S.KANAKARAJ,CHENNAI vs. ITO, ERODE

आदेश / O R D E R

PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER:

This is an appeal filed by the assessee against the Order dated 12.02.2015 of Commissioner of Income Tax (Appeals)-3, Coimbatore, in for the AY 2010-11 and raised the following grounds:

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a) K.R. Krishnasamy Rs.6,35,000 c) Smt. S. Manonmani Rs.2,50,000 d) S.K. Kalaiselvam Rs.2,50,000 e) K. Palanisamy Rs.3,00,000

Loan from M. Revathi Rs.40,000 Sundaram Rs.20,000 ------------ Rs. 60,000 ----------------- Rs. 14,95,000/- -----------------

i. In respect of Rs.6,35,000/- Sri K.R. Krishnasamy had filed an affidavit confirming that he paid the amount for procurement of building materials and construction expenses incurred by the appellant for construction of his (Sri K.R. Krishnasamy’s) house. The authorities below were not right in disbelieving the uncontroverted affidavit of the (trade) creditor, who, admittedly, is an assessee ‘filing returns regularly with the l.T. Department’. ii. In respect of Rs.2,50,000/- being the amount received from Smt. S. Manonmani, her Axis Bank’s statement had been produced showing the payment by cheque; her explanation has been disbelieved for alleged want of reliable proof for cash deposits in her account; the appellant is advised that he cannot be expected to prove the source of the source and no adverse inference could be drawn to hold that the transaction was not genuine. iii. In respect of Rs.2,50,000/- being the amount received from Sri S.K.Kalaiselvan the reasons given for holding the transaction to be non-genuine are similar to those in the case of Smt. S. Manonmani and are clearly unsustainable. iv. The loan of Rs.3,00,000/- received from Sri K.S. Palanisamy, by cheque was confirmed by the creditor, who is a man of means owning 2 lorries and had also purchased a flat from Sri Balaji Promoters for a consideration of Rs.15,25,000/- paid by cheque to the firm; on such facts and circumstances, the inference that the loan does not appear to be genuine is totally unjustified. v. The sum of Rs.40,000/- and Rs.20,000/- received from Smt. M. Revathi and Sri P. Meenakshisundaram, residents of Devakottai, Sivaganga District., though confirmed by them by letter in writing with copy of their bank statements, have been added back on the ground that the creditors were not produced by the assessee before the assessing officer for enquiry; having regard to the evidences adduced with respect to these amounts which are not large, there was no valid reason for treating these amounts as ‘cash credits’ and adding the amounts to the appellant’s income.

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2.0 The assessee filed the return of income on 26.10.2007 admitting the Total income of Rs.1,92,000/- and agricultural income of Rs.2,93,000/-.

During the assessment proceedings, the Assessing Officer (in short ‘AO’) found that there were huge cash credits in the Savings Bank A/c with ICICI Bank, and Axis Bank and made huge purchases and sales of share transactions and admitted only Share income of the Partnership Firm and the Agricultural Income. The assessee initially did not cooperate with the AO for furnishing the information. Subsequently, the assessee furnished details in the form of letters from one Shri K.R.Krishnaswamy, N Uthukuli, and Smt. K. Jaya Lakshmi wife of K.R.Krishnaswamy and copy of the return of income of Balaji Promoters and explained that the source of ITA No.1184/Mds/2015 :- 4 -: deposits was from the above persons. The AO did not believe the sources explained by the assessee and made the following additions: • K.R. Krishna Swamy Rs.21,35,000/- • Papayaammal Rs.6,78,904/- • M/S Balaji Promoters Rs.4,62,000/- 2.1 The assessee has made cash deposits SB A/c with ICICI & Axis Bank.

In respect of cash deposits made in his SB A/c in ICICI Bank A/c No.6062010574428 and Axis Bank A/c No.118010100038678 amounting to Rs.43,52,500/-, the assessee has neither submitted confirmation nor explained the source of deposits. The AO allowed credit for agricultural income of Rs.2,90,000/- from the total cash deposits of Rs.43,52,500/- and made the addition of balance amount of Rs.40,62,500/- to the return of income. Thus, the assessment was completed on a total income of Rs.75,30,404/- resulting in total addition of Rs.73,38,404/- against the returned income of Rs.1,92,000/-.

