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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
the order of the Learned Commissioner of Income Tax (Appeals)- 3, Visakhapatnam [Ld. CIT(A)] vide DIN & Order No. ITBA/APL/S/250/2022-23/1043801455(1), dated 11/07/2022 for the AY 2014-15 & ITBA/APL/S/250/2022-23/1043801554(1) dated 11/07/2022 for the AY 2015-16 arising out of the order passed by the Ld. Assessing Officer [AO] U/s. 153C of the Income Tax Act, 1961 [the Act]. C.O. No. 18 & 19/Viz/2022 are filed by the assessee.
Since the issues raised in both appeals of the Revenue are identical and interconnected as well as the Cross Objections raised by the assessee are also identical for both the AYs under consideration, for the sake convenience, all these appeals are clubbed, heard together and disposed off in this consolidated order. Appeal wise adjudication is given in the following paragraphs. (AY: 2014-15) (By Revenue)
Brief facts of the case are that the assessee is an individual, engaged in the business of trading in Gutka and other tobacco products and also receives commission income in real estate business. The assessee has filed his return of income on 27/3/2015 admitting a total income of Rs. 7,12,820/- for the AY 2014-15. Subsequently, a search & seizure operation was conducted in the assessee’s premises on 17/7/2019 and a notice U/s. 153A was issued. In response to the notice U/s. 153A the assessee filed his return of income on 4/1/2021 admitting the same total income. The Ld. AO completed the assessment U/s. 143(3) r.w.s. 153A of the Act on 29/09/2021 by accepting the income returned. Subsequently, consequent to the search and seizure operations conducted in M/s. Polisetty Somasundaram group of cases on 28/01/2020 in which a pen drive was found and seized by the search team. The pen drive contained the details of unaccounted cash transactions made by M/s. Polisetty Somasundaram. Relying on the contents in the seized pen drive, a notice U/s. 153C was issued on 6/12/2021 and served on the assessee on the same day. In response to the notice U/s. 153C,
4 the assessee filed the return of income as admitted in the original return on 20/12/2021. Subsequently, a notice U/s. 142(1) was issued on 20/01/2022 requesting the assessee to furnish the information as detailed in questionnaire. Considering the part submissions made by the assessee another notice U/s. 142(1) was issued on 3/3/2022 requesting the assessee to furnish documentary evidences and sources in respect of the cash transactions made with M/s. Polisetty Somasundaram. During the course of the assessment proceedings in the case of M/s.
Polisetty Somasundaram, Sri Polisetty Shyam Sunder, Managing Partner of M/s. Polisetty Somasundaram stated that the cash transactions pertain to unaccounted cash advances received and admitted the same as an unexplained income of M/s. Polisetty Somasundaram. Later, Mr. Polisetty Shyam Sunder retracted and stated that the above transaction pertain to security deposit of Rs. 2.50 Crs given by Sri Bolisetty Kameswara Rao (the assessee) against the loan given on 14/2/2014 to M/s. Durga Corporation in which Sri Bolisetty Kameswara Rao is one of the partners. When the assessee was confronted with the statement, the assessee vide its letter dated 14/3/2022 denied the statement made by Sri Polisetty Shyam Sunder and further submitted that the loan was taken by RTGS and repaid by RTGS
5 by M/s. Durga Marketing Corporation and hence no cash was paid as security deposit. The Ld. AO considered the explanation made by the assessee not satisfactory where the assessee has rejected the cash transactions completely and hence treated the amount of Rs. 2.50 Crs as unexplained income of the assessee.
Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A). Considering the written submissions made by the Ld. AR before the Ld. CIT(A), the Ld. CIT(A) relying on the decision of the Hon’ble Supreme Court in the case of Principal reported in 99 Taxamnn.com 45 (SC) and the decision of the Hon’ble High Court of Delhi in the case of CIT vs. Sant Lal reported in [2020] 118 taxmann.com 482 (Delhi) and the decision of the Coordinate Bench of the ITAT at Visakhapatnam in the case of DCIT, Central Circle vs. Bhumana Uma Rani [IT(SS)A No. 5/Viz/2018, dated 10/04/2019] allowed the appeal of the assessee. Aggrieved by the order of the Ld. CIT (A), the Revenue is in appeal before us.
