Palli Sreedhar Reddy, Hyderabad vs Assessee

Palli Sreedhar Reddy, Kurnool vs. Income Tax Officer, Ward - 2, Kurnool. PAN - AYUPS 2212G (Appellant) (Respondent)

Assessee by : Shri S. Rama Rao Revenue by : Ms. V. Rajitha

Date of hearing 21-05-2015 Date of pronouncement 27-05-2015

O RDE R

PER SAKTIJIT DEY, J.M.:

This appeal by assessee is directed against the order dated 04/10/2013 of ld. CIT-IV, Hyderabad for the AY 2009-10.

2. The only dispute in this appeal is in relation to addition of an amount of Rs. 24,23,140.

3. Briefly the facts relating to the issue in dispute are, assessee is an individual. For the AY under consideration, assessee filed his returnof income on 16/07/2009 declaring total income of Rs. 1,75,690 besides agricultural income of Rs. 3,20,310. As alleged by AO though assessee vide order sheet entry dated 09/12/11 was asked to explain the sources for cash deposits made in the bank account and also to produce books of account, however, since assessee failed to comply to the directions of AO assessment was completed exparte u/s 144 of the Act, by adding the peak of the cash deposits made into the bank 2 ITA No. 9 /Hyd/2014 Palli Sreedhar Reddy

account amounting to Rs. 24,23,140. Being aggrieved of such addition, assessee preferred appeal before ld. CIT(A).

4. In course of hearing of appeal, explaining the source of cash deposits made into the bank account, assessee submitted that not only cash deposits were routed through the books of account but it was from explained sources. It was submitted, assessee is engaged in the business of real estate agent and the cash deposits represent advances received from prospective purchasers of land. In support of such contention, assessee submitted, confirmation letters from the concerned persons, who according to assessee had given advances for purchase of land. Since the confirmations by way of additional evidence were submitted for the first time before ld. CIT(A), he sent them for examination of the AO and called for a remand report. On the basis of the confirmation letters, AO examined the persons stated to have advanced money to assessee and after examining them submitted report stating therein that the concerned persons, namely, S/Shri J. Naveen Kumar Reddy, Y. Vinod Reddy and S. Bala Veeraiah, though, admitted of having advanced amounts to assessee, but, according to AO, they do not have adequate creditworthiness to make such advances. Therefore, he opined that assessee's claim of having received advances from these persons cannot be accepted. On the basis of remand report submitted by AO, ld. CIT(A) confirmed the addition of Rs. 24,23,140 by observing that though assessee has proved the identity of the creditors, but, he has failed to establish either creditworthiness of the creditor or the genuineness of the transaction.

5. Ld. AR submitted before us, not only the persons who had advanced money to assessee towards investment in land have confirmed of having advanced the amount, but, in course of their examination before AO have also categorically stated that they have 3 ITA No. 9 /Hyd/2014 Palli Sreedhar Reddy

made advances to assessee. In this context, ld. AR referred to the confirmations issued by the concerned persons and their account copies in the books of assessee. He also referred to the statements recorded from the concerned creditors by AO. Ld. AR submitted, when assessee has explained the source of cash deposits in the bank account with supporting evidence and the concerned persons have also admitted the said fact AO cannot override such evidence and make addition by insisting that assessee has to prove the source of the creditors also. Ld. AR submitted, neither AO nor ld. CIT(A) have properly verified the bank account and merely on presumption and surmises have made addition of peak credit.

6. Ld. DR, on the other hand, strongly supporting the reasoning of AO and CIT(A) submitted, assessee having failed to establish the creditworthiness of the creditors and genuineness of the transaction, cash deposits made into the bank account have to be treated as unexplained credit of assessee. Ld. DR submitted, the statements of the creditors are not believable as alleged date of advancing money by them do not match with the date of deposit into the bank account. Therefore, much reliance cannot be placed on the confirmation of the creditors. Thus, it was submitted by ld. DR, addition made has to be sustained.

7. We have considered the submissions of the parties and perused the orders of revenue authorities as well as other materials on record. As could be seen, in course of assessment proceeding, since assessee failed to appear and explain the source of cash deposits made into bank account, AO treated the peak of such deposits amounting to Rs. 24,23,140 as unexplained credit and added it to the income of assessee. However, before ld. CIT(A), assessee stated that the cash deposits made into the bank account represent advances received from some persons, namely, S/Shri J. Naveen Kumar Reddy, 4 ITA No. 9 /Hyd/2014 Palli Sreedhar Reddy

Y. Vinod Reddy and S. Bala Veeraiah, who wanted to purchase land through assessee. It is also a fact on record not only assessee had submitted confirmation letters along with account copies of the aforesaid persons before ld. CIT(A), but, during remand proceeding these three persons were also examined on oath by AO. On perusal of the statement recorded from these persons, copies of which are placed at pages 18, 20 & 36 of the paper book, it is manifest that all of them have categorically stated before AO that they have made advances to assessee. They also explained the source from which they earned income for enabling them to advance the amounts to assessee. As it appears, AO did not accept the statements of these persons while submitting the remand report mainly for the reason that the concerned persons did not have the capacity to advance money. Ld. CIT(A) has also accepted the view expressed by AO. However, when the persons concerned have not only confirmed, but, in their statements on oath have also categorically accepted of having advanced monies to assessee, the statement made by them have to be presumed to be correct unless positive evidence is brought on record to disprove such statement. On the other hand, AO, as it appears, merely on assumptions and presumptions has doubted the creditworthiness of the concerned persons by observing that they do not have the capacity to advance the amount. On perusal of statements recorded on oath following facts have been noticed. Shri J. Naveen Kumar Reddy owns about 28 acres of agricultural land and claimed to have earned agricultural income of Rs. 8 to 10 lakhs per annum. Sri Soma Balaveeraiah is on real estate business from which he earns annual income of Rs. 4 lakhs. Shri Y. Vinod Reddy is software engineer. The statements further reveal, each of the creditor has explained the source of fund with them. On perusal of remand report it is very much clear AO has not made any independent enquiry to find out whether these persons actually have creditworthiness or not. Moreover, when assessee has explained the source of cash deposits, which were not only supported by 5 ITA No. 9 /Hyd/2014 Palli Sreedhar Reddy

confirmation letters obtained from the concerned persons, but, the concerned persons themselves appeared before AO and in their statements on oath have accepted of having advanced the amounts, assessee cannot further be asked to explain the source of source. Therefore, in absence of any other contrary evidence brought on record by AO to disprove the claim of assessee, in our view, addition cannot be sustained. Accordingly, we delete the addition of Rs. 24,23,140 by allowing the grounds raised by assessee.

8. In the result, appeal of assessee is allowed.

Pronounced in the open court on 27 th May, 2015.

Sd/- Sd/- (INTURI RAMA RAO) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated: 27 th May, 2015 kv Copy to:-

1) Shri Palli Sreedhar Reddy, C/o Sri S. Rama Rao, Advocate, Flat No. 102, Shriya's Elegance, H. No. 3-6-643, St. No. 9, Himayat Nagar, , Hyderabad - 500 029

2) ITO, Ward - 2, Hyderabad 3 CIT(A)-IV, Hyderabad

4) CIT-III, Hyderabad

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