THE ACIT, VIJAYAWADA vs. SRI NALLURI KESAVARDHAN, VIJAYAWADA

आदेश / O R D E R

PER D.S. SUNDER SINGH, Accountant Member:

This appeal filed by the revenue is directed against order of the

Commissioner of Income Tax (Appeals), Vijayawada vide Appeal

No.552/CIT(A)/VJA/14-15 dated 30.10.2014 for the assessment year

2011-12.

ITA No.24 /Vizag/2015 Sri Nalluri Kesavardhan, Vijayawada 2. All the grounds of appeal are related to addition made by the A.O.

u/s 68 of the Income Tax Act, 1961 (hereinafter called as 'the Act'). In

this case, the assessee filed return of income admitting total income of `

1,28,12,500/- on 21.6.2011. The case was selected for scrutiny and

during the assessment proceedings, the A.O. found that the assessee

made cash deposits in Savings bank account No.5681050000918 with

HDFC Bank a sum of ` 11,25,000/- and in account No.5681000008659 a

sum of ` 67,50,000/- aggregating to ` 78,75,000/-as under:

Account No.05681050000918

Date Amount (Rs.) 1 18.05.2010 100000 2 14.12.2010 50000 3 25.02.2011 950000 4 24.03.2011 25000 Total: 1125000

Account No.5681000008659

Date Amount (Rs.) 1 25.02.2011 950000 2 26.02.2011 1900000 3 28.02.2011 1500000 4 03.03.2011 1500000 5 22.03.2011 900000 Total: 6750000

ITA No.24 /Vizag/2015 Sri Nalluri Kesavardhan, Vijayawada 3. During the assessment proceedings, the A.O. requested the

assessee to submit explanation for the source of deposits. The assessee

explained the source of deposits as realization of the advances made by

him to his friends and relatives, which was recovered in cash and

withdrawals from the bank (ATM), loans from friends and relatives. The

A.O. has issued summons to some of the debtors and in response to the

summons, 6 persons have appeared and confirmed the loans taken and

repaid in cash.

In addition the A.O. issued the letters to the following persons, which

were returned un-served or there was no response from the persons

who stated to have repaid the loans given by the assessee:

Sl.No. Name Amount of hand Remarks loan (Rs.) 1 K. Kishore Kumar 50000 Returned unserved 2 N. Ravi Kumar 500000 Returned unserved Total: 550000

persons:

Amount of Sl.No. Name Remarks hand loan (Rs.) 1 B. Manojakumar 1150000 No reply Naidu 2 D. Ravishankar 500000 No reply 3

ITA No.24 /Vizag/2015 Sri Nalluri Kesavardhan, Vijayawada Amount of Sl.No. Name Remarks hand loan (Rs.) 3 V. Pandu 400000 No reply 4 T.V.S. Santosh Kumar 100000 No reply 5 r. Ambadasu 500000 No reply 6 T. Ravindra Mohan 50000 No reply 7 a.v. Satyanarayana 1270000 No reply 8 t. Rama Devi 225000 No reply 9 B. Naveen Babu 1000000 No reply 10 Sk. Siraj 100000 No reply 11 P. Jayaprakash 300000 No reply Total: 5495000

Name Amount of Remarks hand loan (Rs.) Sl.No. 1 M.C.S. Singh 25000 2 S. Hansa Ram 150000 Total: 175000

submit his explanation along with supporting evidences. In response to

show cause notice dated 13.1.2014, the assessee filed a reply dated

23.1.2014 stating that he has given interest free advances to close

friends and relatives including some of the staff members of Optimus

Commodity Futures Pvt. Ltd. for which he is one of the founder Director.

