M. Krishna G. Naidu,, Solapur vs Assessee

M. Krishna G. Naidu, The Income Tax Officer, Plot No. 129, Railway Line, Ward-7(3), Pune Vs. Solapur-413009 (Appellant) (Respondent) PAN No. AAKPN1089J

Revenue By: Shri Rajesh Damor Assessee By: Shri Naresh Kumar

ORDER

PER R.S. PADVEKAR, JM:-

This appeal is filed by the assessee challenging the impugned

order of the Ld. CIT(A)-III, Pune dated 04-11-2013 for the A.Y. 2007-08.

The assessee has taken following grounds in the appeal:

1. On the facts and in Law, the order passed by the learned CIT (Appeals) is Bad in Law.

2. The learned CIT (Appeals) erred in confirming the additions made by the Learned Income Tax Officer, Rs.2350000/- as unexplained deposit without considering the Written Submission filed by the Appellant before the learned CIT (Appeals) at the time of hearing and accordingly the order passed by the CIT (Appeals) is required to be set aside.

2. The facts which revealed from the records are as under. The

assessee was the employee of N.M.V. High School and Jr. College,

Budhwar Peth, Pune. It is stated that he retired on 31-12-2007. The

return filed by the assessee was selected for scrutiny. It was noticed by

the Assessing Officer that there were cash deposits of Rs.23,50,000/- in 2 ITA No. 135/PN/2014, M. Krishna G. Naidu, Solapur

the assessee's bank account of Bombay Mercantile Co-op. Bank Ltd.,

Solapur Branch. The Assessing Officer sought the explanation of the

assessee in respect of source of the said deposits. The assessee stated

by way of written submission that he was planning to commence Civil

Construction Business in 2006 as his retirement was due in the near

future. He required capital for the said business and he, accordingly,

collected the money from his close friends. He further stated that the

amount collected from the friends was kept in home for a long time and

finally it was deposited in the bank and fixed deposit receipts were made

in order to make availability of funds when the business would warrant.

The assessee also furnished the list of the loan creditors along with their

address as well amount taken from them. The details of the loan

creditors as submitted by the assessee are as under:

Sr. Name and address Amount Dt. of Occupation No. confirmation of letter

1 Shri Basavraj Ambadas More, Rs.5,00,000 05.11.2009 Agriculturist A/P. Nagansur, Dist. Solapur

2 Revansidhheshwar Swamiji Rs.5,00,000 05.11.2009 Agriculturist and Gurubasavling Swamiji, mathadhipati Viraktarnat, Nagansur

3 Sou Taramati Suryabhan Rs.3,00,000 01.11.2006 Agriculturist Jadhav, A/P Kurdiwadi

4 Shri Pandurang Baburao Shinde, Rs.3,00,000 01.11.2009 Agriculturist A/P Sayyad Varawade Tal. Mohol

5 Shri Guruppa Saibanna Rs.3,00,000 01.11.2009 Agriculturist Irranavvar, A/p Solapur

6 Shri Irranna Rachppa Rs.3,00,000 05.11.2009 Agriculturist Konapure, A/p Nagansur

7 Shri Ravindra Shamrao Rs.3,00,000 01.11.2009 Retired from Tambolkar, Solapur service. 3 ITA No. 135/PN/2014, M. Krishna G. Naidu, Solapur

3. The assessee filed the confirmation letters from the above loan

creditors. The Assessing Officer asked the assessee to produce the above

persons for verification along with necessary proof such as 7/12 extract

of lands, proof of identification, extract of all bank accounts, copy of PAN

Card etc. The Assessing Officer also issued summons to all the loan

creditors to attend before him on 07-12-2009. Out of 7 loan creditors 6

loan creditors appeared before the Assessing Officer and they confirmed

that they have given the loans as claimed by the assessee in cash for his

business and they also explained the source. The Assessing Officer

recorded the statements on oath of all above loan creditors on two

different dates i.e. on 14-12-2009 and 23-12-2009. The Assessing

Officer has narrated the summary of the information given by those

persons in the assessment order. The gist of statement recorded in

respect of above loan creditors by the Assessing Officer is as under:

(I). Shri Ravindra Shamrao Tambolkar:

