SRI. SYED AHMED EMTIYAZ,BANGALORE vs. ITO, BANGALORE

Vide its ground number 2, assessee is aggrieved that a credit of Rs.3,00,000/- in the name of Shri. Govinda Reddy was disallowed by the AO and such disallowance was confirmed by the CIT (A).

Facts apropos are that assessee, a seller of second hand vehicles, had filed return of income declaring income of Rs.3,51,250/-. During the course of assessment proceedings, assessee was required to produce books of account, details regarding closing stock, confirmation for creditors and details of construction of house. As per the AO assessee’s AR had appeared before him 15.10.2007 and produced these details. However, the AO also observed that assessee could not furnish confirmation for a sum of Rs.3 lakhs shown as payable to one Shri. Govinda Reddy. Assessee explained that the name of the creditor was misspelt in the balance sheet filed along with the return, and the correct name was Govindappa. As per the assessee, he had purchased site bearing No.29 & 30 at Madeena Nagar, from Shri. Govindappa and a sum of Rs.3 lakhs was due on the said purchase to Shri. Govindappa. Assessee also mentioned that the outstanding amount stood to be paid during the financial year 2006-07. Address of Shri. Govindappa was also furnished by the assessee. AO issued a summons u/s.131 of the Act, but it seems there was no response. AO was of the opinion that assessee could not produce sufficient evidence to ITA.134/Bang/2015 Page - 3 substantiate the claim of liability of Rs.3 lakhs to Shri. Govindappa. An addition was made.

Assessee’s appeal before the CIT (A) did not meet with any success. As per the CIT (A), assessee could not prove the balance shown in the account of Shri. Govindappa despite sufficient opportunity being given.

Now before us, Ld. AR submitted that the amount was a credit balance carried forward from the preceding year. Relying on the statement of affairs of the assessee as on 31.03.2005, placed at paper book pages 8 to 10, Ld. AR submitted that the sum of Rs.3 lakhs was shown as payable to Shri. Govinda Reddy in the said statement. As per the Ld. AR, it was the very same amount that appeared in the liability side of the statement of affairs as on 31.03.2006 filed along with the return for the impugned assessment year. Thus according to him, the balance was only a carry forward of earlier balance and addition ought not have been made during the impugned assessment year.

Per contra, Ld. DR strongly supported the orders of authorities below and submitted that assessee could not prove the credit. As per the Ld. DR when assessee failed to give any evidence regarding the genuineness of the credit, a cessation of liability could be presumed. In his opinion, the addition fell within the ambit of Section.41(1) of the Act. Reliance was placed on the decision of ITA.134/Bang/2015 Page - 4 coordinate bench of Mumbai Tribunal in Income-tax Department v.Shailesh D. Shah [ ITA.7012/Mum/2010, dt.11.12.2013].

We have perused the orders and heard the rival contentions. What we find is that a credit of Rs.3 lakhs appears both in the statement of affairs as on 31.03.2005 as well as as on 31.03.2006 in the name of Shri. Govinda Reddy. These statement of affairs were filed along with the returns of income for A. Ys.2005-06 and 2006-07. Amount remaining the same, if at all it had to be added as unproved credit, it ought to have been done in the year in which assessee had received the credit. There is no case for the Revenue that any amount what so ever was received either from Shri. Govinda Reddy or Shri. Govindappa during the year. As to the decision of coordinate bench in the case of Shailesh D. Shah (supra), assessee concerned had failed to give any evidence regarding the genuineness of credit, identity of creditors or payment of liability. In the case before us, assessee had given full particulars of the creditor and also gave explanation as to how the credit has come into the books of the assessee. In the circumstances, we are of the opinion that the addition for the amount of Rs.3 lakhs made during the impugned assessment year was uncalled for. Such addition stands deleted. Ground 2 of the assessee stands allowed.

Vide its grounds 3 to 5 grievance raised by the assessee is that a sum of Rs.7,50,000/- shown as a liability in its statement of affairs was disallowed by the AO, and such disallowance was confirmed by the CIT (A).

Facts apropos are that assessee had in its statement of affairs as on 31.03.2006 shown ‘house lease amount’ of Rs.7,50,000/- as a liability. Explanation of the assessee was that the said amount was received from one Shri. Mohammed Sarshad for lease of a residential building owned by the assessee, located in HSR Layout, Bangalore. As per the assessee, this amount was received from Shri. Mohammed Sarshad, by way of cheque nos.349851 for Rs.5,50,000/- and No.349853 for Rs.1,50,000/-, both of which were dated 26.03.2005. As per the assessee, balance sum of Rs.50,000/- was received in cash on the very same day. AO on examination of books of account produced by the assessee was of the opinion that sum of Rs.7,50,000/- was not reflected therein. As per the assessee the cheques issued by the party were bearer cheques and cash was directly drawn from the bank. AO was of the opinion that the sum of Rs.7,50,000/- shown as due on account of ‘house lease amount’ was not proved. He treated it as unexplained and made an addition. Assessee’s appeal before the CIT (A) on this issue also did not meet with any success. Though it had produced a receipt for return of the amount of Shri. Mohammed Sarshad, CIT (A) was of the opinion that the receipts issued by Shri.

Now before us, Ld. AR strongly assailing the order of lower authorities submitted that Rs.7,50,000/- was also a carried forward balance from the preceding year. Placing reliance on a lease agreement dt.26.03.2005 entered with Shri. Mohammed Sarshad, Ld. AR submitted that payment of Rs.5,50,000/- and Rs.1,50,000/- by cheques and Rs.50,000/- by cash was clearly mentioned in such lease agreement. As per the Ld. AR for no reason the lease-agreement was disbelieved. Ld. AR submitted that assessee had proved the genuineness of the credit and also produced the confirmation in the nature of the lease agreement. Thus according to him, addition made by lower authorities was incorrect.

Per contra, Ld. DR strongly supported the orders of lower authorities. According to him, lease agreement dt.26.03.2005 could not be believed as a source for Rs.7,50,000/- shown in the statement of affairs as on 31.03.2005 and 31.03.2006 for the reason that one of the cheques given by Shri. Mohammed Sarshad was due for payment only in F. Y. 2005-06.

We have perused the orders and heard the rival contentions. In support of the ‘house lease amount’ of Rs.7,50,000/- shown by the assessee in its statement of affairs as on 31.03.2006 as a liability, assessee is relying on an agreement of lease dt.26.03.2005. Para 3 of the lease agreement is reproduced hereunder :

In the result, appeal of the assessee is treated as partly allowed.