As creditworthiness and genuineness were established, the addition to the unexplained cash deposit became untenable

Challenging the order(s) passed by the CIT(Appeals)-4, Hyderabad, (“Ld.CIT(A)”) in the case of Sri Siva Prasad Nidamarthy (“the assessee”) for the assessment years 2014-15 & 2015-16, Revenue preferred these appeals and the assessee preferred cross-objections. For the sake of convenience, we dispose of these appeals by this common order, taking the appeal of Revenue and cross objections of assessee for the assessment year 2014-15 as lead cases

It could be seen from the record that the appeals and cross objections are filed with delay and the reasons attributed for the delay in filing these appeals of Revenue is pandemic whereas the assessee pleads that he was being diagnosed with Covid-19 and admitted to Yashoda Hospital, Somajiguda, Hyderabad on 13/03/2021 and discharged on 19/03/2021. In respect of pandemic period, the Hon’ble Supreme Court in the Suo Motu proceedings in the case of M.A.No. 21/2022 in M.A.No. 665/2021 in SMW(C) No.3 of 2020 by order dated 10/01/2022 held that in cases, where the limitation would have expired during the period between 15/03/2020 and 28/02/2022, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 01/03/2022, and in the event of actual balance period of limitation remaining with effect from 01/03/2022 is greater than 90 days, that longer period shall apply. On account of this, delay in Revenue’s appeal is condoned

Insofar as the delay in cross objection is concerned, there is no reason as to why the explanation of the assessee cannot be accepted. As a matter of fact, learned DR fairly concedes to condone the delay. Recording the same, we condone the delay and proceed to hear the matter on merits

Two additions are in question in this appeal. One is in respect of unexplained cash deposit of Rs. 1,00,53,000/- under section 69A of the Act and the other is Rs. 2.35 crores under section 68 of the Act. Brief facts of the case are that the assessee is the Managing Director of M/s. Lampex Electronics Ltd., Hyderabad and did not file his return of income for the assessment year 2014-15. However, purusuant to the notice under section 148 of the Income Tax Act, 1961 (‘the Act’), he filed the return of income declaring an income of Rs. 17,01,920/-

During the course of assessment proceedings, learned Assessing Officer found a sum of Rs.6,39,42,000/- stood deposited in SBH, Sanathnagar and Kukatpally Branches. According to the learned Assessing Officer, assessee explained such deposits only to the extent of Rs. 5,38,89,000/- leaving a balance of Rs. 1,00,53,000/- unexplained and, therefore, added the same to the income of the assessee

Further, learned Assessing Officer observed that out of the total cash deposits in various bank accounts, an amount of Rs. 2.35 crores was received from M/s. Royal Home Constructions towards Refundable Fidelity Guarantee as per the Development Agreement dated 26/02/2007. According to the learned Assessing Officer assessee, though furnished the confirmation from M/s. Royal Home Constructions, but failed to furnish the copy of accounts of the assessee in the books of M/s. Royal Home Constructions nor the return of income of M/s. Royal Home Constructions. Though M/s. Royal Home Constructions was assessed to tax earlier, from assessment year 2013-14, they also stopped filing return of income and the Income Tax Inspector deputed to serve the notice to M/s. Royal Home Constructions reported that no such office was existing. Learned Assessing Officer, therefore, concluded that the creditworthiness of M/s. Royal Home Constructions and the genuineness of transaction is not established and, therefore, added such amount to the income of the assessee

In appeal, the assessee submitted copies of the declaration under the Income Disclosure Scheme, 2016 (IDS), bank account statements, reconciliation statement, copy of the letter submitted before the learned Assessing Officer. In respect of the first addition on a reappraisal of all this material, learned CIT(A) concluded that only Rs. 5,21,199/- remain unexplained and has to be sustained. In respect of the second addition, learned CIT(A) recorded that the assessee filed the copies of the Deed of Infrastructure Development Agreement dated 14/03/2017, confirmation letter 23/04/2015 from the Managing Director of M/s. Royal Home Constructions supported by his affidavit and after obtaining the remand report. On a perusal of the same, learned CIT(A) reached a conclusion that the assessee satisfactorily discharged the onus cost upon it and, therefore, the second addition also was to be deleted