3.0 Aggrieved by the order of the AO, the assessee went on appeal before Learned Commissioner of Income Tax(Appeals) (in short ‘Ld.CIT(A)’) and the Ld.CIT(A) confirmed the addition of Rs.49,68,404/- and allowed the relief of the remaining amount.

3.1 Before the Ld.CIT(A), the assessee filed written submissions and the additional evidences explaining the sources as loans from the following persons in respect of Rs.21,35,000/-.

ITA No.1184/Mds/2015 :- 5 -: a) K.R. Krishnasamy Rs.6,35,000 b) Sakthi Management services Rs.6,00,000 c) Smt. S. Manonmani Rs.2,50,000 d) S.K. Kalaiselvam Rs.2,50,000 e) K. Palanisamy Rs.3,00,000 M. Revathi Rs.40,000 Sundaram Rs.20,000 Mani Rs.60000 Rs.1,00,000 -------------- 21,35,000 --------------- Ld.CIT(A) called for the Remand Report from the AO. On the basis of the Remand Report the Ld.CIT(A) confirmed the following additions out of the above amount of Rs.2135000/- a) K.R. Krishnasamy Rs.6,35,000 c) Smt. S. Manonmani Rs.2,50,000 d) S.K. Kalaiselvam Rs.2,50,000 e) K. Palanisamy Rs.3,00,000 -------------- Rs.14,35,000

Loan from M. Revathi Rs.40,000 Sundaram Rs.20,000 ------------ Rs. 60,000 ----------------- Rs. 14,95,000/- ----------------- 3.2 In case of Smt.Papayammal out of the total amount of Rs.6,78,904/- the CIT(A) confirmed Rs.78,904/- and deleted the balance amount of Rs.6,00,000/-.

3.3 The addition in respect of Balaji promoters Rs.4,62,000/- was confirmed by the CIT(A).

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3.4 Additions out of the unexplained cash deposits are Rs.40,62,500/- the Ld..CIT(A) confirmed the addition of Rs.29,32,500/- as per the following discussion:

7.4.1 The assessee argues that the three deposits belonging to Shri K R Krishnasamy which were deposited into the bank account is included in the total disallowance of Rs.43,52,500/-. The three deposits are Rs.60,000/-, Rs.1,00,000/- and Rs.4,75,000/-. I find there is merit in the contention of the assessee and the said amount has to be set off since the sum of Rs.6,35,000/- in the name of Shri K R Krishnasamy is already disallowed in the disallowances mentioned in Para 7.1.2.

7.4.2 The assessee also points out that an amount of Rs. 5,000/- alone is deposited in the bank account for which the Assessing Officer has mistakenly taken the sum as Rs.5,00,000/- on 6/3/2010 with ICICI Bank. There a sum of Rs. 4,95,000/- has to be reduced from the addition. The balance Rs.29,32,500/- (Rs.40,62,500/- minus Rs.6,35,000 + Rs. 4,95,000/-) amount stands confirmed in the hands of the appellant.

Against the above additions, the assessee has raised total 12 grounds:

4.0 Ground Nos.1-3 & 10-12 are general in nature which do not require specific adjudication 5.0 Ground No.4 (a) & 5(i) are related to the addition of Rs.6,35,000/- in respect of Shri Krishnaswamy.

The Learned Authorized Representative (in short ‘Ld.AR’) argued that the amount was given by Mr. KR Krishnaswamy for construction of residential houses in K.S.Nagar Tindal, Erode in the name of Smt. J.

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Lakshmi and the assessee has given Sworn Statement on 20.06.2014 and confirmed the payment made to the assessee. Mr. Krishnaswamy has assessed to income tax and the creditor has confirmed in the statement recorded u/s.131. There is no case making addition in the hands of the assessee. On the other hand, the Ld.DR argued that there was inconsistency in the reply of the creditor and Ld.CIT(A) confirmed the addition due to inconsistencies in the reply submitted by Mr.Krishnaswamy, hence contended that addition be confirmed.

6.0 We heard both the parties and perused the material placed before us.

The assessee Mr.Krishnaswamy initially given statement before the AO stating that he has given a sum of Rs.21,35,000/- by way of cheque.

The AO noticed that there were cash credits to the extent of Rs.6,35,000/.

Since the explanation did not match, the AO made the addition. Before the Ld.CIT(A), the assessee has filed additional evidence, in the form of an Affidavit stating that Mr.Krishnaswamy has given Rs.6,35,000/- in cash.

