THIPPAREDDY GOVINDAREDDY MALLI REDDY,BENGALURU vs. DCIT, CENTRAL CIRCLE 2(3), BENGALURU

Briefly stated the facts as culled out from the orders of the ld. lower authorities shows that assessee is an individual, who filed his return of income u/s. 139(1) of the Act on 3.8.2017 declaring total income of Rs.40,56,410. He is a partner in M/s. R.K. Cortina.

A search u/s. 132 of the Act was conducted in the case of M/s. R.K. Cortina wherein the premises of the wife of the assessee at 178, 18th Main, 4th Sector, HSR Layout, Bangalore was also covered o 10.9.2018. During search, books of accounts and documents were found and seized from the premises of the wife of the assessee. Further the documents were also found and seized from the premises of M/s. R.K. Cortina. The documents seized from the premises of the wife of assessee as well as from M/s. R.K. Cortina were stated to be having a bearing on the determination of income of the assessee. Therefore, the AO of M/s. R.K. Cortina being the same AO as also of the assessee, recorded satisfaction that the documents relate and pertain to the assessee. On examination of the seized material, he noted that these documents have a bearing on the total income of the assessee.

Consequent to that, notice u/s. 153C of the Act was issued on 16.3.2020. The assessee did not file any return of income in response

During search proceedings, loose sheets were found and seized wherein the transactions allegedly relating to cash loan of Rs 2 Cr. given by the assessee to one Mr. Vasudev were mentioned at page 1 of the seized material marked as ‘A/TGMRR/01. During the search, statement u/s. 132(4) was recorded of the assessee on 10th and 11th Sept. 2018 wherein he was asked to explain the contents of that paper. The assessee explained that he wanted to purchase land of six acres from Mr. Vasudev for a total consideration of Rs.7.8 crores and assessee wanted to adjust his earlier cash loan given of Rs.2 crores during June 2016 and further an amount of Rs. 1 crore which was given through cheque. The assessee paid Rs.50 lakhs through cheque and further 50 lakhs were yet to be paid. Accordingly, assessee has paid Rs.2 crores in cash and Rs.50 lakhs in cheque. The balance amount of Rs.4.80 crores was outstanding from the assessee which was to be paid later at the time of registration.

Therefore, the assessee was asked to explain the source of cash loan of Rs.2 crores given to Mr. Vasudev. The assessee submitted that cash loan of Rs.2 crores was given to Mr. Vasudev during June 2016 and source of such cash loan was unaccounted income which assessee has generated through his various business activities and real estate business in the last 3-4 years. As the above cash loan was not recorded

However while filing the return of Income , such sum declared was not offered as income.

During the assessment proceedings, summons was issued to Mr. Vasudev on 10.2.2021 whose statement was recorded and was asked to explain the cash loan given by the assessee to him. Mr. Vasudev denied and stated that he has not received the said cash. He only confirmed the loan received by cheque.

The ld. AO based on the statement u/s. 132(4) of the Act of the assessee wherein the assessee has accepted having given cash loan of Rs.2 crores and offered to pay tax as undisclosed income for AY 2017-18, the ld. AO made an addition u/s. 69A. Consequently, assessment order was passed u/s. 143(3) r.w.s. 153C of the Act on 15.4.2021.

The assessee preferred an appeal before the ld. CIT(A) wherein the assessee challenged the addition. The main contention of the assessee was that: -

The ld. CIT(A) perused the facts stated by the ld. AO and held that as the assessee has disclosed the same u/s. 132(4) of the Act at the time of search and did not retract the same during the assessment proceedings and has not produced any documentary evidence in support of his claim during the assessment and appellate proceedings, he confirmed the addition. The ld. CIT(A) relied upon the decision of Bannalal Jat Constructions (P.) Ltd. v. ACIT [2019] 106 taxmann.com 127 (Raj.) and further the decision of the Coordinate Bench in [2006] 6 SOT 18 (Mumbai) [07-11-2005] [Mum]. He also referred to several judicial precedents and precisely was of the view that as the assessee has disclosed the above sum u/s. 132(4) of the Act, the addition deserves to be confirmed. Accordingly, he confirmed the addition.

