Sri T Srinivasa Rao,, Hyderabad vs Assessee

This appeal filed by the assessee is directed against the order of the Ld. CIT(A)-IV, Hyderabad dated 10.01.2014 for the A.Y. 2009-2010.

2. Briefly stated, the assessee runs a wholesale business in cement, tyres and tubes and also runs motor cars on hire. He filed his return of income on 29.09.2009 admitting taxable income of Rs.9,84,908. The A.O. assessed a sum of Rs.22 lakhs deposited in assessee's bank account as unexplained cash credits under section 68 of the Act. Aggrieved by the order of the A.O. the assessee filed appeal before the Ld. CIT(A). In the assessment proceedings before the A.O., it was contended by the learned A.R. of the assessee that the deposit of Rs.22 lakhs has been made in his ICICI bank 2 ITA.No.699/Hyd/2014 Mr. T. Srinivasa Rao, Kurnool.

account out of Rs.11 lakhs received from Mr. V. Mallikarjun Choudary and another Rs.11 lakhs from Mr. K. Ramakrishna Reddy as advance for sale of land. The assessee filed un- registered agreement copies in support of his claim.

2.1. The A.O. had directed to produce the bank extracts of the two persons viz., Mr. V. Mallikarjun Choudary and Mr. K. Ramakrishna Reddy to establish the genuineness of the transactions. The A.R. produced the confirmation letters of the two parties along with their land holding details and bills in respect of sale of agricultural produce. The A.O. pointed out that the learned A.R. has failed to produce the bank account extracts of the two parties from whom the advances were received and held that in the absence of receipt of money through banking channels towards the alleged advances for sale of agricultural land, the transaction would not be treated as genuine. The A.O. also stated that the assessee failed to produce necessary evidence to prove that the transaction of receipt of advance for sale of agricultural land (which was subsequently cancelled). In these circumstances, the A.O. treated the sum of Rs. 22 lakhs as unexplained credit.

3. Before the Ld. CIT(A), the learned A.R. submitted that agreement of sale was not statutorily required to be registered and stated that an unregistered agreement of sale was permissible as evidence. The learned A.R. relied on the confirmation letters, pattadar passbooks and sale bills obtained from Kurnool Market Yard and also the agreement of sale entered into for supporting his claim.

4. The learned CIT(A) observed that the unregistered agreements do not carry any corroborative evidentiary value as 3 ITA.No.699/Hyd/2014 Mr. T. Srinivasa Rao, Kurnool.

a registered agreement would have done. He further observed that the evidentiary value of this agreement for establishing the genuineness of the transaction is compromised due to subsequent cancellation of the agreement. Secondly, the Ld. CIT(A) observed that it was necessary for the assessee to establish the creditworthiness of the parties concerned in order to establish his claim for the credits into his bank account. The Ld. CIT(A) opined that the documents produced by the assessee do not establish that the creditors were owners of agricultural land and actually derived agricultural income from the land. Further, the documents produced by the assessee does not establish the quantum of agricultural income derived from the land. The Ld. CIT(A) relied on the decision of Paras Collins Distilleries vs. ITO (2011) 7 ITR 614.

4.1. The Ld. CIT(A) relied on the decision of ACIT vs. Indian Art Emporium (1994) 209 ITR (AT) 1 (T.M.) and held that the assessee has failed to establish the creditworthiness of the creditors and genuineness of the transactions. The Ld. CIT(A) confirmed the addition of Rs. 22 lakhs as unexplained credit under section 68 of the I.T. Act and upheld the order of the Income Tax Officer.

