K Satyanarayana Reddy, Hyderabad vs Assessee

K. Satyanarayana Reddy, vs. Income-tax Officer, Ward - 1, Karimnagar. Karimnagar.

PAN - AIFPR 8377L

(Appellant) (Respondent)

Assessee by : Shri A.V. Raghuram Revenue by : Shri Rajat Mitra

Date of hearing 18-03-2015 Date of pronouncement 01-04-2015

O RDE R

PER SAKTIJIT DEY, J.M.:

This appeal by the assessee is directed against order dated 16/06/2014 passed by ld. CIT(A)-III, Hyderabad for A.Y. 2007-08.

2. The sole grievance of assessee is with regard to addition of an amount of Rs. 14,73,000 made by AO and confirmed by ld. CIT(A).

3. Briefly the facts are, assessee an individual derives income from commission/brokerage. For the AY under consideration, assessee filed his return of income on 23/03/09 declaring total income of Rs. 1,04,484. In course of assessment proceeding, AO while verifying copy of the saving's bank account maintained by assessee with Corporation Bank, Karimnagar branch found that number of cash deposits amounting to Rs. 14,73,000 have been made into the said bank account starting from 08/04/2006 to 06/02/2007. As stated by 2 ITA No. 1336/Hyd/2014 K. Satyanarayana Reddy

AO, though, assessee was specifically asked to explain the source of such cash deposits into the bank account, but, assessee in spite of opportunity of being given to him failed to explain the source or furnish any other information. AO inferring that assessee has no explanation to offer for the source of cash deposits into the bank account, treated the entire deposit of Rs. 14,73,000 as unexplained investment and added it to the income for the impugned AY. Being aggrieved of such addition made by AO, assessee preferred appeal before the ld. CIT(A).

4. In course of hearing of appeal before ld. CIT(A), assessee explaining the source of cash deposits in the bank account submitted that some customers have paid advances to him for purchasing sites/plots which were received in cash and deposited in the bank account. In support of such contention, assessee furnished sworn affidavits from seventeen persons from whom assessee claimed to have received advances in cash. Ld. CIT(A) after considering the submissions of assessee and additional evidences filed in the form of affidavits called for a remand report from AO. AO after going through the affidavits submitted by assessee, observed that all the affidavits were prepared on 21/01/2010 and the contents of the affidavits are identical. He further observed that the affidavits are nothing but an after thought of assessee to explain the source of cash deposits. AO observed, the genuineness of the persons and their creditworthiness also are not established. He also opined that if the persons concerned have really given advances to assessee in 2006, then, no material has been produced to show that advances were either utilized by assessee in arranging plots for them or the advances were refunded back to the concerned persons. He also opined, assessee could have substantiated its claim that it has received advance towards real estate transactions by furnishing registered sale deeds to show that he has arranged purchase of housing plots for the persons from whom he claimed to have received advances. Thus, AO observed that the 3 ITA No. 1336/Hyd/2014 K. Satyanarayana Reddy

claim of assessee that the deposits in the bank account represent advances received from prospective buyers of plot is not believable. On the basis of the report submitted by AO, ld. CIT(A) observed that assessee could not explain how he was prevented by sufficient cause from producing evidences before AO, hence, the additional evidences are not acceptable. Ld. CIT(A) further observed, assessee's claim that he received advances from prospective buyers towards purchase of land is also not believable as affidavits submitted by assessee revealed that none of the persons are having permanent account no. nor their sources of income are available. He also observed, from the affidavits it is not forthcoming the exact location or identity of the plot of land going to be purchased by those persons against which the advance was given. Ld. CIT(A) concluded that three limbs of section 68, i.e. identity of the person, genuineness of the transaction and creditworthiness are not proved. Accordingly he confirmed the addition.

5. Ld. AR submitted before us, when assessee has furnished evidence inform of affidavits of persons, who advanced money in cash to assessee towards purchase of plot neither AO nor Ld. CIT(A) was justified in brushing aside those evidences without examining whether the contents of the affidavits are true or false. Ld. AR submitted, without examining the correctness of assessee's claim, the departmental authorities were not correct in treating the cash deposits as unexplained investment from assessee.

6. Ld. DR, on the other hand, strongly relying upon the observations made by AO and ld. CIT(A) submitted, assessee having failed to prove source of cash deposits into the bank account with supporting evidence, addition made is justified.

7. We have considered the submissions of the parties and perused the orders of the revenue authorities as well as other material on record. Undisputedly, during the previous year relevant to AY under 4 ITA No. 1336/Hyd/2014 K. Satyanarayana Reddy

consideration assessee has made cash deposits of Rs. 14,73,000 in his bank account. As it appears, in course of assessment proceeding assessee, for whatever may be the reason, has not explained the source of such cash deposits as a result of which, AO has treated the entire cash deposits of Rs. 14,73,000 as unexplained investment of assessee. However, in course of hearing of appeal before ld. CIT(A) assessee has not only submitted an explanation to the effect that cash deposits represent advances received in cash from prospective buyers of plot but in support of such contention has also furnished affidavits of seventeen persons as additional evidence. It is also a fact on record that ld. CIT(A) has called for a remand report from AO on the evidences submitted before him. Therefore, once ld. CIT(A) has accepted the additional evidence and called for a remand report, in our view, he was not justified in observing that additional evidences are not acceptable. Further, when assessee in support of his claim that the cash deposits in the bank account represent advances received from seventeen persons towards purchase of plot has furnished sworn affidavits containing their name, address etc., the explanation furnished by assessee along with evidences in form of affidavit were capable of being examined by departmental authorities through a process of enquiry and investigation. When the authenticity of affidavits were sent for verification of AO, if he had any doubt, he could have either summoned the persons concerned or could have called upon assessee to produce those persons for examination. Without doing so or making any enquiry to prove the averments made in the affidavits to be false neither AO nor ld. CIT(A) were justified in concluding that affidavits are merely an after thought and the identity, genuineness and creditworthiness of the creditors are not proved. In our view without examining the veracity of the averments made in the affidavits the departmental authorities were not correct in coming to a conclusion on presumptions and surmises. In the aforesaid facts and circumstances, we are of the view that the matter requires examination by AO again. Accordingly, we set aside the impugned 5 ITA No. 1336/Hyd/2014 K. Satyanarayana Reddy

order of ld. CIT(A) and remit the matter back to the file of AO to examine the source of cash deposits into the bank account by making necessary enquiry in so far as assessee's claim of having received advances from seventeen persons from whom affidavits have been submitted by assessee. AO, if so required, may issue summons to the concerned persons or call upon assessee to produce them for the purpose of examination to find the authenticity of assessee's claim. Only after making proper enquiry and investigation with regard to assessee's claim, AO must take a decision on the issue. Needless to say, assessee must be afforded a reasonable opportunity of being heard in the matter.

8. In the result, appeal is allowed for statistical purposes.

Pronounced in the open court on 1 st April, 2015.

Sd/- Sd/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated:1 st April, 2015 kv Copy to:-

1) Shri K. Satyanarayana Reddy, C/o K. Vasantkumar, A.V. Raghuram, Advocates, 610, Babukhan Estate, Basheerbagh, Hyderabad - 500 001.

2)ITO, Ward - 1, O/o Addl. CIT, Aayakar Bhavan, Karimnagar-505001

3) CIT(A)-III, Hyderabad

4) CIT-II, Hyderabad

5) The Departmental Representative, I.T.A.T., Hyderabad.

6 ITA No. 1336/Hyd/2014 K. Satyanarayana Reddy