SRINIVAS REDDY,TANUKU vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, RAJAHMUNDRY

1. This appeal is filed by the assessee against the order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] vide DIN & Order No. ITBA/NFAC/S/250/2024-25/1074742152(1) dated 20.03.2025 for the

Brief facts of the case are that, assessee being an individual derived income from house property and also being a partner in M/s. Srinivasa Poultry Complex filed his return of income on 30.09.2012 admitting a total income of Rs.11,19,090/-. A survey operation under section 133A of the Act was conducted on 13.12.2011 in the case of M/s. Laxmi Prasanna Agro Paper Industries Limited where the assessee has made some investments in the shares of the Company. After selection of the case for scrutiny as per the CBDT Scrutiny Guidelines, statutory notices under section 143(2) and 142(1) of the Act were issued and served on the assessee. In response, assessee’s representative appeared and submitted information as called for from time to time. Ld. Assessing Officer [hereinafter in short “Ld. AO"] noticed that assessee has made investment in the form of “Advance for purchase of shares” in M/s. Laxmi Prasanna Agro Paper Industries Limited amounting to Rs.50 Lakhs by way of cash. It was submitted that the assessee withdrew from the capital account held with the firm for making the investments in shares of M/s. Laxmi Prasanna Agro Paper Industries Limited. Ld. AO being not satisfied with the explanation, treated investment as unexplained and made an addition of Rs.50 Lakhs. Further, Authorized Representative of the assessee also submitted that six (6) persons has made investment through the assessee

The learned Commissioner of Income Tax (Appeals) ought to have categorically held that the investment of Rs.45,00,000 does not pertain to the appellant and ought to have deleted the addition.

Any other ground that may be urged at the time of appeal hearing.”

Ground No.2 is with respect to sustaining the addition of Rs.50 Lakhs by the Ld. CIT(A). On this issue, Ld. Authorised Representative [hereinafter “Ld.AR”] submitted that the assessee has withdrawn cash from the capital account held with the partnership firm M/s. Srinivasa Poultry Complex. The cash withdrawn from the firm were invested in the share application money of M/s. Laxmi Prasanna Agro Paper Industries Limited. He submitted that the investee company has also furnished the certificate regarding the receipts of funds from the assessee and various other shareholders towards share application money which is available in page no. 18 of paper book. He therefore submitted that since the sources have been explained, addition made by the Ld. AO is unjustified and not sustainable.

Per contra, Ld. Departmental Representative [hereinafter in short “Ld.DR”] heavily relied on the orders of the Learned Revenue Authorities while questioning the necessity of making the investments in cash. She therefore pleaded to sustain the order of the Revenue Authorities.

We have heard both the sides and perused the material available on record. It is an undisputed fact that the assessee has made investment in cash in the shares of M/s. Laxmi Prasanna Agro Paper Industries Limited towards share application money on various dates during the impugned assessment year. The Page No. 4 Srinivas Reddy sources for such investments as furnished by the Ld.AR is out of the withdrawals from the capital account of the assessee in M/s. Srinivasa Poultry Complex. These facts were not disputed even by the revenue. The only grievance of the Ld. AO is investment in shares by way of cash. Ld.AR has also furnished the copy of the capital account in paper book page no. 19 disclosing the withdrawals made by the assessee from the partnership firm. The revenue has not brought any material on record to establish the fact that the sources for such investment is unexplained. The revenue erred in not scrutinizing the cash credits in the capital account, however, disputed only the investment made by the assessee from such withdrawals. Ld. AO disbelieved the genuineness of the transactions, since it was made in cash and therefore made an addition of Rs.50 Lakhs. However, Ld. AO has not disputed the fact that the assessee has withdrawn cash from the capital account held with the firm. In these circumstances, we find that the sources of investment have been properly explained by the assessee and hence direct the Ld.AO to delete the addition of Rs.50 Lakhs. Thus, Ground No.2 raised by the assessee is allowed.

Ground No.3 challenges the addition of Rs.45 Lakhs, sustained by the Ld.CIT(A). On this issue, Ld.AR submitted that various parties as listed in the assessment order have invested an amount aggregating to Rs.45 Lakhs in the shares of M/s. Laxmi Prasanna Agro Paper Industries Limited. He further submitted that these six parties have submitted affidavits regarding their

Per contra, Ld. DR relied on the orders of the Revenue Authorities.

We have heard both the sides and perused the material available on record. It is an admitted fact that the following six persons have invested Rs.45 Lakhs in M/s. Laxmi Prasanna Agro Paper Industries Limited as tabulated below: -

It was also not disputed by the revenue that these six parties have furnished affidavits and other documents establishing the investment made in the Company. The Ld. CIT(A) in his findings observed the fact that addition cannot be made in the hands of the assessee unless the Ld. AO establishes that investment by these persons have been made on behalf of the assessee. He has therefore directed the Ld. AO to verify whether these shares have been transferred to the assessee in the subsequent years without any consideration. We find that the revenue has not brought any material record to counter that Page No. 6 Srinivas Reddy these investments were made on behalf of the assessee, but has accepted the investment made by the six parties as listed above. The only contention of the revenue is that these investments have been routed through the assessee and hence cannot be considered as investments by the six parties and therefore the additions were made in the hands of the assessee. The affidavits submitted by six parties were not disbelieved by the Revenue. Hence, additions cannot be made based on assumptions and surmises, therefore we are of the opinion that addition made by the Revenue Authorities amounting to Rs.45 Lakhs which was made as investment by six parties, in the hands of the assessee is not justifiable and therefore we direct the Ld.AO to delete the addition made in the hands of the assessee. Thus, Ground No. 3 raised by the assessee is allowed.

In the result, appeal of the assessee is allowed.