The AO also the recorded a statement on 20.06.2014 wherein Mr.Swamy has confirmed the payment made to the assessee a sum of Rs.6,35,000/.

Since the creditor has confirmed the amount of loan given to the assessee, the same cannot be considered as addition in the hands of the assessee. Therefore, we delete the addition made by the AO amounting to Rs.6,35,000/- in the name of Shri Krishnaswamy and allow the assessee’s appeal on this ground.

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7.0 Similarly, Smt. Manonmani has admitted that she has given a loan of Rs.2,50,000/- and receiving the interest from Mr.Kanagaraj, Shri SK Kalaiselvam has admitted Rs.2,50,000/- and Shri K.S.Palaniswamy also admitted Rs.3.00 lakhs as the amounts given to Mr. Kanagaraj. The Ld.CIT(A) confirmed the addition in all the above four cases since the amounts were deposited in cash in the accounts of the creditors and the cheques were issued subsequently after 10 days. However, on verification of the statements recorded from the creditors, the AO has not examined the sources of the creditors. It is settled law that in case of cash credits identity capacity and creditworthiness of the creditors required to be established by the assessee. Though, in the present case, identity is established the capacity and creditworthiness was not proved by the assessee and the AO also has not examined the same in remand proceedings. The Ld.CIT(A) merely suspecting the creditworthiness, confirmed the addition made by the AO. Therefore, we are of the considered opinion that the case should be remitted back to the file of the AO to examine the creditworthiness of Shri Manonmani, Shri Kalaiselvam and Shri Palanisamy and accordingly, we remit the matter back to the file of the AO to decide the issue afresh on merits. The assessee’s appeal on this ground is allowed for statistical purpose.

8.0 The next addition out of Rs.14,95,000/- was loan from Smt. Revathi, Rs.40,000/- and Shri Sundaram Rs.20,000. In both the cases,

ITA No.1184/Mds/2015 :- 9 -: confirmation letters were furnished but the addition was made for non production of creditors. Since the confirmations were filed by the assessee, the burden of the assessee has been discharged and the burden shifts to the AO to rebut the evidence furnished by the assessee. Mr. Meenakshi Sundaram & Mrs. Revathi are wife and husband and at the time of AO’s enquiry, the assessee could not produce both of them because of ill-health of the children. The Ld.CIT(A) confirmed the addition as the assessee could not produce both of them.

8.1 We heard both the parties. The assessee has furnished the confirmation letters from both of them and discharged his burden of proof.

It is for the AO to prove that the contents of the confirmation letters furnished by the assessee are wrong or the creditors had no capacity to give the loans. It is incorrect to confirm the addition merely because the assessee could not produce the creditors before the AO for deposing evidence. The AO is vested with the powers u/s.133(6) & 131 for collecting the information from the witnesses. Without using any of the powers for collecting the information, the AO cannot proceed to make the addition. Since, the assessee has filed confirmation letter and amount involved is very negligible. We hold that the addition cannot be made in the hands of the assessee and the same is deleted. The lower authorities orders in respect of the additions in the case of Mrs.Revanith & Shri Meenakshi Sundaram are set-aside and the appeal of the assessee on this ground is allowed.

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9.0 Ground No.6 is related to the addition of Rs.78,904/- in respect of loan taken from Smt. Papayaammal. The assessee has taken a loan of Rs.6,78,904/- from Smt. Papayaammal. The AO made the entire amount as addition u/s.68 of Income Tax Act.

9.1 Before the Ld.CIT(A), the assessee filed additional evidence and the CIT(A) called for the Remand Report. The AO in the Remand Report stated that the creditor is 90 years old lady who is not physically well/fit to discuss the transaction. Therefore, the Ld.CIT(A) confirmed the Rs.78,904/- and allowed Rs.6.00 lakhs on the basis of the discussion made with the Manager ICICI bank and on perusal of documents.

9.2 We heard the rival submissions and perused the material placed before us.

At the time of the assessment proceedings, the AO found that credits made by Shri Papayaammal were through bank cheque or transfer of the amount. There was no cash deposit made by the Creditor. The Ld.CIT(A) accepted six lakhs but confirmed the addition of Rs.78,904/-.

Though all the credits were made through bank transactions through cheques or transfer entries from the same Creditor, no reason has been assigned by the Ld.CIT(A) for confirming the amount of Rs.78,904/-.