The Revenue has raised ten grounds in its appeal however, the crux of the issue is with respect to the deletion of addition of Rs. 2.50 Crs by the Ld. CIT(A).
At the outset, the Ld. Departmental Representative [DR] submitted that the assessee has paid cash of Rs. 2.50 Crs on 14/2/2014 and received the same in the subsequent financial year on 13/5/2014. The Ld. DR submitted that this cash advance of payment and receipt was not recorded in the books of account of the assessee. The Ld. DR further submitted that the cheque for Rs. 2.50 Crs received by M/s. Durga Marketing Corporation is on the same day of the cash deposit made by the assessee. The Ld. DR vehemently argued that since the transaction happened on the same day it should be treated as security deposit for the loan obtained by M/s. Durga Marketing Corporation where the assessee is a partner. The Ld. DR pleaded that the order of the Ld. AO be upheld.
Per contra, the Ld. AR argued that Sri Polisetty Shyam Sunder initially admitted it as an unexplained income outside the books of accounts and then later retracted his statement and stated that it is security deposit from the assessee. The Ld. AR further submitted that the assessee’s premises was searched during July, 2019 and no incriminating material was found with respect to this cash transaction in the premises of the assessee.
The Ld. AR further submitted that merely based on the notings in 7 the pen drive seized from the premises of M/s. Polisetty Somasundaram cannot be a basis, as corresponding corroborative evidence could not be traced in the assessee’s premises. The Ld. AR therefore submitted that the order of the Ld. CIT(A) be upheld.
We have heard both the sides and perused the material available on record. It is an admitted fact that no corroborative evidence was traced from the premises of the assessee during the search operations in the assessee’s own premises. The Ld. AR’s submission that the loan was taken by way of RTGS and repaid by way of RTGS was evidenced from the paper book submitted before us. Further, there is also merit in the argument of the Ld. AR that when the cash balance of Rs. 2.50 Crs was available with the assessee, why a loan was taken from M/s. Polisetty Somasundaram by M/s. Durga Marketing Corporation where the assessee is a partner deserves consideration. Further, it was also alleged that the assessee paid an interest of Rs. 6,16,438/- to M/s. Polisetty Somasundaram by way of cash. The Ld. AR’s argument on this ground that why interest payment was made when the assessee has made a security deposit in cash merits attention. The Ld. CIT(A) in para 5.2 and 5.3 of his detailed order held as under:
“5.2. I have considered ground no.4 of appeal, gone through the submissions made on behalf of the appellant and seen the order of the AO carefully. From the material on record it is seen that the Pen Drive on the basis of which the AO has made the addition was found at the premises of M/s. Polisetty Soma Sundaram Firm and not from the premises of the appellant which was also subjected to search action U/s. 132 of the Act. From the premises of the appellant no corroborative evidence was found regarding the alleged payment of Rs. 2,50,00,000/- in cash to Polisetty Soma Sundaram as security deposit against the loans taken by M/s. Durga Marketing Corporation in which the appellant is a partner. The loan was taken by cheque buy the Firm Durga Marketing Corporataion and the impugned amount received by cheque was duly recorded in the books of accounts of Durga Marketing Corporation. The AO incorrectly held that the appellant paid cash of Rs. 2,50,00,000/- as security deposit merely on the statement of Polisetty Soma Sundaram and the seized material found at the premises of M/s. Polisetty Somasundaram. There was no corroborative material regard the said cash transaction found at the premises of the appellant during the search conducted at his premises. Presuming that the appellant paid a security deposit of Rs. 2,50,00,000/- in cash I do not see reason why he would again borrow the same amount from M/s. Polisetty Somasundaram when he already had the requisite funds with him. I observe that the AO has made the addition on the basis of statement of M/s. Polisetty Somasundaram which has not been substantiated with any other documentary evidence found from the premises of the appellant against whom the addition has been made. The statement of third party or entries in the loose sheets found at the premises of such third party cannot be used against the appellant. It is trite law that where any document found at the premises of a third party is proposed to be used against the person it must be established with corroborative evidence by conducting independent enquiries / investigation that the contents therein pertain to the said person. The Hon’ble High Court of Delhi in the case of Commissioner of Income Tax vs. Sant Lal reported in [2020] 118 taxmann.com 482
