that the assessee is entitled relief. Accordingly, we grant relief to the assessee.

The last ground raised by the assessee is with respect to disallowances of the expenditure of Rs. 2,34,000/-. In this regard, the assessee has submitted that before the A.O. the assessee has proved the earning of the interest income for Rs.3,40,843/-. However, the A.O. has not accepted the interest expenses incurred by the assessee. It was the contention of the assessee before us that, the benefit of netting off of interest should be given to the assessee.

On the other hand, the ld. D.R. had submitted that the netting off of the interest could not be given to the assessee is disputed as the investment and borrowing are disputed by the revenue.

We have heard the rival contentions of the parties and perused the material available on record. In the present case, the assessee had given the loan of Rs. 10 lacs to G.Prasad Rao, and we had already adjudicated the above said fact in favour of the assessee . Therefore, the interest earned by the assessee on the said amount is required to be adjusted from the interest payable on Rs.9,36,000/-. In view of the above, we hold the assessee is entitled to netting of interest . Let the AO grant the benefit to the assessee .

In the result, both appeals of the assessee are partly allowed.