The said person was residing at New Santoshnagar, Vijapur Road

Solapur. He is 63 years old and retired person. He was working as

Overseer in Solapur Municipal Corporation. There are 4 members in his

family other than him and at the time of recording of the statement his

wife was working as school teacher. He also stated that he was having

bank account in Bank of Maharashtra, Jule Solapur Branch and in

ICICI bank, Park Chowk, Solapur. He stated that his income was only

his pension and his wife's salary. He was getting pension of Rs.7,500/-

and his wife was getting salary of Rs.12000/-. He also narrated that his

monthly house hold expenditure was Rs.15000/-. He stated that at the

time of retirement, he had received total amount of Rs.4,00,000/- and

Rs.1,50,000/- leave encashment and gratuity etc. respectively. It

appears that he was stated that he spent some amount on the education

of his son. He also stated that there was an expenditure on the 4 ITA No. 135/PN/2014, M. Krishna G. Naidu, Solapur

extension of residential house. He admitted that he has given a loan to

the assessee but stated that he is not remembering the date. He also

stated that out of total amount/advance of Rs.3,00,000/- he has

received back amount of Rs.2,50,000/- from the assessee during the

period October/ November 2007 from time to time. The Assessing

Officer did not believe the statement of the said person as in his opinion

his creditworthiness was doubtful. The Assessing Officer has also noted

that as per the extract of the bank account with the Bank of Maharastra

that there were credit entries but the said person has also made

investment in the fixed deposits etc. In sum and substance the

Assessing Officer declined to accept the creditworthiness of the said

person to give the loan of Rs.3,00,000/0 to the assessee.

(II). Shri Rewansidhheswar Swamiji:

It is stated that he is residing at Viraktamath, Tal-Akkalkot, Distt.-

Solapur. He is 65 years old and is not assessed to tax. He is a

Mathadhipati, Swarhijee of Viraktamath and also stated that he is doing

agricultural activities. He further stated that he is a owner of 45 Acre

agricultural land and out of said land 10 Acre land is irrigated. It

appears that he has not produced 7/12 extract before the Assessing

Officer at time of recording the statement but assured he would produce

the same afterwards. As noted by the Assessing Officer he produced

7/12 extract but it was seen that he has the owner of 5.03 Hector of

land. He also stated that he is taking crops like, Jowar, sugar cane, Tur

etc. He further stated that he use to sale agricultural yield in Akkalkot

Market. He also produced sample receipt for sale of TUR. He also filed

the receipt of sugarcane sale to Sidhheswar S.S.K. Solapur. He also

stated that he has bank account in Solapur District Co-op. Bank and

Bank of India, Nagansur Branch. He further stated that out of income

received from agricultural activity, he used it for ANNACHHATRA in the 5 ITA No. 135/PN/2014, M. Krishna G. Naidu, Solapur

MATH. He admitted the confirmation letter given to the Assessing Officer

as well as signature. The Assessing Officer declined to accept his

creditworthiness though he accepted that identity was established.

(III). Shri Pandurang Babu Shinde:

As noted by the Assessing Officer, the said person was residing at

Sayyad Warvade Tal Mohol, Dist Solapur. He is 64 years old and he is

not assessed to tax. There are 5 members in his family including him. It

is stated that he was a teacher during the period 1974 to 2004. After his

retirement, he is engaged in the agricultural activities. He stated that he

is owner of 12 Acre agricultural land and out of 12 Acre, 4 Acre land is

irrigated. He has produced 7/12 extract but only to extend of 2.26

Hectors of land. He explained to the Assessing Officer that out of 12

Acres 3 Acre land in his name, remaining land is in the name of his son

Shri Chandrakant and therefore he did not produce 7/12 extract. He

stated before the Assessing Officer that he was cultivating crops like

sugarcane, maize, jowar, harbhara etc. He also stated that he was not

keeping any details/account but he sales agricultural produce in Mohol

Market and sugarcane sold to Lokmangal Sugar Factory. The Assessing

Officer asked him a question on retirement benefits received by him and

he has stated that he received the gratuity of Rs.2,96,000/- and PF of

Rs.2,00,000/-. The Assessing Officer has made the certain observation

in respect of his bank account but the said person confirmed before the

Assessing Officer that he has given the advance to the assessee and he

has sufficient source of agricultural and past savings.