Therefore, we are unable to sustain the addition confirmed by the ITA No.1184/Mds/2015 :- 11 -:

Ld.CIT(A) amounting to Rs.78,904/-. Accordingly, the same is deleted and Ground No.6 is allowed.

10.0 Ground No.7 is related to the addition of Rs.4,62,000/- received from M/s.Balaji Promoters:

The AO has made addition of Rs.4,62,000/- received from M/s.Balaji Promoters. The assessee has received a sum of Rs.6.00 lakhs through ICICI Bank account on 21/07/2009 and repaid a sum of Rs.1,38,000/- on 21.10.2009 and on 02.03.2010 and the balance remained in the account of creditor was Rs.4,62,000/- The Ld.CIT(A) confirmed the addition because of non-production of books of accounts by M/s.Balaji Promoters.

The assessee has filed confirmation letter, bank statement and acknowledgement having filed the Income Tax returns in the case of M/s.Balaji Promoters. The amount was received through bank and paid through bank. The assessee is one of the partners of M/s.Balaji Promoters. Since the assessee has furnished the confirmation, filed Income Tax returns and the transaction was made through bank channels if the source of the loan was not found to be satisfactorily explained, then the addition should be made in the hands of the Partnership Firm but not in the hands of the assessee. The assessee has established the identity and furnished the Income Tax returns, the AO has not doubted that the loan was a bogus. Therefore, the order of the Ld.CIT(A) cannot be upheld

ITA No.1184/Mds/2015 :- 12 -: on this issue . Accordingly the orders of the lower authorities are set a side and the addition is deleted. Ground No.7 of the assessee is allowed.

11.0 Ground Nos.9 & 10 are related to the addition of Rs.29,32,000/- made in the ICICI Bank:

During the assessment proceedings, the AO found that there were cash deposits to the extent of Rs.43,52,500/- made in the bank account.

The assessee did not furnish any explanation or supporting evidence or produce the books of accounts regarding the source and nature of the deposits made in the bank account. Therefore, the AO allowed the credit of Rs.2,90,000/- related to agricultural income received by the assessee and the balance amount of Rs.40,62,500/- was added to the returned income. The assessee went on appeal before the Ld.CIT(A) and the Ld.CIT(A) confirmed the addition of Rs.29,32,500/- after allowing the credit for Rs.6,35,000/- relating to Shri Krishnaswamy and the erroneously the amount of Rs.4,95,000/- (as discussed in para No.7.4.2 of the CIT(A) order (reproduced above) instead of Rs.5,000/-). (The AO has taken the amount of Rs.5.00 lakhs on 06.03.2010 instead of Rs.5000/- (Rs.5,00,000/- - Rs.5,000/- = Rs.4,95,000/-) was added back to the returned income.

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11.1 Appearing for the assessee, the Ld.AR argued that the Ld.CIT(A) confirmed the addition after allowing the benefit of telescope of double additions of Shri K.R.Krishnaswamy and mistake committed by AO but other cash flow statements submitted were not properly analyzed. The Ld.A.R further argued that the assessee was having adequate cash balances to make the cash deposits and enclosed cash flow statement in Page Nos.65 to 72. There was no discussion regarding cash flow statement in the Assessment Order and the assessee has argued that the source was agricultural income. As per the assessment order it is seen that the asserssee has stated that the amounts received from agricultural land would be Rs.1.00 Crore. The assessing officer has not examined the correctness of the source claimed at the time of assessment. And the same was also not explained by the AO. In the paper book filed by the Ld.AR the cash flow was submitted before the lower authorities. The Ld.CIT(A) also has not given any finding on the cash flow and the agricultural sources claimed by the assessee. Therefore, in the interest of justice we are of the considered opinion that the issue should be remitted back to the file of the AO to examine the agricultural sources and the correctness of the cash Flow and decide the issue a fresh on merits.

Accordingly we remit the matter back to the file of the AO to verify the agricultural income declared by the assessee with the Income Tax returns and evidences filed by the assessee in respect of cash flow statement and decide the issue afresh on merits. The assessee is directed to submit the information before the Assessing Officer for early completion of enquiries

ITA No.1184/Mds/2015 :- 14 -: and the assessment. The assessee’s appeal on this ground is allowed for statistical purposes.

12.0 In the result, the appeal of the assessee is partly allowed.

Order pronounced in the Open Court on 12th May, 2017, at Chennai.