Aggrieved by the action of the learned CIT(A), the Revenue filed this appeal; whereas, the assessee filed the cross objection supporting the findings of the learned CIT(A)

It is the submission on behalf of the Revenue that while deciding the additions in this matter, learned CIT(A) did not give an opportunity to the learned Assessing Officer to verify the various bank accounts and the other material furnished by the assessee and, therefore, the learned Assessing Officer needs to be given an opportunity to verify the material and offer his comments. It is the submission of the Ld. DR that the total cash deposits were taken at Rs. 6,08,60,199/- by the learned CIT(A) as against Rs. 6,64,06,799/- adopted by the learned Assessing Officer in the assessment order and in this process the learned CIT(A) failed to seek the remand report from the learned Assessing Officer. Learned DR submits that IDS declaration made by the assessee was taken by the learned CIT(A) at Rs. 5,53,68,000/- whereas the actual amount declared by the assessee in IDS was only Rs. 5,37,17,000/- and thus the excess relief granted to the tune of Rs. 16,51,000/- is not tenable. Learned DR further submitted that the agricultural income of Rs. 28.5 lakhs was stated by the learned CIT(A) as accepted in the original assessment itself whereas there is no original assessment in this matter for the assessment year 2014-15 and as per the letter of the assessee filed on 06/02/2017, the amount of Rs. 3,02,17,000/-declared in IDS includes agricultural income of Rs. 28.5 lakhs and therefore the learned CIT(A) committed error in granting relief of such amount. Even in respect of Rs. 11,84,400/- which was claimed to have been received by the assessee from his sister, the assessee failed to submit any proof in respect of identity and creditworthiness of such person or the genuineness of transaction. For these reasons, learned DR submitted that the matter needs to be verified by the learned Assessing Officer and therefore, the same has to be restored to the file of the learned Assessing Officer\

Per contra, it is the submission of the learned AR that it could be seen from the letter dated 20/12/2017 submitted by the assessee during the course of assessment proceedings before the learned Assessing Officer that the assessee furnished all the bank account details to the learned Assessing Officer and also clarified the receipts of Rs. 28.5 lakhs and also Rs. 11,84,400/- which learned DR is no disputing but the learned Assessing Officer simply brushed aside the submissions made by the assessee and without adverting to the contentions of the assessee in his explanation offered during the assessment proceedings, the learned Assessing Officer proceeded to make the addition. Learned AR submits that the learned CIT(A) only a reappraisal the material that was available on record on this aspect and proceeded to decide the issue. Since the learned CIT(A) did not do anything more than what the learned Assessing Officer was expected to do but did not do, there is no need to restore the issue to the file of the learned Assessing Officer and the learned CIT(A) is right in his approach. It could be seen from the grounds of the cross objections the assessee supported the order of the learned CIT(A) on this aspect

We have gone through the record in the light of the submissions made on either side. There is no dispute that the letter dated 20/12/2017 was filed by the assessee before the learned Assessing Officer during the assessment proceedings. This letter reads that in the notice issued under section 148 of the Act the learned Assessing Officer referred to the total cash deposits to the tune of Rs. 6,64,06,799/- and the assessee explained to the learned Assessing Officer that such amount was incorrectly mentioned, but as a matter of fact, the cash deposits in the respective bank accounts were only to the tune of Rs. 5,98,72,400/-. The assessee had also given the breakup figures in respect of various bank accounts

Learned Assessing Officer did not comment on this aspect of verification of these figures. The learned Assessing Officer however, spoke of the figures of Rs. 3,23,31,000/- in respect of state bank of Hyderabad, Sanathnagar branch and Rs. 3,16,11,000/- in respect of state Bank of India, Kukatpally branch. When the assessee furnished the account wise details giving the figure of Rs. 2,35,60,000/- in respect of state bank of Hyderabad, Sanathnagar branch and Rs. 3,03,29,000/- in respect of state Bank of India, Kukatpally branch, it is imperative for the learned Assessing Officer to verify the details and to comment on this aspect, which the learned Assessing Officer did not do

