N Nagendra Rao, Hyderabad vs Assessee

This is an appeal by assessee against the order of the Commissioner of Income Tax (Appeals)-II, Hyderabad dated 09-10-2014.

2. Briefly stated, assessee is an employee of State Bank of India and filed return of income admitting taxable income of Rs. 4,26,440/-. In the scrutiny assessment completed by the AO, he made an addition of Rs. 46,95,350/- being unexplained cash deposits in bank accounts along with loss from house property disallowed at Rs. 1,04,548/-, disallowance of claim u/s. 80C Rs. 1 Lakh and exemption u/s. 10 Rs. 2,890/-. The same were contested before the Ld.CIT(A), who gave partial relief to an extent of Rs. 16 Lakhs on the addition made of cash deposits in bank accounts whereas the balance amounts are dismissed for want of evidences, as made out by the Assessing Officer (AO).

ITA No. 41/Hyd/2015 :- 2 -: N. Nagendra Rao

3. With reference to the addition of Rs. 46,95,350/-, there was an AIR information that there were cash deposits in the Vijaya Bank and Andhra Bank accounts of assessee at Hyderabad. When enquired into the sources of these cash deposits, assessee explained that he is an employee of State Bank of India and is holding credit cards of several banks jointly with his wife. It was further submitted that his father-in- law who was engaged in transportation business has used the credit cards in order to meet fuel expenses and cash deposits are made by him in order to pay the credit card amounts. In support, he filed copy of the IT return of Shri S. Purnachandra Rao, father-in-law. However explanation of assessee was not accepted as the AO found that total deposits are more than the receipts admitted by father-in-law and that assessee did not furnish any supporting evidence co-relating the use of credit cards with the deposits. On appeal Ld.CIT(A) on examination of submissions, gave credit to the amount of Rs. 16 Lakhs accepted by Shri S. Purnachandra Rao as the said return of income was filed much before scrutiny. It was also submission by assessee that along with assessee's father-in-law, his business partner Shri Mohd. Nazmeen Iqbal, also used credit cards. Even though that person's returns were also enclosed in support, on the reason that the name of Shri Mohd. Nazmeen Iqbal was not brought before the AO and no evidence was furnished in support of use by the said person, only amounts accepted by Shri S. Purnachandra Rao were allowed by the CIT(A) and balance amount of Rs. 30,95,350/- was confirmed.

4. Contesting the above, Ld. Counsel submitted that most of the payments are to the 'filling stations' for use of petrol which was also accepted by the AO and CIT(A). It was the submission that assessee being an employee of State Bank of India worked away from his family who stayed at Hyderabad and his Father-in-law and his business ITA No. 41/Hyd/2015 :- 3 -: N. Nagendra Rao

associate utilized the credit cards and as and when the payments were due deposited cash. Therefore, entire deposits are arising from the business transactions of the above people and assessee should not be burdened with the demand. In support, he filed the copies of bank accounts and credit cards statements, along with copies of return of Mr. Nazmeen Iqbal.

5. Ld. DR, however, pointed out that assessee has mentioned only the name of Shri S. Purnachandra Rao, before the AO and when he pointed out that the turnover of Shri S. Purnachandra Rao, does not explain the full deposits in the bank account and rejected by the AO, the name of Shri Mohd. Nazmeen Iqbal was brought into picture. Hence, the same cannot be accepted as it is an after thought. He supported the orders of the Ld.CIT(A).

6. We have considered the rival contentions and perused the documents placed on record. We are of the opinion that both AO and CIT(A) came to conclusions without examining the facts in its correct perspective. When assessee explained that credit cards are used by others, the details of credit cards should have been analyzed. Not only the payments to petrol Filling sations, the bank account indicate that:

i. there are payments out of the cash deposits not only to credit cards but also to M/s Sri Ram Chits on monthly basis; ii. withdrawals/transfer by assessee by way of cheques out of cash deposits and iii. payments to school (Slate) towards fees of children and other payments to Kalanikethan etc., ITA No. 41/Hyd/2015 :- 4 -: N. Nagendra Rao

further, as seen from the statement of Shri Mohd. Nazmeen Iqbal placed in page 37 of Paper Book, the oil and lubricants purchased were only to the extent of Rs. 16,60,540/-. Therefore, it is necessary to analyse the credit card payments and see whether they are raised by the said two parties or not and if so to what extent and what purchases? Moreover, the amounts utilized by assessee or spent on his behalf should also be quantified and sources should be examined. Without doing any of the analysis of the transactions, it is not possible to either confirm the amounts or delete the amounts as contested before us. In view of this, to the extent of amount confirmed by the CIT(A) the matter is restored to the file of AO to examine the bank accounts, analyse the amounts, (excluding the amount of Rs. 16 Lakhs given credit towards Shri S. Purnachandra Rao) and balance amount to be examined whether credit can be given to any transactions of Mr Nazmeen Iqbal and if not, whether same can be brought to tax in the hands of assessee. For this purpose, the grounds on this issue are restored to the file of AO to do the needful after giving due opportunity of hearing to assessee. Ground is considered allowed for statistical purposes.

7. Ground Nos. 4, 5 and 6 are with reference to the amounts which are disallowed by the AO in computation out of the claims made by assessee. Ground No. 4 pertains to loan of Rs. 1,04,548/- under the head 'House Property' which seems to be interest paid out of the self- occupied property. Assessee submits that it is certified in the Form-16 furnished by the employer. Like-wise, AO disallowed the amount of Rs. 1 Lakh claimed u/s. 80C mainly towards LIC insurance (Ground No.5). There are payments in the bank account to insurance also. This is also certified in Form-16 furnished by the employer. We are unable to understand on what basis the AO could disallow these amounts without properly examining the same. Ground No.6 is with reference to claim of ITA No. 41/Hyd/2015 :- 5 -: N. Nagendra Rao

exemption u/s. 10 of interest received at Rs. 2,890/-. If the amount is received from PF or GPF account or any such thing which is exempt, the same should be allowed. Without examining the nature of amount, AO cannot bring to tax accounts on presumptions and assumptions. Since, AO did not examine the above three amounts and unfortunately, CIT(A) confirmed the same in spite of submissions made by assessee, we have no option than to restore the issue to the file of AO to re-examine and allow the amounts. These grounds are also restored to the file of AO.

8. Assessee should be given due opportunity and his explanations should be considered after examining the same.

9. In the result appeal is treated as allowed for statistical purposes.

Order pronounced in the open Court on 30th June, 2015.

Sd/- Sd/- (ASHA VIJAYARAGHAVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated 30th June, 2015 TNMM ITA No. 41/Hyd/2015 :- 6 -: N. Nagendra Rao

Copy to :

1. Sri N. Nagendra Rao, 1-1-398/3, Flat No. 302, Mahadev Mansion, Gandhinagar, Hyderabad. C/o. Sri S. Rama Rao, Advocate, Flat No. 102, Shriya's Elegance, 3-6-643, Street No.9, Himayatnagar, Hyderabad.

2. Income Tax Officer, Ward-12(4), Hyderabad.

3. CIT(Appeals)-II, Hyderabad.

4. CIT-I, Hyderabad.

5. D.R. ITAT, Hyderabad.

6. Guard File.