The ld CIT (A) also perused the loose sheet and stated that as the seized material contains composite notings of both cash and banking transactions between the assessee and Mr. Vasudev, and when banking transactions have been agreed to and confirmed by both the parties, the cash transaction mentioned in the seized document could not be disbelieved to be not true. Thus, he confirmed the addition of Rs.2 crores.

The assessee is in appeal before us. The ld. AR submitted a 158 pages paperbook (PB) before us and submitted that ground Nos. 1, 2 & 8 are general in nature and ground Nos. 3 & 7 are on the merits of the addition of Rs.2 crores. He referred to page 38 of the PB wherein the impugned seized paper is shown to us. He submitted that –

The ld. DR vehemently relied upon the assessment order and the appellate order. He referred to the statement of the assessee wherein he confirmed the transaction of giving loan in cash. He specifically referred to Q.No.7 wherein reference was made to these papers and Q.No.16 wherein the assessee on his own explained this transaction. Accordingly, he submits that the addition is correctly made and confirmed by the ld. CIT(A).

We have carefully considered the rival contention and perused the orders of the learned lower authorities. The only issue involved in this appeal is with respect to the addition of ₹ 2 crores declared by the assessee in his statement recorded under section 132 (4) of the Act on 10/9/2018 based on the seized material A/T GMR/201. A statement was recorded under section 132 (4) of the Act from the assessee during search proceedings under section 132 of the Act in case of M/s Kortina on 10 September 2018. During search a document was found where in certain transactions were recorded. Based on that seized documents the assessee was asked certain questions.

Assessee was asked the question no. 7 that during search at his residence when the search party entered, the assessee was present in the restroom of the bedroom at first floor of his residence. There were certain papers with the assessee in the restroom , he torn and and threw them into the toilet commode. When the income tax department found out the same, assessee hurriedly flushed toilet to wash away these papers. The assessee when confronted in question No. 7, he confirmed this above fact stating that he was having these papers along with him into the toilet adjacent to the master bedroom in the first floor flushed into the toilet , even though the income tax officials prevented him from doing so. The reason for this action was asked to him in question No. 8

Further in answer to question No. 17 the assessee was asked a specific query that why he had advanced cash loan to Mr Vasudev. The assessee explained that Mr Vasudev was his partner in the Park Square project. Assessee is into the finance business in the name and style of N V Finance Limited. Therefore initially, assessee advanced cash loan at 12% interest in 2016. Initially Mr Vasudev has paid the interest for 2 – 3 months. However after demonetisation, he has failed to pay the money back to the assessee. Therefore, in view of the loan amount given, Mr Vasudev promised to sell the land which he was having at Sarjapur Road, Bangalore. The total area of the land was around 6 acres and the total cost was around ₹ 7.8 crores. The land belongs to Mr Vasudev and his friend/partner named Mr Nagaraj. The total cost of the land was around ₹ 7.8 crores which was mentioned in the impugned document found and seized. The assessee stated that after he realised that the land is for different purposes, he decided not to go ahead with the purchase of the land.

The Assessee was asked the question at serial No. 18 that from which bank account he paid ₹ 50 lakhs to Mr Vasudev and why the above amount was paid when he decided not to go ahead with the purchase of the impugned land. His reply was that that the amount was paid through his Federal Bank account and same was paid before he made the decision not to purchase the land. This amount was paid to get the legal documents related to the site for verification wherein Mr Vasudev had asked him to pay Rs.One crore initially for providing the documents but assessee paid ₹ 50 lakhs and promised to pay the remaining amount after examination of the title deed. But after examination he realised that the land has the legal issue and the assessee decided to not to go ahead for purchase.

