Sri. S. Srinivasa Rao,, Hyderabad vs Assessee

This appeal filed by the assessee is directed against the Order of Ld. CIT(A)-VII, Hyderabad dated 27.11.2013 and the solitary issue arising out of the same relates to the addition of Rs.8,28,000 made by the A.O. and confirmed by the Ld. CIT(A) to the total income of the assessee on account of the amount claimed to be borrowed by the assessee from Smt. K. Swarajyam treating the same as unexplained cash credit under section 68 of the Act.

2. The assessee in the present case is an individual. A search and seizure action under section 132 was conducted in the case of Mr. Vengella Ananda Prasad and others on 07.10.2009. During the course of search, certain documents showing the investment made by the assessee in purchase of 2 ITA.No.252/Hyd/2014 Sri S. Srinivasa Rao, Hyderabad.

agricultural lands were found. Subsequently, notice under section 153C was issued by the A.O. in response to which, the return of income for the year under consideration i.e., A.Y. 2004-2005 was filed by the assessee declaring total income of Rs.40,322. During the course of assessment proceedings, the assessee while explaining the investment made in purchase of agricultural land submitted that substantial unsecured loans were borrowed by him from his family members. During the year under consideration, such loans were claimed to be received by the assessee from his mother-in-law Smt. K. Swarajyam to the extent of Rs.8,28,000 and sister K. Haritha to the extent of Rs. 2 lakhs. On examination of the relevant documents filed by the assessee in support of his claim, the A.O. held that the capacity of the concerned two creditors to give the amounts in question to the assessee was not satisfactorily established. Accordingly, he treated the loans claimed to be received by the assessee from his mother-in-law and sister as unexplained and the amount of Rs.10,28,000 was added by him to the total income of the assessee under section 68 in the assessment completed under section 143(3) read with section 153C of the Act vide order dated 26.12.2011.

3. Against the order passed by the A.O. under section 143(3) read with section 153C, an appeal was preferred by the assessee before the Ld. CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the Ld. CIT(A) treated the loan of Rs. 2 lakhs claim to be received by the assessee from his sister Haritha as explained. He however, upheld the action of the A.O. in treating the loan of Rs.8,28,000 claim to be received by the assessee from his mother-in-law Smt. K. Swarajyam as 3 ITA.No.252/Hyd/2014 Sri S. Srinivasa Rao, Hyderabad.

unexplained for the following reasons given in paragraph Nos. 7.1 to 7.4 of his impugned order.

"7.1. To establish the genuineness of any loan, three factors have to be seen (a) Existence of the person,

(b) capacity of the person to lend and (c) mode of loan/lending of loan.

7.2. In the instant case, the existence of the person i.e., Smt. K. Swarajyam is established. She has no personal capacity to lend as the source of "lending" is receipt of funds from her daughter and son in law who are residing in USA. However, there is no visible, immediate nexus between the date of receipt of amount from her daughter and giving of the loan to the appellant. There are a number of transactions in between and actually before giving loan there are fresh credits which are in turn claimed to have been emanating from temporary hand loans and advances given to friends and relatives and rotated from original loan amount given by Smt. Harita and Sri Ratna Babu. Thus, there is no immediate nexus for the explanation furnished.

7.3. Mode of receipt of loan is important because it establishes the sources of a credit and fund flow through a verifiable and an independent third party namely, the bank. It is to be noted that the loan amounts from Smt. Swarajyam, were received by way of cash. Thus, an independent evidence for fund flow is missing. If there were no other transactions of "temporary hand loans" between receipt of funds from the Non-resident daughter and from the advancement of loan to the appellant, there would have been some credibility in the explanation. Now, one does not really know whether the same funds surfaced with the appellant or vanished as "temporary loans" to someone else. The onus is on the appellant to prove beyond doubt. That is not done.

7.4. In the light of the above, as two of three key factors to establish genuineness of a loan are not proved beyond doubt, the addition on account of loan 4 ITA.No.252/Hyd/2014 Sri S. Srinivasa Rao, Hyderabad.

amount of Rs.8,28,000 purportedly received from Smt. K. Swarajyam is upheld and the explanation of the assessee is not accepted."

4. The Ld. CIT(A) thus confirmed the addition of Rs.8,28,000 made by the A.O. on account of loan claimed to be received by the assessee from his mother-in-law Smt. K. Swarajyam treating the same as unexplained cash credit holding that the capacity of the creditor as well as the genuineness of the transaction was not properly established by the assessee. Aggrieved by the order of the Ld. CIT(A), the assessee has preferred this appeal before the Tribunal.

5. We have heard the arguments of both the sides and also perused the relevant material on record. As submitted by the Ld. Counsel for the assessee, unsecured loans claimed to be received by the assessee from Smt. K. Swarajyam in A.Y. 2008-2009 were also treated by the A.O. as unexplained and when the matter reached to the Tribunal, the Coordinate Bench of this Tribunal vide its order dated 28.08.2014 passed in ITA.No.1786/Hyd/2012 restored the matter to the file of the A.O. for the following reasons given in paragraph No.23.

"23. We have considered the submission of the parties, perused the orders of the revenue authorities and the materials on record. As can be seen from the assessment order as well as order passed by the CIT(A) the assessee in fact has not only established the identity of the creditor, but has also submitted confirmation letters in support of the loan received. Further, the A.O. has also observed that funds were transferred from the accounts of the creditor to the assessee. If that is the case, then the A.O. cannot disbelieve the loan unless there is strong evidence before him to suggest that it is only the assessee's money, which was routed through the bank account of the creditor. Further, on a perusal of the order 5 ITA.No.252/Hyd/2014 Sri S. Srinivasa Rao, Hyderabad.

passed by the CIT(A) for the assessment years 2006-07 and 2007-08 it appears similar loan received from the same creditor was accepted by the CIT(A) after examining the bank statements and other evidences produced by the assessee. Therefore, if the assessee is able to prove the credit by producing similar evidence as is the case in A.Y. 2006-07 and 2007-08, then, there will be no reason to treat the loan as unexplained cash credit at the hands of the assessee. In the aforesaid view of the matter, we are inclined to remit this issue to the file of the A.O. for deciding afresh after examining all facts and materials brought on record and only after affording a reasonable opportunity of being heard to the assessee."

5.1. As the issue involved in the year under consideration as well as the material facts relevant thereto are similar to A.Y. 2008-2009 as agreed even by the learned D.R., we respectfully follow the order of the Tribunal for A.Y. 2008- 2009 and restore the issue relating to addition made on account of loan claimed to be received by the assessee from Smt. K. Swarajyam treating the same as unexplained to the file of the A.O. for deciding the same afresh as per the same directions as given by the Tribunal in A.Y. 2008-2009.

6. In the result, appeal of the assessee is treated as allowed for statistical purposes.

Order pronounced in the open Court on 24.04.2015.

Sd/- Sd/- (SMT. P. MADHAVI DEVI) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated 24th April, 2015.

VBP/- 6 ITA.No.252/Hyd/2014 Sri S. Srinivasa Rao, Hyderabad.

Copy to

1. Mr. S. Srinivasa Rao, H.No.1-7-502/11, Jamistanpur, Musheerbad, Hyderabad - 500 020.

2. DCIT, Central Circle-5, Hyderabad.

3. CIT(A)-VII, Hyderabad

4. CIT (Central), Hyderabad.

5. D.R. I.T.A.T. "B" Bench, Hyderabad.