Majority of the advances were made in cash and on recovery of the

same, he has deposited the cash into bank account. He was under the

impression that the source was explained and all the persons who had 4

ITA No.24 /Vizag/2015 Sri Nalluri Kesavardhan, Vijayawada taken the loans were innocent and acted in good faith without the

knowledge of consequences to meet personal urgencies. Since the

assessee was not in a position to submit the proper evidences, the

assessee had accepted the addition of the sum representing cash

deposits in the bank account to avoid litigation and to purchase peace

with the department. Since the assessee had accepted the addition and

the source was not established before the A.O., the A.O. made the

addition of ` 78,75,000/- to the returned income.

before the CIT(A) and explained the sources for credits of ` 78,75,000/-

as under:

Date Amount (Rs.) Source for the deposit Hand loan of ` 50,000/- each given to two 1 18.05.2010 100000 persons returned on 18.5.2010. 2 14.12.2010 50000 Hand loan of ` 25,000/- each given to two employees was returned and deposited on 14.10.2010 3 25.02.2011 950000 Hand loans returned from 5 persons cash of ` 5,000/- with drawn in ATM` 4 24.03.2011 25000 Amount deposited by appellant’s sister which was to drawn to hand over to her friend.

ITA No.24 /Vizag/2015 Sri Nalluri Kesavardhan, Vijayawada 2. Account No.5681000008659

Date Amount (Rs.) Source for the deposit 1 25.02.2011 950000 Hand loans given were recovered and 2 26.02.2011 1900000 deposited into bank account. Majority of 3 28.02.2011 1500000 the loans were given to staff of Optimum Commodity Futures Pvt. Ltd., for which the 4 03.03.2011 1500000 appellant is one of the founder Directors. 5 22.03.2011 900000

returns of income, reconciliation of cash deposits and withdrawals made

during the financial year 2010-11. In his written submissions, the Ld.

A.R. submitted that the assessee withdrew gross salary of ` 129.15

lakhs for the financial year 2010-11 and ` 31.16 lakhs for the financial

year 2009-10 and paid the taxes thereon. The assessee had ample

surplus funds at his disposal to deposit the amounts into bank account.

The Ld. A.R. reiterated that the assessee has given cash loans and

recovered the same and the persons involved are innocent and did act in

good faith without the knowledge of the consequences. The assessee

further stated that when some of the debtors appeared before the A.O.

and accepted the fact that they have taken the loans and repaid the

same in cash, the A.O. initiated penalty u/s 269SS and 269T of the Act

which has prevented other debtors to respond to the notice. He further

ITA No.24 /Vizag/2015 Sri Nalluri Kesavardhan, Vijayawada stated that 10 persons have received the notices which establishes the

identity and persons in whose case the letters were returned un-served

are nomads and it is not possible to trace the addresses of the persons.

Mr. Kishore Kumar and Mr. Ravi Kumar whose notices were returned un-

served have shifted their addresses, which was not known to the

assessee and hence, the communication did not reach them. He further

argued that the cash deposits were made out of the advances given by

the assessee from his assessed sources of income and withdrawals

made from ATMs and the entire source is explained. The Ld. CIT(A)

verified the bank statement, cash book and held that the assessee has

given advances to various persons on various dates and the same

amounts were returned in cash. Since the amounts were given by

cheque as well as in cash and the amounts were received back from the

above persons in cash, there is no question of unexplained cash deposits

in the bank account. Accordingly, the Ld. CIT(A) held that having

accepted the plea of the assessee that the assessee had given loans,

she had directed the A.O. to estimate the interest @ 12% p.a. on the

advances and directed the A.O. to delete the addition made towards

unexplained cash credits.