5. Aggrieved, the assessee preferred the appeal before us. The facts are that Mr. V. Mallikarjun Choudary and Mr. K. Ramakrishna Reddy intended to purchase the land for a total area of ac.4.32 gts in Rayamakulakunta (v) in Mahabubnagar District from Mr. T. Srinivasa Rao, Kurnool. They combinedly entered into an agreement of sale with Mr. T. Srinivasa Rao on 26.08.2008. Against the sale agreement on 26.08.2008, an advance of Rs. 11 lakhs was paid by way of cash from each one of them i.e., Rs.11 lakhs from Mr. V. Mallikarjun Choudary 4 ITA.No.699/Hyd/2014 Mr. T. Srinivasa Rao, Kurnool.

and Rs.11 lakhs from Mr. K. Ramakrishna Reddy. The copies of the agreements were also filed and we find that the agreements have not been registered. The A.O. held that in the absence of receipt of money through banking channels towards the alleged advance for sale of agricultural lands, the transaction cannot be treated as genuine one. The A.O. also observed that non-production of bank account extracts of the persons who had advanced money would lead to the conclusion that the transaction is not a genuine one.

5.1. On further appeal to the Ld. CIT(A), the Ld. CIT(A) stated that the assessee had produced the confirmation letter from Mr. V. Mallikarjun Choudary and Mr. K. Ramakrishna Reddy and pattadar pass books and sale bills obtained from the Kurnool Market Yard Agent. But however she held that these evidences do not establish that the owner of the agricultural lands actually derive any agricultural income from the lands in question and do not establish the quantum of agricultural income, if any, derived from the land.

5.2. Further, the Ld. CIT(A) wrongly at para 4.7 has stated that "none of the bills are in the name of two alleged creditors Mr. V. Mallikarjun Choudary and Mr. K. Ramakrishna Reddy." In fact on the perusal of the paper book at pages 11 and 12, we find the name of Mr. V. Mallikarjun Choudary as the creditor. Hence, the Ld. CIT(A) has committed a factual error in his statement. In the bills it has been clearly stated that the name of the agriculturist to be Mr. V. Mallikarjun Choudary at pages 13 and 14 and the commodity grown is sun flower. The bill given by the sales agent, Market Yard, Kurnool Mr. Katta Aswarthanarayana Setty evidences the sale of the crop cultivated by Mr. V. Mallikarjun Choudary.

5 ITA.No.699/Hyd/2014 Mr. T. Srinivasa Rao, Kurnool.

Similarly at pages 23 and 24 the agriculturist is Mr. K. Ramakrishna Reddy and the commodity is Turdal which has been sold to Mr. Katta Aswarthanarayana Setty who is a sales agent in Market Yard, Kurnool. Hence, both the lower authorities have erred in appreciation of the facts of the case. The assessees have produced the confirmation letters, pattadar pass book, copies of bills as well as agreement of sale. It can be seen that Mr. V. Mallikarjun Choudary has ac.20.33 of land and Mr. K. Ramakrishna Reddy has ac.17.00 of land on perusing the pata. Hence, it is highly probable that by cultivation of the land for past 30 years both of them could have accumulated some money which they had paid as advance to Mr.Srinivasa Rao. Further, that both of them have been cultivating their respective lands is evidenced by the sale bills of Market Yard, Kurnool. Hence, we are of the opinion that the department has not brought out any material to prove that amount of Rs. 22 lakhs is unexplained cash credit. In these circumstances, as both Mr. V. Mallikarjun Choudary and Mr. K. Ramakrishna Reddy have agricultural income from cultivation of land during the period of 30 years, the cash credits cannot be treated as unexplained and hence we delete the addition made under section 68 of the Act.

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

Order pronounced in the open Court on 29.05.2015.

Sd/- Sd/- (INTURI RAMA RAO) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated 29th May, 2015

VBP/- 6 ITA.No.699/Hyd/2014 Mr. T. Srinivasa Rao, Kurnool.

Copy to

1. Mr. T. Srinivasa Rao Kurnool. C/o. Ch. Parthasarathy & Co., 1-1-298/2/B/3, 1st Floor, Sowbhagya Avenue, St.No.1, Ashoknagar, Hyderabad - 500 020.

2. The Income Tax Officer, Ward-1, Kurnool

3. CIT(A)-IV, Hyderabad.

4. CIT-III, Hyderabad.

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

6. Guard File