Observation of the court

We are in agreement with the learned CIT(A) that when once the Managing Partner of M/s. Royal Home Constructions was produced and he confirmed the agreements and the payments and such confirmation is well supported by the bank statement of M/s. Royal Home Constructions with Axis Bank where the funds available and the withdrawals were sufficient to meet the obligations under the Development Agreement dated 26/02/2007, the assessee stands discharged of his burden to establish the creditworthiness of M/s. Royal Home Constructions and the genuineness of transaction. The closure of office of M/s. Royal Home Constructions for any period or M/s. Royal Home Constructions not maintaining any accounts is of no consequence in this matter. There is nothing illegality or irregularity in the findings of the learned CIT(A) and accordingly we decline to interfere with his such findings

For the reasons stated in the preceding paragraphs, we are of the considered opinion that the learned CIT(A) is right in deleting the addition of Rs. 95,31,801/- added under section 69A of the Act and Rs. 2.35 crores added under section 68 of the Act and such findings do not warrant any interference. Appeal is found to be devoid of merits. Consequently, appeal is dismissed and the cross objection is allowed. Assessment year 2015-16

Three additions are involved in the appeal for the assessment year 2015-16. Those are addition of Rs. 3.03 crores under section 68 of the Act in respect of the refundable fidelity guarantee amount, Rs. 28.50 lakhs on account of income from agricultural operations and Rs. 5 lakhs under section 69A of the act on account of unexplained cash deposits

Insofar as the refundable fidelity guarantee amount is concerned, the facts are identical to those involved in the assessment year 2014-15 and covered this issue. Going by the view taken for the assessment year 2014-15, we dismiss this ground of appeal of Revenue and allow the ground in cross objection of the assessee

Coming to the second addition of Rs. 28.5 lakhs, according to the learned Assessing Officer the assessee failed to produce any documentary proof and the confirmation letter produced by the assessee is not supported. Learned Assessing Officer further observed that the agricultural land is not in the name of the assessee and the assessee was appointed as GPA, learned Assessing Officer recorded that such an arrangement was impracticable

Assessee pleaded before the learned CIT(A) that under section 2(1A) of the Act, it is not necessary that the person claiming agricultural income should own the land, but such a plea was not countenanced by the learned CIT(A). Learned CIT(A), however, found that the assessee made IDS declaration for assessment year 2015-16 to the tune of Rs. 34.35 lakhs and declared the agricultural income of Rs. 28.50 lakhs in the return of income. Learned CIT(A) found that the assessee declared Rs. 34.35 lakhs under IDS and it falls under clause (c) of sub-section (i) of section 183 of the Act. In these circumstances, learned CIT(A) accepted the plea of the assessee that the IDS declaration of Rs. 34.35 lakhs should be considered as inclusive of agricultural income

Nothing contrary is brought to our notice on behalf of the Revenue and the IDS declaration and the declaration of agricultural income by the assessee in the return of income are all borne by record. It is also not in dispute that the case of the assessee falls within the permissible categories of un-disclosed income under IDS vide 183(1)(c) of the Finance Act, 2016. We, therefore, decline to interfere with the findings of the learned CIT(A) on this aspect and dismiss the relevant grounds of appeal and allow the ground in cross objection of the assessee

Lastly coming to the addition of Rs. 5 lakhs under section 69A of the Act, learned CIT(A) on a perusal of the bank statement of the assessee found that the deposited a sum of Rs. 5 lakhs on 23/09/2014, withdrew the same on the same day, again deposited it on 24/09/2014 and withdrew the same on the same day, which phenomenon recurred on 25/09/2014 and 26/09/2014 also. According to the learned CIT(A), the cash deposits of Rs. 5 lakh each on 24th, 25th, 26th and 29th stood properly explained by the cash withdrawals and, therefore, the addition remains unreasonable

On this aspect also, there is no denial of the deposits and withdrawals. Further, such a fact was verified by the learned Assessing Officer also and admitted in the remand report. Learned CIT(A) is, therefore, quite justified in accepting the same and deleting the addition. We confirm the same and dismiss the grounds of appeal and allow the ground in cross objection of the assessee

In the result, both the appeals are dismissed and cross objections are allowed

Order pronounced in the open court on this the 26th day of April, 2023