SHRI.B.K.BADARINATH,KOLAR vs. INCOME-TAX OFFICER, KOLAR

Per Vijay Pal Rao, Judicial Member

2. The assessee is an individual and filed return of income for the assessment year under consideration on 23.09.2009 declaring an income of Rs. 1,80,000/-. The AO while completing the assessment u/s. 143(3) has made an addition of Rs. 25,52,905/- on account of deposits made in Page 3 of 8 savings bank account of the assessee. The assessee challenged the action of the AO before the CIT(A). The CIT(A) issued a remand order asking the AO to consider the written submissions filed by the assessee as well as cash flow statement. The AO filed his comments and remand report. The CIT(A) confirmed the addition made by the AO.

3. Before the Tribunal the ld. AR of the assessee has submitted that the assessee duly explained the source of deposit of Rs. 25 lakhs as it was received from HUF on account of sale proceeds of property. Further the assessee filed the cash flow statement of HUF showing the credit worthiness of the HUF for deposit of Rs. 25 lakhs in the bank account. The ld. AR has pointed out that a HUF property situated at kolar was sold in the Financial Year 2008-09 and the capital gain on sale of said property was also shown in the return of income filed by the HUF. The income of the HUF was assessed under separate PAN and therefore there was sufficient fund with the HUF of the assessee to source the deposits of Rs. 25 lakhs in the bank account of the assessee. He has further pointed out that in the case of the wife of the assessee the cash deposit of Rs. 23 lakhs was accepted by the AO while considering the cash flow statement of HUF. Thus the ld. AR has submitted that the total fund available with the HUF as on 31.03.2009 was Rs. 62,67,451/- and the Page 4 of 8 assessee furnished the cash flow statement showing the application of that fund which includes the investment made in the deposits in the bank in the name of the assessee as well as his wife. He has further pointed out that though the CIT(A) directed the AO to file the remand report however, while passing the impugned order the CIT(A) has not considered the remand report filed by the AO. Therefore, when the AO in the remand report has accepted the availability of the fund with the HUF then the addition made by the AO is not sustained.

4. On the other hand, the ld. DR has submitted that the CIT(A) has considered the cash flow statement of HUF and found that the assessee has not given the explanation about the book debts and other investment of Rs. 12,84,000/- as well as pawn broking advances of Rs. 3,76,480/-. Therefore to the extent of the said amount of more than Rs. 16 lakhs the assessee failed to furnish the explanation. He has referred to the finding of the CIT(A) in para 6 and submitted that the CIT(A) after considering the submissions of the assessee as well as the cash flow statement of HUF found that the assessee has failed to explain the source of the deposit of Rs. 25 lakhs. He has relied upon the orders of the authorities below. Page 5 of 8 5. I have considered the rival submissions as well as relevant material on record. The assessee has explained the source of deposit of Rs. 25 lakhs in the bank account as the fund available with the HUF and filed the cash flow statement of HUF for the Financial Year 2008-09. It is pertinent to note that the AO has not examined the relevant record and source of the deposit and made the addition by recording the reason that the authorized representative of the assessee agreed for the addition. When the assessee challenged the order of the AO and filed the written submissions as well as cash flow statement of HUF to show the source of deposit of Rs. 25 lakhs, the CIT(A) sent the said record to the AO for his comments and filing of the remand report. In the remand report the copy of which has been filed by the assessee at page no. 1 and 2 of the paper book the AO has stated that the income arising on account of capital gain from sale of property was duly to offer to tax in the return of income filed by the joint HUF. The AO further noted that the interest earned on Fixed Deposit has also been reflected in the return of income filed by the joint HUF. Further the AO found that the Commissioner of Income Tax – IV Bangalore in the proceedings u/s. 264 of the IT Act in case of Smt. B. Jayashree the wife of the assessee accepted the source of the deposit in the account of the wife as fund available with the HUF shown in the cash flow statement. The AO further recorded in the remand report that on Page 6 of 8 perusal of the assessment record of the HUF it is evident that such details were available. Further the AO has clarified that the assessee has not given the consent for a sum of Rs. 25,52,905/- but what was accepted was that deposit was of Rs. 25 lakhs and not Rs. 25,80,000/- as reported in the AIR. It is pertinent to note that the CIT(A) while passing the impugned order has not made any reference of remand report filed by the AO. Thus it is apparent that the impugned order has been passed by the CIT(A) without considering the remand report of the AO. Though the CIT(A) has raised an issue of book debts and pawn broking advances however, without considering the remand report of the AO raising these doubts about the availability of the fund with the HUF and without giving an opportunity to the assessee to explain the same is not permissible. Once the CIT(A) has asked the AO to file the remand report after considering the evidence filed by the assessee then non-considering of the remand report while passing the impugned order amounts violation of principle of natural justice as the contention of the assessee as considered by the AO were not considered by the CIT(A). Even otherwise when the HUF has shown the availability of fund of Rs. 62,67,451/- in the cash flow statement along with the application of fund was also explained which includes the deposits made in the bank in the name of Smt. B. Jayashree of Rs. 23 lakhs and further a sum of Rs. 25 lakhs in the name of the Page 7 of 8 assessee then in the absence of any contrary record or fact to dispute the details pointed out in the cash flow statement, the addition made by the AO is not sustainable. Further the cash flow statement of the affairs of the HUF was accepted in the case of the wife for the purpose of source of deposit and the AO has clearly stated in the remand report that all the particulars as shown in the cash flow statement are also found in the assessment record of the HUF. Therefore, when the particulars of the cash flow statements are accepted by the AO then the source as explained by the assessee as fund available with the HUF cannot be denied. In view of the above facts and circumstances of the case the addition made by the AO is not sustainable and the same is deleted.