before us. 7

ITA No.24 /Vizag/2015 Sri Nalluri Kesavardhan, Vijayawada 10. During the appeal hearing, the Ld. D.R. argued that during the

assessment proceedings, the A.O. has given sufficient opportunities to

explain the sources of cash deposit. Though the assessee has submitted

that he had given loans out of withdrawals from the bank account and

recovered the same in cash, no evidence was produced to establish that

the assessee has given the loans in cash and recovered the same in

cash. The assessee had furnished the names of the persons, however,

the letters sent to the purported debtors were returned un-served or no

reply was received from the debtors. Therefore, the A.O. issued show

cause notice to establish the genuineness of the source of cash deposits

made into the bank account for which the assessee has requested to

complete the assessment by making the addition. Since the assessee

has agreed for the addition, no further enquiry was made. Before the

first appellate authority, the assessee has submitted additional evidence

in the form of books of accounts and bank account statement, which

was not placed before the A.O. The Ld. CIT(A) also did not call for the

remand report. Even before the CIT(A), the assessee has not

established the genuineness of the source of credit, identification

capacity and creditworthiness of the person from whom the cash was

received. Though assessee has stated that he has given loans in cash,

the same was not established with any documentary evidence.

ITA No.24 /Vizag/2015 Sri Nalluri Kesavardhan, Vijayawada Similarly, for recovery of debt in cash from the debtors, there was no

evidence and the same was not established. Therefore, the claim of the

assessee is not acceptable. Ld. DR further argued that Rule 46A is also

applicable in this case since the CIT(A) entertained additional evidence

without giving opportunity to the AO, hence, argued that the order of

the Ld. CIT(A) be set aside and order of the A.O. to be upheld.

record and gone through the orders of the authorities below. In this

case, the assessee has made cash deposits of ` 78,75,000/- as per the

details given in this order. The A.O. asked for the source of cash

deposit, which was explained to be recovery of loans given by him in

cash. There was no evidence having given the loans in the form of

promissory note, acknowledgement etc. Similarly, there was no

evidence for recovery of loans. The A.O. has asked the assessee to

furnish the details of the persons to whom the amounts were given as

advance. Though assessee had furnished the details, as per the

enquiries conducted by the AO by issuing letters, some of the enquiry

letters issued were returned un-served, some of them did not reply and

in some of the cases, persons could not be traced. Ld. A.R. before the

ITA No.24 /Vizag/2015 Sri Nalluri Kesavardhan, Vijayawada CIT(A) stated that the debtors could not appear before the A.O. because

of the initiation of proceedings u/s 269SS & 269T of the Act and the

A.O. has created pressure and psychological fear among the persons

who genuinely received and repaid the advances. Such an explanation

of the assessee is unacceptable and the assessee cannot get away with

such an explanation. If the assessee or the debtor violated the

provisions of the Income Tax Act, the A.O. is duty bound to take legal

action and the same cannot be a hindrance for giving the reply. The

assessee has to explain the source of cash deposits with proper

evidence and it is obligation on the part of the assessee to prove the

identity, creditworthiness and genuineness of the repayment of loan

with date, document, etc. In this case, before the Ld. CIT(A), except

furnishing the bank statement and cash book, the assessee has neither

produced the debtors nor furnished the confirmations from the

concerned debtors. For ready reference, we extract relevant part of the

Ld. CIT(A)’s order from para 5.1 to 5.1.1, which reads as under:

“5.1 The submissions are verified with reference to bank statement, cash book etc. For instance, the appellant has deposited ` 9,50,000/- on 25.2.2011. The appellant claimed that this amount was repayment of advance given earlier received in cash from various persons like Sri A.V. Satyanarayana - ` 3,70,000/-. Sri B. Manoj Kumar Naidu - ` 2,00,000/-, T. Rama Devi - ` 2,00,000/-, Sri Hansaram - ` 1,50,000, Sri M. Chandra Sekhara Singh - ` 25,000/- on 24.2.2011 and cash withdrawn from ATM for ` 5,000/- on 21.2.2011.

