THE INCOME TAX OFFICER, WARD-3(2), VISAKHAPATNAM vs. SRI MUTCHUAKARLA APPA RAO, VISAKHAPATNAM

PER S. BALAKRISHNAN, Accountant Member :

This appeal filed by the Revenue against the order of the Ld.

Commissioner of Income Tax (Appeals)-2, Guntur [CIT(A)] in ITA No.

0255/GNT/CIT(A)-2/2014-15, dated 30/09/2019 arising out of the order

passed U/s. 143(3) of the Income Tax Act, 1961 [the Act] for the AY

2011-12.

Deputy Directory of Income Tax (Inv.), Unit-III(1), Visakhapatnam at

Visakhapatnam Airport on 28/8/2010 and found Rs. 12 lakhs in his

custody. A statement was recorded from the assessee u/s. 131 of the Act

on 28/8/2010. The assessee is engaged in the Real Estate business and

is also a partner in M/s. A.R. Builders and M/s. Sai Padma Developers

along with his wife Smt. M. Padmavathi and others. Subsequently a

survey U/s. 133A of the Act was conducted in the assessee’s case and in

the case of M/s. A.R. Builders on the same date. In the statement

recorded on 28/8/2010, the assessee stated that he has not filed his

return of income and also stated that the money found in his possession

belongs to him but could not give the details of the sources for the same.

The assessee also voluntarily offered to pay the income tax on the same.

The assessee also stated that no books of accounts have been

maintained in respect of his business and that of the firms in which he is

a partner. Subsequently a notice U/s. 142(1) of the Act was issued on

3/10/2011 and duly served on the assessee. In response, the assessee

filed his return of income on 19/12/2011 admitting a total income of Rs.

6,57,000/-. Subsequently, the case was taken up for scrutiny and

notices u/s. 143(2) and 142(1) of the Act were issued and served on the

assessee. In response, the assessee’s Authorized Representative

appeared from time to time and furnished the information called for by

the Ld. AO. Considering the information furnished and the material

available on record, the Ld. AO concluded the assessment by making the

following additions:

(i) Unexplained money found in the possession of Rs. 12,00,000 assessee (ii) Unexplained investment in purchase of Rs. 43,59,500 property at Pendurti (iii) Short Term Capital Gains Rs. 99,00,500 (iv) Additional profit Rs. 1,99,510 (v) Unexplained credits in various bank accounts Rs. 54,89,800

Aggrieved by the above additions made by the Ld. AO, the assessee

preferred an appeal before the Ld. CIT(A), Visakhapatnam. Later the

appeal was transferred to the Ld. CIT(A)-2, Guntur.

10/12/2014 and 19/3/2019. In response to the notices, the assessee’s

Authorized Representative filed various details and made written

submissions before the Ld. CIT(A). During the course of the appeal

proceedings, the Ld. CIT(A) forwarded the additional evidence filed by

the assessee and called for remand report from the Ld. AO. The Ld. AO

submitted his remand report on 3/3/2017. The remand report of the Ld.

AO was forwarded to the assessee for his rebuttal thereon. In addition to

rebuttal of the remand report, the assessee’s Representative filed a

detailed note before the Ld. CIT(A). Considering the submissions of the

assessee and the material furnished before the Ld. CIT(A), the Ld. CIT(A)

partly allowed the appeal by deleting the additions made by the Ld. AO.

Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before

the Tribunal.

“1. The Ld. CIT(A) has erred in both in law and facts of the case. 2. The Ld. CIT(A) ought not have give relief in respect of unexplained cash of Rs. 12 lakhs found in the possession of assessee since the assessee failed to prove the nexus between the cash withdrawals from bank and the subject cash in absence of maintenance of books of account. 3. The Ld. CIT(A) erred in deciding ownership of the two immovable properties vide registered deeds No. 15558/2010 to be in the hands of the firm M/s. AR Builders rather than in the hands of the assessee individual by ignoring the fact that the assessee himself has acquired the properties in his name and subsequent action on these lands ie., the development agreement and the sale agreement have been entered by the individual assessee but not the firm. 4. The Ld. CIT(a) has erred in not considering the fact that as the ownership lies with the assessee himself, the sources for

investment amounting to Rs. 43,59,500 has to be explained by the assessee individual. 5. The Ld. CIT (A) ought not have given relief for the assessee in respect of addition of short term capital gains of Rs. 99,00,500/- solely on the issue that the amounts have been repaid by the consideration was received by the assessee in his individual capacity as part performance of contract U/s. 2(47) of the IT Act and also when the final order of the Hon’ble High Court of Andhra Pradesh dated 3/3/2016 on the Writ Petition No. 32622/2011 filed by the petitioner assessee as regards the possession of subject properties was decided in favour of the petitioner – assessee. 6. The Ld. CIT(A) ought not have given relief in respect of unexplained cash deposits of Rs. 54,89,800/- into bank account as since the assessee failed to prove the nexus between the cash withdrawals from bank and the subject cash in absence of maintenance of books of accounts.”