(IV). Shri Irrappa Rajappa Konapure:

The said loan creditor was residing at Nagansur, Tal.-Akkalkot,

Distt.-Solapur. He was 57 years old and he was not assessed to tax.

There are 5 members in his family including him. i.e his wife, two sons

and daughter in law. He stated that he is owner of 4.5 Acre agricultural 6 ITA No. 135/PN/2014, M. Krishna G. Naidu, Solapur

land which was irrigated. He also produced 7/12 extract of his

agricultural lands. He stated before the Assessing Officer that he has

cultivated sunflower and jowar and sold his agricultural produce at

Akkalkot market to ADDTYA. He could not produce the proof of the sale

of land agricultural crop. The said loan creditor also filed the copy of his

bank account maintained in Solapur DCC Bank, Nagansur. He also

stated that he is also having 5 buffalos and two cows from which he

sales the milk to villages. He confirmed that he has given Rs.3,00,000/-

to the assessee from time to time during the period May 2006 to

November 2006 in cash. The Assessing Officer declined to accept his

creditworthiness as well as the genuineness of transaction. In the

opinion of the Assessing Officer mere identification is not sufficient.

(V). Shri Gurrappa Saibanna Iranar:

As noted by the Assessing Officer the said loan creditor is residing

at Vijapur Road, Solapur. He is 75 years old. He is not assessed to tax.

There are 6 members in his family including him. i.e his wife, one sons,

who is running grocery shop and daughter in law and two

granddaughter. He stated that he is owner of 8 Acre agricultural land.

The said person also produced 7/12 extract of all his agricultural lands.

He stated that he has cultivated sunflower, tur and jowar in his land.

He further stated before the Assessing Officer that he sales his

agricultural produce at Basavat Bagewadi and Vijapur market through

the ADDTYA (agent). He further stated that he has not having any bank

account but he confirmed that he has given the hand loan to the

assessee of Rs.3,00,000/- in cash from time to time since 2001 to 2006

but he has not maintained any record. The Assessing Officer declined to

accept the creditworthiness of the said person. As observed by the

Assessing Officer only identification of person is not sufficient to prove 7 ITA No. 135/PN/2014, M. Krishna G. Naidu, Solapur

the genuineness of the transaction and creditworthiness is also to be

proved.

(VI). Shri Basavraj Ambadas More:

The Assessing Officer recorded his statement on 23-12-2004. The

said person was residing at Nagansur, Tal.-Akkalkot, Distt.-Solapur. He

is 23 years old. He is not assessed to tax. There are 6 members in his

family including him. i.e his father, mother, sister and brother, who is

studying. He has stated that he is owner of 6.5 Acre agricultural land

which is irrigated. He also produced the revenue record of 7/12 extract

but as noted by the Assessing Officer which was to the extent of land of

1.33 Hector. He stated that the balance land is in the name of his

mother and therefore he has not brought the 7/12 extract. He also

stated that he is taking the grapes on the agricultural crop and selling

the same in Sangli and Tasgaon and other yield at Akkalkot market in

cash. He expressed his inability to produce the proof of grapes but he

filed proof for sale of dry grapes during the year F.Y. 2007-08 and 2008-

09. He also stated that there was a joint bank account with Solapur

DCC Bank bank account. He confirmed that he has given the hand loan

of Rs.5,00,000/- to the assessee in cash from time to time from May

2006 to October 2006. He also confirmed before the Assessing Officer

that he received the amount of Rs.4,50,000/- back from the assessee in

the month of December 2007 to March 2008 in cash. The Assessing

Officer was not satisfied with the reply of that loan creditor. He raised

the doubt in respect of creditworthiness and declined to accept his

genuineness.

(VII). Sou Taramati S. Jadhav:

In respect of this loan creditor the Assessing Officer has noted that

the assessee has not produced the said person for examination. The 8 ITA No. 135/PN/2014, M. Krishna G. Naidu, Solapur

assessee only filed 7/12 extract. On verification of 7/12 extract it is

seen that the said person was having agricultural land admeasuring

about 3.88 hector. The Assessing Officer has observed that the land is

non-irrigated and the person had cultivated Tur, sunflower and jowar

etc. the Assessing Officer raised the question mark on the genuineness

of the claim of the assessee that he has taken an interest from advance

or loans from the above 7 persons for the purpose of staring the civil

construction business after his retirement. The Assessing Officer made

the entire addition of Rs.23,50,000/- which was cash deposited by the

assessee in the Bombay Mercantile Co-op. Bank Ltd., Solapur Branch for

failure of the assessee to satisfactorily explain sources.