(Delhi) held where in search of premises of third party, diary was seized alleged containing entries of hundi transactions on behalf of parties, including assessee whose names were written in abbreviated/code words, since diary was neither found from premises of assessee nor was it in hand writing of assessee and Revenue failed toproduce cogent material to link assessee to dairy, no addition could be made. The Hon’ble Court affirmed the findings of the CIT (A) and ITAT that the assessing officer did not make any further enquiry / investigation in support of the addition made. Similar view was affirmed by the Hon’ble Supreme Court in the case of Pr. CIT vs. Admine Construction (P) Ltd., reported in 99 Taxmann.com 45 (SC). There was no positive evidence such as loose papers, vouchers or agreement between the appellant and M/s. Polisetty Somasundaram found at the premises of the appellant that would confirm the action of the AO in making addition in the hands of the appellant. The loan transaction was between M/s. Polisetty Somasundaram and Durga Marketing Corporation by cheque and was duly recorded in the books of account of Durga Marketing Corporation and repaid through banking channel. Under such facts and circumstances there is no logic of paying a security deposit of the same amount of the loan taken. No such agreement or understanding between the appellant and the lender regarding the security deposit on the loan taken was found at the appellant’s premises. It was submitted in appeal that the appellant had made a specific request vide letter dated 21/2/2022 requesting the AO to furnish copies of specific evidence such as vouchers or documents containing the signature of the appellant or his confirmation of having made the payment of cash as security deposit as held by the AO. Despite the same no material was brought on record which respect to the alleged payment of cash of Rs. 2,50,00,000/-. The appellant has relied on the decision of ITAT, Visakhapatnam in the case of DCIT, Central Circle vs. Bhumana Uma Rani [IT(SS)A No. 5/Viz/2018, dated 10/04/2019) in which it was held as under:
“The loose sheet seized from the premises of Siddhartha Academy is undated and without the signatures of the assessee. the sale deed was registered for a sum of Rs. 24,85,000/- by the assessee and the co-owner independently. No other evidence was found to establish that the consideration was passed on over and above the registered sale consideration. The Ld. CIT(A) considered the issue in detail and allowed the appeal of the assessee placing reliance on the decision of this Tribunal in the case of Shri Venkatarama Sai Developers cited supra. Since the material was found in the case of Siddhartha Academy, but not in the case of Smt. Maganti Annapurna of this Tribunal in & 477/Viz/2017 dated 26/09/2018 wherein, the coordinate Bench of ITAT held that unless there is a specific evidence with regard to the receipt of cash over and above the registered sale deed, it cannot be presumed that the assessee has made the unaccounted payments towards the purchase of land. Similarly, the Ld. AR relied on the decision of Shri P. Koteswara Rao, in ITA No. 251 & 252/Viz/2022. On similar facts, ITAT held that it is not correct in coming to conclusion that on-money was exchanged between the parties on the basis of material found in the premises of third party and on the statement given by third parties. In the instant case, both the parties, search party as well as the assessee have denied having exchanged the on-money for sale of land. Even after the assessee’s case is covered under search operations u/s. 132, the department did not unearth any evidence regarding exchange of cash in sale transaction. Therefore, since the facts are identical and department could not place any other material to controvert the finding given by the Ld. CIT(A) and on other decision of any High Court or Apex Court was brought on record to controvert the decisions relied upon by the assessee, we do not find any reason to interfere with the order of the Ld. CIT(A) and the same is upheld.”