With respect to Ground No.2, the Ld. AR submitted that the 5.

assessee is a Real Estate broker earning income from commission by way

of cash. The Ld. AR further submitted that the assessee has received

advances from his customers for identifying and buying a property for

one of his customer and hence carried the money from Hyderabad to

Visakhapatnam when he was intercepted by the DDIT (Inv.) in

Visakhapatnam Airport. The Ld. AR further submitted that since the

purchase could not go through, the assessee was returning with the

same money from Hyderabad to Visakhapatnam. The Ld. AR further

submitted that various judicial decisions have rendered and laid down

the ratio that the statement recorded U/s. 131(1) of the Act is not

binding on the assessee and hence the additions cannot be made based

on the statement recorded from the assessee U/s. 131(1) of the Act. The

Ld. AR further submitted that the books of accounts, balance sheet,

bank statements have been produced before the Ld. AO but the Ld. AO

has not examined the same but has purely relied on the statement made

by the assessee U/s. 131 of the Act while making the addition of Rs. 12

lakhs cash found and seized by the Department.

Per contra, the Ld. DR submitted that the assessee could not

explain the sources for the cash and has voluntarily admitted to pay the

amount as advance tax in his hands and in the hands of his wife and

has paid the taxes accordingly. The Ld. DR further submitted that the

assessee has recorded a statement U/s. 131 that he does not maintain

any books of account for the purpose of business activities carried out by

him. The Ld. DR therefore pleaded that the order of the Ld. AO be

upheld as the assessee could not explain the sources even during the

scrutiny proceedings.

on record and the orders of the Ld. Revenue Authorities. Admittedly, the

assessee has carried cash of Rs. 12 lakhs and while recording the

statement in response to Q.No. 15, the assessee denied to give the

detailed sources for the same. However, the assessee has submitted

bank statements, copy of cash book and balance sheet which was

prepared based on the entries in the bank pass book before the Ld.

CIT(A). The Ld. CIT (A) observed that the Ld. AO has neither examined

nor rejected the books of accounts, but by relying on the statement

recorded u/s. 131 of the Act made the addition of Rs. 12 lakhs U/s. 69A

of the Act. The Ld. CIT(A) found that the assessee has shown cash

balance as on 30/08/2010 at Rs. 64,62,446/- and concluded that

sufficient cash balance was available with the assessee and therefore

directed the Ld. AO to delete the addition made for Rs. 12 lakhs. In the

statement recorded by the assessee on 28/8/2010, the assessee has

clearly stated in response to Q. No. 14 that he has not taken any loan

from any person and has also denied to give any detailed sources for the

seized amount. The assessee also in response to Q.No. 16 has voluntarily

agreed to pay income tax both in his name and in his wife’s name. The

Ld. AO observed in para 2.1 that after repeated opportunities provided to

the Ld. AR of the assessee, the assessee filed a letter dated 5/11/2012

that the seized amount of Rs. 12 lakhs is appearing in the books of

accounts. The Ld. AO found that since the assessee has not maintained

any books of accounts and has accepted that he has not maintained any

books of accounts at the time of interception as well as during the survey

action, production of books of accounts after a period of 3 months is an

afterthought of the assessee and hence the Ld. AO did not consider the

books of accounts submitted by the assessee. We find that the Ld. AO

has rightly considered the issue of submission of books of accounts as

an afterthought of the assessee and hence we do not find any reason to

interfere in the decision of the Ld. AO and we hereby set-aside the order

of the Ld. CIT(A) on this ground. Accordingly, Ground No.2 raised by the

Revenue is allowed.

immovable properties, the Ld. DR submitted that the assessee has

purchased two acres of property at Pendurti for Rs. 60 lakhs vide Doc.

No. 1558/2010 and 1559/2010, dated 29/4/2010 from Sri R.P. Naidu

and Sri Gandhi Babji. The Ld. DR further submitted that the Document

was registered in the individual name of the assessee but the assessee

has explained the sources that the purchase of property was made from

partnership firm M/s. A.R. Builders. The Ld. DR further submitted that

the property cannot be considered as a firms property as it is registered

in the individual name and subsequently, the assessee in his individual

capacity has entered into a development agreement with M/s. MVV

Builders. The Ld. DR further submitted that the assessee has paid cash

of Rs. 30 lakhs for the purchase of the property but has not furnished

any sources for the cash payment and for the payment of stamp duty

aggregating to Rs. 43,59,500/-. The Ld. DR therefore pleaded that the

Ld. AO has rightly treated the same as assessee’s unexplained

investment u/s. 69A of the Act and the order of the Ld. AO be upheld.