4. The assessee challenged the addition before the Ld. CIT(A) but

without success as addition was confirmed. Now, the assessee is in

appeal before us.

5. We have heard the rival submissions of the parties and perused

the record. The assessee has filed the Paper Book in which the copies of

statement of the 6 loan creditors recorded by the Assessing Officer are

placed. The assessee also filed the copies of 7/12 extract of the loan

creditors to demonstrate that whatever the statement was given before

the Assessing Officer was correct. The Ld. AR for the assessee

vehemently argues that the present addition is made by the Assessing

Officer u/s. 68/69 of Act. As admittedly the assessee is not maintaining

the regular books of account. He submits that he was working with the

High School and Jr. College in Pune and he was to retire on 31-12-2007.

He, accordingly, plan to start the civil construction business he collected

some funds from his close friends and relatives. He could not

materialize his planning and the cash was lying with him for some time

but subsequently the cash was deposited in the bank. He argues that 9 ITA No. 135/PN/2014, M. Krishna G. Naidu, Solapur

out of 7 loan creditors, 6 loan creditors have appeared before the

Assessing Officer. The Assessing Officer also issued the summons to the

loan creditors and except one, all the summons were served on the

respective persons. He submits that out of 7 loan creditors, 6 creditors

who appeared before the Assessing Officer have confirmed that they have

given advance/loans to the assessee in cash.

5.1 The Ld. AR referred to the Paper Book where the copies of

statement recorded by the Assessing Officer are placed. He submits that

when the source is explained by the loan creditors and merely because

he has not maintained the books of account but other supporting

evidence in respect of the cultivation of land and the agricultural

produce was filed before the Assessing Officer and also confirmation was

filed, then how the Assessing Officer can raised a question mark on the

depositions of respective loan creditors. The Ld. AR submits that all loan

creditors are not educated except one or two, they belong to the village

and they are not trained witnesses but depose correct facts before the

Assessing Officer. He argues that the person who appears before the

Assessing Officer is aware about the consequence also for his false

statement which is recorded on oath. He referred to the statement of the

loan creditors placed in the Compilation as the copies of 7/12 extract

and he submits that Sec. 68/69 are the deeming provisions having the

limited application. There is a primary burden on the assessee to prove

the identity and genuineness of the transaction as well as the

creditworthiness of the person from whom it is claimed that the money

has come. He submits that the assessee produced 6 loan creditors as

well as their confirmation letters. Those 6 loan creditors in their

personal statements before the Assessing Officer on oath explained the

source where from they are generating the income and it cannot be said

that those persons do not have any income to lend the money to the 10 ITA No. 135/PN/2014, M. Krishna G. Naidu, Solapur

assessee. He submits that in respect of 2 loan creditors they were

employees and they also got retirement benefits. The inference drawn by

both the authorities below in respect of 6 loan creditors is totally on the

presumptions and surmises. He argues that one a source is explained

by the assessee, the Assessing Officer cannot expect the assessee to

explain the source of the source. He pleaded for deleting the additions

made by the Assessing Officer in respect of (i) Shri Ravindra Shamrao

Tambolkar, (ii) Shri Revansidheswar Swamiji, (iii) Shri Pandurang Babu

Shinde, (iv) Shri Irrappa Rajappa Konapure, (v) Shri Gurrappa Saibanna

Iranar and (vi) Shri Basavraj Ambadas More. In respect of 7 loan

creditor i.e. Sou Taramti S. Jadhav, he submits that the said loan

creditor also filed the confirmation as well as documentary proof of the

land record in the form of 7/12 extract. He submits that even if the said

loan creditor does not appear before the Assessing Officer but at the

same time she filed the confirmation letter. He pleaded for accepting the

said loan creditors a genuine one.

6. Per contra, the Ld. DR supported the orders of the authorities

below. He drawn attention of the Bench to the statement recorded by

the Assessing Officer and submits that from the statements of 6 loan

creditors, it is clear that none of the loan creditor is having the proper

bank account nor they are maintaining the books of account nor they

are paid any amount by any banking channels then how the

creditworthiness of those persons can be accepted. He submits that

merely because those 6 persons appeared before the Assessing Officer

and confirmed that they have given the loan to the assessee that will not

absolve the assessee from showing that he has explained the source.