ITA No.24 /Vizag/2015 Sri Nalluri Kesavardhan, Vijayawada He claimed that he gave advance of ` 1,50,000/- on 3.4.2010, ` 70,000/- on 13.4.2010, ` 1,00,000/- on 16.4.2010 and ` 50,000/- on 30.4.2010 to Sri A.V. Satyanarayana. Like wise amount advanced to Sri B. Manoj Kumar Naidu was ` 1,00,000/- on 21.4.2010 and ` 1,00,000/- on 11.5.2010. In the case of t. Rama Devi, ` 1,50,000/- was given on 21.6.2010 and ` 50,000/- on 4.10.2010. In the case of Sri Hansaram, ` 1,00,000/- was given on 15.7.2010 and ` 50,000/- on 10.8.2010. In the case of M. Chandra Sekhara Singh, ` 25,000/- was advanced on 10.6.2010. The appellant claimed that all these amounts were advanced through cheques. On verification of the bank statements of the appellant, the appellant’s claim is found to be in order. 5.1.1 Likewise, the appellant has deposited ` 19,00,000/- on 26.02.2011. The appellant claimed that this amount was received as repayment of advance in cash from Sri D. Ravi Shankar - ` 5,00,000/- on 25.2.2011, Sri V. Pandu - ` 4,00,000/- on 26.2.2011, Sri B. Naveen Babu - ` 10,00,000/- on 26.2.2011. These amounts were stated to be advanced by the appellant to Sri D. Ravi Shankar - ` 50,000/- on 23.4.2010, ` 1,25,000/- on 28.4.2010, ` 2,50,000/- on 25.6.2010, ` 25,000/- on 13.8.2010 and ` 50,000/- on 11.10.2010, Sri V. Pandu - ` 4,00,000/- on 26.8.2010, Sri B. Naveen Babu - ` 4,00,000/- on 31.5.2010 and ` 6,00,000/- on 30.8.2010. The appellant’s claim is verified with cash book and it is found that the appellant has enough cash on hand to lend these amounts on the above dates. In respect of other deposits also, the appellant has given similar explanation and on verification the explanation of the appellant is found to be in order.” 13. From the above, it is established that the assessee has not

established the fact that he has given the loans to various persons,

which were recovered in cash and deposited the same. The assessee

also did not admit any interest on loans as observed from the orders of

lower authorities. Since the assessee failed to establish the source with

documentary evidences and had accepted the addition before the A.O.

and has taken U-turn and the Ld. CIT(A) accepted the source of cash

deposits without any supporting documents, we are of the considered

opinion that the issue require detailed enquiry with regard to the source 11

ITA No.24 /Vizag/2015 Sri Nalluri Kesavardhan, Vijayawada of cash deposits. The assessee required to submit the evidences having

given the loans to the various persons and the same was recovered in

cash. He cannot get away simply by saying that the cash deposit

represent recovery of loans. It is obligation on the part of the assessee

to furnish the details and cooperate with the department. Therefore, we

remit the entire matter back to the file of the A.O. to conduct detailed

enquiries and to redo the assessment de-novo.

statistical purposes.

The above order was pronounced in the open court on 04th May’18.

Sd/- Sd/- (वी. दुगा�राव) ( ड.एस. . . . सु�दर "संह) (V. DURGA RAO) (D.S. SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER #वशाखापटणम /Visakhapatnam: 'दनांक /Dated : 04.05.2018 VG/SPS आदेश क� ��त)ल#प अ*े#षत/Copy of the order forwarded to:- 1. अपीलाथ� / The Appellant – The ACIT, Circle-1(1), Vijayawada 2. ��याथ� / The Respondent – Sri Nalluri Kesavardhan, Director, M/s. Optimus Commodity Futures, No.402, 4th Floor, Imdadghar, Sivalayam Street, Vijayawada. 3. आयकर आयु+त / The CIT, Vijayawada 4. आयकर आयु+त (अपील) / The CIT (A), Vijayawada 5. #वभागीय ��त�न.ध, आय कर अपील�य अ.धकरण, #वशाखापटणम / DR, ITAT, Visakhapatnam 6. गाड� फ़ाईल / Guard file आदेशानुसार / BY ORDER // True Copy // Sr. Private Secretary ITAT, VISAKHAPATNAM 12