5.3. It was further held in the assessment that as per the information contained in the pen drive the appellant paid interest of Rs. 6,16,438/- to M/s. Polisetty Somasundaram. Had the appellant given cash of Rs. 2,50,00,000 as has been alleged he would have received interest from the above party and not paid interest. Moreover, from the statement of Polisetty Somasundaram conflicting versions are noticed wherein initially it was said that the transactions in the pen drive represent their unaccounted income and later it was stated that the impugned sums were received as security deposit for the loan given to Durga Marketing Corporation. From the material facts of the case there is no merit for the addition made by the AO. Considering the above facts and circumstances and judicial pronouncements the addition is not sustainable and hence
11 deleted. Ground No. 4 is allowed. The remaining grounds of appeal are rendered academic.”
7. We find that the Ld. CIT(A) has rightly considered the facts and adjudicated the grounds on merits and therefore we are inclined not to interfere in the order of the Ld. CIT(A) on this ground.
In the result, appeal filed by the Revenue is dismissed.
In this appeal the Revenue has raised ten grounds which are identical to that of the grounds raised by the Revenue in its appeal (AY 2014-15).
At the outset, the Ld. AR contended before us that the facts belonging to the are similar to that of the facts in Ld. AO has made protective assessment of Rs. 2.50 Crs in the AY 2015- 16 and also based on the allegation by Sri Polisetty Shyam Sunder that amount of Rs. 2.50 Crs has been repaid on 13/5/2014. The Ld. AR therefore pleaded that the same cannot be added in the hands of the assessee in two assessment years
12 ie., both at the time of payment and at the time of receipt.
Further, the Ld. AR argued that the assessee denies any payment by cash during the AY 2014-15 and hence the question of taxing the same protectively based on receipt in subsequent AY 2015-16 is not valid in law. Per contra, the Ld. DR relied on the order of the Ld. AO.
We have heard both the parties and perused the material available on record and the orders of the Ld. Revenue Authorities. We find that in the impugned assessment year 2015-16, the Ld. CIT (A) has consistently allowed the appeal of the assessee on the protective additions made by the Ld. AO with respect to the receipt of cash by the assessee for Rs. 2.50 Crs in the absence of any corroborative evidence found against the assessee during the search operations in the assessee’s premises.
Further, it is noticed that the Ld. CIT(A) has directed the Ld. AO to delete the addition of interest payment in cash amounting to Rs. 6,16,438/- based on the relief allowed in deleting the addition of cash for Rs. 2.50 Crs. We are of the considered view that the Ld. CIT(A) has rightly deleted the additions in the impugned assessment year also and we do not find any reason to interfere in the decision of the Ld. CIT(A) in the absence of any 13 corroborative material evidence against the assessee during the search operations carried on in the assessee’s premises. We are therefore inclined to dismiss the appeal of the Revenue.
In the result, appeal of the Revenue is dismissed.
C.O. No. 18 & 19/Viz/2022 आयकर अपील सं./ & 186/Viz/2022 (�नधा�रण वष� / Assessment Year :2014-15 & 2015-16) (By Assessee) 13. These two Cross Objections are filed by the assessee for the AY 2014-15 & 2015-16. 14. In the Cross Objections, the assessee has raised legal ground regarding the validity of the notice U/s. 153C of the Act along with other grounds which are supportive in nature.
The Ld. AR relied on the decision of the CIT vs. Kabul Chawla [2016] 380 ITR 573 (Delhi) with respect to Ground No.1 in both the Cross Objections. We are of the considered view that since the appeal of the Revenue has been dismissed and held in favour of the assessee this ground does not require any separate adjudication.
With respect to Ground no.2 of CO No. 18/Viz/2022 and Ground No. 2 & 3 of the CO No. 19/Viz/2022 which are 14 supportive in nature and therefore the adjudication of these grounds become infructuous. 17. Ground No.3 of CO. No.18/Viz/2022 and Ground No.4 of CO No. 19/Viz/2022 are general in nature and need no adjudication.
Ex-consequenti, both the Revenue appeals are dismissed and the two Cross Objections of the assessee are disposed off accordingly. Pronounced in the open Court on the 07th February, 2023.