In answer to question No. 19 wherein the assessee was asked to state the source of the cash loan of ₹ 2 crores paid to Mr Vasudev, he agreed that the above sum is paid in cash as a loan to Mr Vasudev during June

Further interesting question No. 24 was asked to the assessee that in the seized material marked as A/TGMRR/01 the assessee has entered into lot of cash transactions which are not entered in the books of account, but assessee was provided many opportunities before the recovery of those sheets, and why assessee should not be prosecuted. The assessee replied that he was under impression that income tax department will not be able to catch, which was caught by the assessee. He further confirms that these transactions are not entered in his books of accounts.

In the end in answer to question No. 52 of the statement the total amount of ₹ 50,516,597/– was disclosed by the assessee where many such transactions are of cash loan and cash payment wherein also for assessment year 2017 – 18 a sum of ₹ 2 crores being the cash loan to Mr Vasudev towards the purchase of the property was also mentioned.

From the whole statement it is evident that assessee is engaged in the transactions of giving cash loan to various parties, which assessee has confirmed in his statements u/s 132(4) of the Act also. He has given a cash loan to Mr Vasudev of Rs 2 Cr at Interest rate of 12 % p.a. in June 2016. Mr Vasudev has paid him interest for two - three months but after demonetisation, he failed to honour his commitment. So, to secure and recover the cash loan given by assessee to Mr. Vasudev, Assessee was trying to enter into a transaction of Purchase of 6 Acre land of Mr Vasudev and Others which is valued at Rs 7.8 Cr. For securing documents of that land for verification, assessee has already paid Mr vasudev Rs 50 lakhs from his Federal Bank Account. Deal did not materialise for inadequacies in the documents/ title of that land.

It is clear that the statement was made by the assessee on 10 September 2018, such statement was not retracted at all. Thus, assessee's voluntary statement based on the documentary evidence found during search the ld AO has made addition. It is not the case of merely a statement without any corroborative evidence but material found during the course of search which assessee tried to destroy and based on that statement u/s 132(4) was made by assessee narrating the whole transaction in detail.

On 4 February 2021 assessee submitted a letter wherein at paragraph No. 9 assessee submitted as under: –

At page No. 44 of the paper book assessee submitted the Ledger account of Mr Vasudev for the financial year 2016 – 17 wherein there is an opening debit balance in that particular account as on 1 April 2016 of Rs.1,90,79,450. Subsequently in June–August, 2016 assessee received the above sum back by cheque on four occasions of the same

There is no other averments made by the assessee. Thus a statement which was given on 10 September 2018 remained uncontroverted by the assessee till 4 February 2021. On 4 February 2021 also the assessee stated that the statement so given is erroneous and for the reason that that the amount stated against the name Mr Vasudev means the amount receivable from him that were already accounted forming part of the amounts receivable. The above answer of the assessee during the course of assessment proceedings, if correlated with the copy of account of Mr Vasudev from the books of the assessee, it is apparent that as on the date of search i.e. 10 September 2018 there is nothing receivable by the assessee or payable to assessee by Mr Vasudev. This is so because as on that date the Ledger account submitted from the books of the assessee does not show any balance outstanding in that account. Thus there were no cheque transactions of loan receivable or payable were outstanding as on the date of search.

The copy of account referred to in the reply to the ld AO of Mr Vasudev from the Books of accounts of the assessee is as under :-

Thus, it is a fact that as on the date of search i.e. on 10-09-2018, there is no balance as payable or receivable from the Mr vasudev to the assessee. Thus, the explanation offered by the assessee before the ld. AO is rightly rejected by the ld. Revenue authorities.

Where the statement is linked to incriminating material actually found/seized during the search, an addition may be sustained because the statement is then corroborated by tangible evidence. It is also the mandate as per CBDFT Instructions that assessment under s.153A / related provisions must be founded on evidence unearthed during search, not on a bare confession. Where a surrender/admission is relied upon, the AO must quantify the undisclosed income on the basis of seized/incriminating material or other evidence. Statement recorded

In the result appeal of assessee is dismissed.