DEPUTY COMMISSIONER OF INCOME TAX CIRCLE -1, KALBURAGI vs. SRI CHIDANANDAPPA, YADGIR

We heard rival contentions and perused the record. It is well settled proposition of law that the initial burden to prove the cash credits is placed upon the shoulders of the assessee u/s 68 of the Act. In order to discharge the burden, the assessee has to prove three main ingredients, viz , identity of the creditor, creditworthiness of the creditor and genuineness of the transactions. Based on this legal proposition, we shall examine the facts prevailing in this case: 9 The assessee has introduced a sum of Rs.1.60 crores in his capital account: The source of the above said amount was the withdrawal made by the assessee from a firm named M/ s Shri Banadeshwar Constructions" wherein the assessee is a partner_ There is no dispute with regard to the fact that a partnership firm by the above said name was formed by nine persons including the assessee: The remaining eight partners are farmers and they have introduced capital in the partnership firm_ Hence the partnership firm was having enough funds and the assessee has withdrawn money from the above said partnership firm_ The books of accounts of partnership firm reflected above transactions. Hence, primarily, the identity, credit worthiness and genuineness of transactions, vis- a-vis the partnership firm stand proved_ 10. It is further noticed that other partners have received funds on sale of land to KIADB and they have explained that they have introduced the same as their capital in the partnership firm_ We notice that the assessee has furnished details relating to receipt of compensation, bank account details of other partners etc: The AO also did not find fault with those documents, meaning thereby, the ITA No. 1718/Bang/2018 Page 6 of & assessee has also proved source of sources_ We notice that the AO was of the view that, since there is a time gap of about six months from the date of withdrawal of funds by the partners from their respective bank accounts and the date of investment in the partnership firm, their claim is doubtful. To counter this view, we notice that the assessee has taken support of the decisions rendered by Hon ble Karnataka High Court in the case of P Padmavathi (supra) and S.R Venkata Ratnam (supra)_ 11. We notice that the Ld CIT(A) has well examined the issue and decided the same in favour of the assessee. For the sake of convenience, we extract below the discussions made and decision taken by Ld CIT(A) on this issue:- "4.0 0 During the appellate proceedings, the appellant relied on the decision of the Karnataka High Court Circuit Bench at Gulbarga decision in the case of P. Padmavathi in ITA No.414 of 2009 dated 6/10/2010 wherein the Bench considered single judge decision of same court in the case of S.R Venkata Ratnam Vs. CIT reported in 127 ITR 807 . In the case of S R Venkata Ratnam, it was held that "Once the petitioner-assessee disclosed the source as having come from the withdrawal made on a given date from a given bank, it was not for the respondents no.1 and 2, to concern themselves with what the assessee did with the money, i.e:= whether he had kept the same in his house or utilised the services of a bank by depositing the same: The ITO has only two choices before him_ One was to reject the explanation as not believable for the reason that on his investigation no such pigmy deposit was ever made into the bank: In the alternative, he ought to have called upon the assessee- petitioner to substantiate his claim by documentary evidence: Having exercised neither of the choices, it was not open to the ITO to merely surmise that it would not be probable for the assessee to keep Rs.15,000 /- unutilised for a period of two years: The ITO should have given an opportunity to the assessee to substantiate his assertion as to the source of the capital outlay. ITA No. 1718/Bang/2018 Considering the same, the bench held that "once the money is shown to be in the account and withdrawn what the assessee did with the money till it was actually deposited is not the concern of the Department: As long as the source is explained and established and when the money is withdrawn from a savings bank account; it is not possible to hold that the source is not explained: 5.0 I have considered the submissions made by the appellant during appellate proceedings. The AO has not disputed the identity or credit worthiness of the farmers. He has doubted the genuineness of the transaction as the money was withdrawn from their bank accounts from October , 2012 whereas the firm came into existence on 5/4/2013. As was held by the High Court of Karnataka cited supra, neither the AO has established that no such deposit was made in the bank nor could prove that the documentary evidence given by the appellant is not correct: It appears that the AO has made the addition with a surmise that it would not be probable for the farmers to keep the money unutilised for a period of about 6 months The AO has also failed to prove that the partnership firm is a colourable entity to legitimate introduction of capital in cash_ 5.1 In view of the above I hold that the addition was not made on sound footing and hence the same of Rs.1,60,00,000/- is deleted: 13_ We have noticed that the assessee has proved the sources of funds, i. e., it was withdrawal from the partnership firm The partnership deed, the books of accounts of the firm its fund position examined by the AO would show that the assessee has proved identity, credit worthiness and genuineness of the transactions. Though the AO has expressed the view that the partnership firm is a colourable entity, yet we notice that the AO has observed SO on surmises only. The capital contribution made by the other partners has not been established to be not genuine_ In fact, the AO was satisfied with the capacity of the other partners to make the capital contribution. Though he has expressed that there is time gap of six months etc , yet it was again a surmise only ITA No. 1718/Bang/2018 not supported by any material to show that the amount introduced as capital was not the amount withdrawn from the banks In fact, the decision rendered by Hon ble Karnataka High Court in the cases of P. Padmavathi (supra) and S.R Venkata Ratnam (supra) would reject the apprehension of the AO_ Thus, we notice that the assessee has not only proved the source, but also source of sources_ Hence we are of the view that the Ld CIT(A) was justified in deleting the addition of Rs.1.60 crores made by the AO u/s 68 of the Act: Accordingly we uphold his order.

In the result, the appeal of the assessee is allowed. Pronounced in the open court on this 2nd day of November; 2020. Sdl- Sdl- BEENA PILLAI ) JUDICIAL MEMBER (BR BASKARAN ACCOUNTANT MEMBER Bangalore, Dated, the 2nd November; 2020 | Desai S Murthy / Dwk Copy to: 1_ Appellant 2. Respondent 5. DR, ITAT; Bangalore. 3 CIT 4. CIT(A) By order Assistant Registrar ITAT, Bangalore. ITA No.1718/Bang/2018 Shri Chidanandappa, Yadgir IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH: BANGALORE BEFORE SHRI B. R BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No.1718 [Bang/2018 Assessment Year: 2014-15 The Deputy Commissioner of Income-tax Circle-1 Kalaburagi Sri Chidanandappa H.No.5-5-272 Vivekanand Colony Vs. Hyderabad Road, Yadgir Karnataka-585 202 PAN No AFBPC 9834Q RESPONDENT APPELLANT Appellant by Respondent by Shri Priyadarshi Mishra_DR Shri Narendra Sharma_AR CORRIGENDUM The above said appeal has been filed by the revenue_ In para- 14 of the order dated 02.11.2020, it is erroneously stated that the appeal of the assessee is allowed: Hence, this corrigendum is issued to rectify the above said error. Accordingly, para-14 of the order is substituted by the following paragraph: Para-14) In the result, the appeal of the revenue is dismissed: - (Beena Pillai) Judicial Member (B.R_Baskaran) Accountant Member Bangalore, Dated 25th Nov, 2020 VG / SPS ITA No.1718/Bang/2018 Shri Chidanandappa, Yadgir 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.