Per contra, the Ld. AR submitted that the assessee and his wife are

partners in M/s. AR Builders and the property was purchased in the

name of the assessee due to sentimental reasons. Further, the Ld.AR

submitted that the payment for the purchase of the property through

cheques and cash was made by the firm M/s AR Builders which is

evidenced by the submissions in the paper book. Further, the Ld. AR

also submitted that the stamp duty for the same was also paid by cheque

which is also evidenced by the recitals in the sale deed and the bank

statements. The Ld. AR further submitted that with respect to the cash

payments that the firm has received an advance from RP Naidu which

was utilized for the purchase of the property along with the advance for

land received from M/s. MVV Builders and capital infusion by the

partners. The Ld. AR further submitted that the cash book of the firm

has been submitted the paper book page 27. The Ld. AR therefore

pleaded that the order of the Ld. CIT(A) be upheld.

on record and the orders of the Ld. Revenue Authorities. We find from

the sale deed copies submitted by the Ld. AR in page 51 of the paper

book that the assessee has paid registration fees by way of cheque for

registering the documents on 29/4/2010. Further, we find that the

partnership firm M/s. AR Builders has paid a cheque of Rs. 15 lakhs for

each document by way of cheque to the power holder of the vendors. The

payment of cash of Rs. 15 lakhs for each for the two documents was also

mentioned in the copies of the sale deed submitted before us. However,

the cash book submitted by the Ld. AR could not be relied upon on the

issue of receipt of advance from Mr. RP Naidu who also happened to be

the power holder of the vendor. Hence, we find the cash book of the firm

M/s. AR Builders could not be relied upon on the cash payments made

by the firm towards purchase of the land from Mr. RP Naidu. We

therefore are of the considered view that the sources for the cash of Rs.

30 lakhs paid for the purchase of the land has not been properly

explained by the Ld. AR and we hereby uphold the order of the Ld. AO on

this ground for the limited amount of Rs. 30 lakhs where the balance of

Rs. 13,59,500/- paid towards the registration charges has been

demonstrated by the Ld. AR. We therefore partly allow the ground raised

by the Revenue on this issue.

argued that the assessee has sold one acre of property / land on outright

basis for Rs. 70 lakhs and has entered into a development agreement

with M/s. MVV Builders for the construction of flats. The Ld. DR

submitted that the assessee has received Rs. 65 lakhs by way of cheques

and Rs. 70 lakhs by way of cash for the same of property. The Ld. DR

relied on the order of the Ld.AO.

Per contra, the Ld. AR submitted that the sale of property has been

stalled by the Government and the assessee has filed a Writ Petition

before the Hon’ble High Court of Andhra Pradesh vide its Petition M.P.

No. 40552/2011 praying to direct the State of Andhra Pradesh and

others not to interfere in the possession of the assessee. The Hon’ble AP

High Court has directed the State that the cancellation of the Registered

Sale Deeds unilaterally is illegal and without any jurisdiction and

authority and set aside the impugned order. The Ld. AR further

submitted that the amount of Rs. 65 lakhs from M/s. MVV Builders

against the development agreement was refunded to M/s. MVV Builders

by way of cheque on 5/5/2010. Similarly, the cash receipts for Rs. 70

lakhs was also refunded to M/s. MVV Builders which is evidenced by the

confirmation letters provided by M/s. MVV Builders as submitted in the

paper book. The Ld. AR further submitted that advance received from

Mr. MVV Satyanarayana for Rs. 46 lakhs by way of cash was also repaid

to Mr. MVV Satyanarayana during the year 2011. The Ld AR further

pleaded that the confirmation letter from Mr. MVV Satyanarana

confirming the repayment of Rs. 46 lakhs from the assessee was also

submitted before the Ld. AO during the assessment proceedings. The Ld.