The assessee has to demonstrate the creditworthiness of the lender. He

argues that both the authorities below have rightly rejected the claim of

the assessee in respect of 6 persons. In respect of 7 persons who does 11 ITA No. 135/PN/2014, M. Krishna G. Naidu, Solapur

not appear, he argues that even the identity of the said person is not

proved and merely filing of the confirmation letter is not sufficient. He

pleaded for confirming the addition made by the Assessing Officer.

7. In this case it was found by the Assessing Officer that the assessee

has deposited cash to the extent of Rs.23,50,000/- in his bank account

with Bombay Mercantile Co-op. Bank Ltd., Solapur Branch. The

Assessing Officer asked the assessee to produce those persons for

examination and verification. The Assessing Officer also issued the

summons which was duly served on the loan creditors. Out of 7 loan

creditors, 6 loan creditors, appeared before the Assessing Officer and

confirmed that they have given the advances to the assessee in cash

from time to time for his business purpose. It is true that none of the 6

persons are assessed to tax but at the same time as per the material

available on record, it is seen that all the 6 persons stated before the

Assessing Officer that they are having agricultural lands and they are

cultivating those land and taking the agricultural produce. It is also

seen that those persons also produced sample copies of the sale bills in

respect of the agricultural produce claimed to have been sold by them in

the market yard as well as to the sugar factories.

8. So far as Shri Ravindra Shamrao Tambolkar is concerned he has

confirmed that he has given the loan to the assessee. He has also

explained the source. He was working as a Overseer in Solapur

Municipal Corporation and has received the retirement benefits. He

confirmed that he has given the personal loan to the assesse of

Rs.3,00,000/- and out of that he has received back Rs.2,50,000/- during

the period October/November, 2007. In the case of this person, he has

not stated that he was having any agricultural income but at the same

time as per the statement given by the said Shri Ravindra Shamrao 12 ITA No. 135/PN/2014, M. Krishna G. Naidu, Solapur

Tambolkar on oath before the Assessing Officer, it is seen that he has

sufficient funds with him to lend sum of Rs.3,00,000/- to the assessee.

There is no dispute that this person appeared before the Assessing

Officer and deposed also so. Hence, the identity and genuineness cannot

be doubted. Now, the only aspect to be looked into is the

creditworthiness of the said person. In our opinion on the cursory look

on the facts noted by the Assessing Officer creditworthiness of the said

loan creditor cannot be disputed for giving the personal loan of

Rs.3,00,000/- to the assessee. We, accordingly, delete the addition in

respect of Shri Ravindra Shamrao Tambolkar of Rs.3,00,000/-.

9. In respect of Shri Revansidheswar Swamiji, he has also stated in

the clear terms that he has given the loan to the assessee but there is no

record. He produced the record of the agricultural activities. It is

claimed by him that he has 45 Acres of agricultural land and 10 Acres of

agricultural land is irrigated. He also produced the sample receipts of

the sale of TUR only the name of mentioned as Basavlingeshwhar Math.

He also produced the sample sale of bills of sale of sugarcane to the

Sidhheswar S.S.K. Solapur. It is true that he has not assessed to tax

but if a person having substantial agricultural income but he is not

having the non-agricultural income or non-agricultural income is below

the non-taxable limit inference can be drawn that he is not capable to

giving any loan as claimed. In our opinion that cannot be the correct

parameter as per the facts noted by the Assessing Officer itself. In our

opinion there is a creditworthiness in respect of amount of Rs.5,00,000/-

given to the assessee. The assessee has discharged his primary burden

by establishing the identity, genuineness and creditworthiness of the

loan creditor. We, accordingly, delete the addition made in respect of

Shri Revansidheswar Swamiji of Rs.5,00,000/-.

13 ITA No. 135/PN/2014, M. Krishna G. Naidu, Solapur

10. In respect of Shri Pandurang Babu Shinde it is true that he has

not assessed to tax but he has appeared before the Assessing Officer and

confirmed that he has given the hand loan to the assessee. He also

explained that the source of the said hand loan is from the agricultural

activities. He also produced 7/12 extract of the agricultural land to

demonstrate that in fact he is owner of agriculture land. He also claimed

that he is taking crops like sugarcane, maize, jowar, harbhara etc. He

also stated that he sales agricultural produce. Merely because he is not

assessed to tax but the data on record suggest that he is otherwise

capable to give the loan to the assessee and then why he should be

rejected on the reason of his creditworthiness. The assessee has to

establish identity, genuineness and creditworthiness of the loan creditor.

In this case on the perusal of the facts and figures noted by the

Assessing Officer, in our opinion the assessee has discharged his

primary burden u/s. 68/69 of the Act and hence, no addition is justified.

We, accordingly, delete the addition of Rs.3,00,000/-

11. In respect of Shri Irrappa Rajappa Konapure, the Assessing Officer

has noted that he is also agriculturalist and owner of 4.5 Acre

agricultural land which was irrigated. He also cultivated and takes the

sunflower and jowar and sales his agricultural produce. He has also

stated that he has 5 buffalos and two cows from which he sales the milk

to villages. He also confirmed that he has given Rs.3,00,000/- to the

assessee from time to time during the period May 2006 to November

2006 in cash. He also filed the confirmation letter. As per the facts

noted by the Assessing Officer in our opinion the identity and

genuineness cannot be doubted. So far as the creditworthiness is

concerned he has explained the source of his income. In our opinion

that his source is sufficient to lend some of Rs.3,00,000/- to the

assessee. We, accordingly, delete the addition.

14 ITA No. 135/PN/2014, M. Krishna G. Naidu, Solapur

12. In respect of Shri Gurrappa Saibanna Iranar is concerned, he is

old person and he is not assessed to tax. As noted by the Assessing

Officer as per his statement he is owner of 8 Acre agricultural land. He

is also produced 7/12 extract of all his agricultural lands. The said

person also explained where as he sales the agricultural produce. He

also confirmed that he has given the loan to the assessee. It appears

that there is some contradictions in his statement in respect of annual

income but so far as the identity and genuineness are concerned that

cannot be doubted the only aspect to be considered is to

creditworthiness. It is clear that he has given Rs.3,00,000/- to the

assessee but in our opinion as per the statement recorded that may not

support his claim of giving Rs.3,00,000/- to the assessee. After

considering the figures of the income, in the interest of justice, we hold

that to the extent of Rs.2,00,000/- he has established his

creditworthiness. We, accordingly, sustain the addition to extend of

Rs.1,00,000/- in respect of Shri Gurrappa Saibanna Iranar.

13. In respect of Shri Basavraj Ambadas More, we find that he is the

owner of 6.5 Acre agricultural land which is irrigated. He confirmed that

he has given the loan to the assessee. As per the facts on record and

statement of the said person identity and genuineness cannot be

doubted. It is also stated by him that he takes the agricultural produce

in the form of grapes. He also produced documentary evidence in the

form of sales bills of the dry grapes. Giving our anxious consideration to

statement of the said person as well as the documentary evidence, we

hold that the assessee has established identity, genuineness and

creditworthiness of the said person.

14. The last creditor is Sou Taramati S. Jadhav. Admittedly, the said

loan creditor did not appear before the Assessing Officer. Admittedly, 15 ITA No. 135/PN/2014, M. Krishna G. Naidu, Solapur

the assessee had filed only 7/12 extract to demonstrate that she is

owner of land. It is claimed that she has paid Rs.3,00,000/- to the

assessee. In our opinion in this case, the identity, genuineness and

creditworthiness are not proved. We, accordingly, confirm the addition.

We, accordingly, partly allow the ground taken by the assessee and

delete the addition to the extent of Rs.19,50,000/- out of Rs.23,50,000/-

15. In the result, the assessee's appeal is partly allowed.

Pronounced in the open Court on 25-02-2015

Sd/- Sd/- (G.S. PANNU) (R.S. PADVEKAR) ACCOUNTANT MEMBER JUDICIAL MEMBER

Pune, Dated: 25th February, 2015 RK/PS

Copy to

1 Assessee 2 Department 3 The CIT(A)-III, Pune 4 The CIT-IV, Pune 5 The DR, ITAT, "A" Bench, Pune. 6 Guard file.

//True Copy// By Order

Assistant Registrar, Income Tax Appellate Tribunal, Pune