AR therefore pleaded that since the transaction has not been

materialized no transfer of property has taken place and hence capital

gains does not arise. He pleaded that the order of the Ld. CIT(A) be

upheld.

on record and the orders of the Ld. Revenue Authorities. We find from

the submissions made by the Ld. AR and demonstrated before us that

the assessee has repaid the amounts to M/s. MVV Builders and also to

Mr. MVV Satyanarayana being the advances received from them towards

sale of property and development agreement. We also find from the

paper book submitted by the Ld. AR in page 96 and 97, confirmations

received from M/s. MVV Builders against the payments and receipt of

advances. Further, from the submissions made by the Ld. AR the

Appellate Authority under Andhra Pradesh (Andhra Area) Inams (Abolition

And Conversion Into Ryotwari) Act, 1956, the Revenue Divisional Officer

[RDO], Visakhapatnam has directed to issue Ryotwari Patta in the name

of the assessee and others vide his order dated 8/1/2018. The Ld. AO

has also produced copy of Ryotwari Patta issued in the name of the

assessee for the two acres of land owned by him. These additional

evidences further strengthen the argument of the Ld. AR that the

transfer of property has not taken place in the impugned assessment

year. We therefore are of the considered view that since the “transfer” as

defined U/s. 2(47) of the Act has not taken place during the impugned

assessment year, the computation of short term capital gains does not

arise and the Ld. CIT(A) has rightly directed the Ld. AO to delete the

addition of Rs. 99,00,500/-. We therefore find no infirmity in the order of

the Ld. CIT(A) and do not wish to interfere in the order of the Ld. CIT(A)

on this issue.

the Ld. DR submitted that Rs. 45,37,100/- was deposited in cash and

Rs. 9,52,700/- was deposited by cheque which was not explained by the

assessee before the Ld. AO. The Ld. AO has not accepted the cash book

submitted by the assessee in view of the statements recorded by the

assessee that he does not maintain any books of accounts and hence the

Ld. AO has rightly added the above amounts as unexplained cash

credits. The Ld. DR pleaded that the order of the Ld. AO be upheld.

Per contra, the Ld. AR submitted that the details of cheque deposits

has been submitted before the Ld. AO and the Ld. CIT(A). The Ld. CIT(A)

has rightly considered the amount of Rs. 9,52,700/- being the cheque

deposits in the assessee’s account as explained. The Ld. AR further

submitted that the Ld. CIT(A) has also accepted the cash deposits made

by the assessee out of the cash balance available with the assessee on

the respective dates and hence pleaded that the order of the Ld. CIT(A) be

upheld.

on record and the orders of the Ld. Revenue Authorities. Admittedly the

details of cheque deposits in the assessee’s bank account has been

explained before the Ld. CIT(A) and was also demonstrated before us by

the Ld. AR. Similar to the issue raised in Ground No.2, the Ld. AR

submitted that there was sufficient cash balance in the books of

accounts, for making cash deposits on various dates. However, the Ld.

AO considered the submission of books of accounts as an afterthought of

the assessee where the assessee has voluntarily declared while recording

the statement U/s. 131(1) of the Act that he does not maintain books of

accounts. It is also found from the order of the Ld. AO that the assessee

vide statement recorded on 15/5/2010 denied to explain the sources for

the cash deposits into the Karur Vysya Bank savings account. Further,

in response to Q.No.16, the assessee has also refused to produce the

confirmation letters from the various parties. Considering the above

statements, the Ld. AO has rightly rejected the arguments of the Ld. AR

and has disallowed a sum of Rs. 54,89,800/-. However, the Ld. AR has

demonstrated the details of cheque deposited before the Ld. CIT(A) and

also before us to the extent of Rs.9,52,700/-. We therefore are of the considered view that since the details of cheque deposits are being demonstrated before us and before the Ld. CIT(A), we uphold the decision of the Ld. CIT(A) to the extent of Rs. 9,52,700/- allowed by the Ld. CIT(A)

and reject the balance of Rs. 45,37,100/- which was deposited by way of cash into the bank account of the assessee. In the absence of any proper explanation with substantiated evidence by the Ld. AR, we find that these cash deposits remain unexplained and the additions made by the Ld. AO to this extent of Rs. 45,37,100/- are being upheld. Accordingly, this ground raised by the Revenue is partly allowed.

Pronounced in the open Court on then 17th March, 2023.

Sd/- Sd/- (दु�वू� आर.एल रे�डी) (एस बालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER

Dated : 17.03.2023 OKK - SPS

आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee – Sri Mutchakarla Appa Rao, Flat No.B/1A, 1. D.No. 15-1-74, Sea Doll Apartment, Opp. Grant Bay Hotel, Visakhapatnam, Andhra Pradesh – 530003. राज�व/The Revenue – Income Tax Officer, Ward-3(2), 1st Floor, 2. Infinity Towers, Sankara Matham Road, Visakhapatnam, Andhra Pradesh – 530016. 3. The Principal Commissioner of Income Tax-1, Visakhapatnam. आयकर आयु�त (अपील)/ The Commissioner of Income Tax (Appeals)-2, 4. Guntur. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, �वशाखापटणम/ DR, ITAT, 5. Visakhapatnam गाड� फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER

Sr. Private Secretary ITAT, Visakhapatnam