Income Tax Appellate Tribunal - Hyderabad
M. Babu, Tirupathi vs Assessee on 27 June, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
S.No. ITA No. AY Appellant Respondent
1. 365/H/12 2004-05 M. Babu, Dy.
Durgasamudram Commissioner
(Village), of Income-tax,
Tirupati Rural
Mandal. Central Circle,
Tirupathi
(PAN -
AGMPM8677R)
2. 419/H/12 2004-05 Asst. M. Babu,
Commissioner Durgasamudram
of Income-tax, (Village),
Central Circle, Tirupati Rural
Tirupathi. Mandal.
(PAN -
AGMPM8677R)
3 418/H/12 2003-04 -do- -do-
4. 420/H/12 2006-07 -do- -do-
5. 421/H/12 2007-08 -do- -do-
6. 422/H/12 2008-09 -do- -do-
7. 423/H/12 2009-10 -do- -do-
Assessee by : Shri S. Rama Rao
Revenue by : Shri D. Sudhakar Rao
Date of Hearing : 27/06/2013
Date of Pronouncement : 25/09/2013
ORDER
PER ASHA VIJAYARAGHAVAN, J.M.:
All these appeals pertaining to one assessee, except the appeals being ITA No. 365/H/12 & 419/H/12 are cross appeals, the other appeals being ITA Nos. 418 and 420 to 423/H/12 filed 2 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu by the revenue are directed against separate orders of the CIT(A). As identical issues are involved in these appeals, they were clubbed and heard together and, therefore, we dispose of these appeals by way of consolidated order for the sake of convenience.
ITA No. 365/Hyd/2012 - appeal by the assessee for AY 2004-052. Briefly the facts of the case are that the assessee is engaged in the business of real estate and finance. Search and seizure proceedings were conducted on 12/02/2009, in which, the assessee made a disclosure, admitting an additional income of Rs. 50.00 lakhs. Out of this amount, an amount of Rs. 36 lakhs had been declared for AY 2009-10 representing miscellaneous income and Rs. 14 lakhs towards gifts surrendered by the assessee and his wife Mrs. Vijayalakshi for the respective assessment years during which some gifts were received. The AO made the assessment determining the total income of the assessee at Rs. 17,89,170/- and made an addition of Rs. 11,97,510/- treating the gifts received from Sri K. Anil Kumar of Rs. 7,50,032/- and Sri R. Sridhar of Rs. 4,47,478/- as unexplained cash credits in the hands of the assessee and an amount of Rs. 1 lkah was added towards insufficient drawings and Rs. 3,57,360/- towards cash deposits made into the bank accounts.
3. On appeal, the CIT(A) deleted the addition of Rs. 7,50,032/- representing the gifts from Mr. Anil Kumar which was treated by the AO as unexplained cash credit u/s 68 of the Act and confirmed the addition of Rs. 4,47,478/- made by the AO on account of gift received by the assessee from Mr. R. Sridhar, who was shown as son of assessee's uncle. The CIT(A) also confirmed the addition of 3 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu Rs. 1,00,000/- made by the AO on account of insufficient drawings.
4. Aggrieved, the assessee is in appeal before us.
5. As regards the addition of Rs. 4,47,478/-, the learned counsel for the assessee Shri S. Rama Rao invited our attention to pages 24 & 25 of the paper book, which contain the affidavit executed by Shri Sridhar, who gave the gift to the assessee, which has been filed by the assessee during the course of appellate proceedings. In the affidavit, the said Sridhar affirmed that the gift was given by him to the assessee on 17/03/2004 by way of cheque originated from Bank of America bearing No. 2200066, dated 17/03/04 and such gift was shown to have given out of love and affection which the donor have towards the assessee. Also he was the son of the assessee's uncle, who was staying in USA.
6. On the other hand, the learned DR relied on the order of the CIT(A).
7. We have considered the rival submissions and perused the record. The CIT(A) relying on the decision in the case of Sumati Dayal Vs. CIT, 214 ITR 801, held that the donor Shri Sridhar does not have any means of income and the creditworthiness of the donor has not been fully established and the donor is not a close relative, being only uncle's son. He, therefore, confirmed the addition made by the AO.
8. We are of the opinion that since Shri Sridhar has been working in USA as a software engineer for about 7 years and after going through the affidavit filed by Shri Sridhar, which is placed at pages 24 & 25, in the interest of justice, the genuineness of 4 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu the gift should be verified by the AO by perusing the account of Shri Sridhar which is being maintained by him in Bank America. Accordingly, we remit the issue to the file of the AO to examine the bank account produced by the donor and decide the issue in accordance with law. Thus, this ground is allowed for statistical purposes.
9. As regards the addition of Rs. 1 lakh on account of low withdrawals, the learned counsel for the assessee submitted that the assessee is residing in a small village and basically he is an agriculturist and hence for maintenance of family in a village much expenditure is not required. The AO made the addition of Rs. 1 lakh towards Nil drawings by the assessee during the relevant year and the same has been confirmed by the CIT(A). Though we are agreeable that cost of living would not be much in the village, Nil drawings by the assessee is unrealistic and cannot be accepted. Therefore, we restrict the addition to Rs. 50,000/- as against Rs. 1.00 lakh made by the AO and confirmed by the CIT(A). This ground is partly allowed.
10. In the result, appeal of the assessee being ITA No. 365/Hyd/12 is partly allowed for statistical purposes.
ITA No. 419/Hyd/12 by the revenue for AY 2004-0511. In this appeal, the revenue has raised the following grounds of appeal:
"1. The ld. CIT(A) erred in both fact and in law.
2. The ld. CIT(A) ought to have appreciated the fact that though the assessee is able to submit confirmation letters from the donors, they did not show any palpable evidence in support of the contention that the donors have gifted the amount the assessee in a quid pro quo.5
ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu
3. The ld. CIT(A) ought to have appreciated the fact that the assessee is in the business of money lending and to boost up his capital, and to avoid tax incidence on such incomes, the assessee has resorted to introduction of gifts and credits from NRI relatives. But the alleged gifts are nothing but the undisclosed income of the assessee.
4. The learned CIT(A) ought to have appreciate the fact that the alleged donors never made gifts to their own parents and the assessee also never made gifts to any of his relatives except his wife and children.
5. The ld. CIT(A) has gone to the basic ingredients necessitated for confirmation of the gift. But failed to appreciate the intention and genuineness of the gifts.
6. The ld. CIT(A) ought to have appreciated the fact that the assessee failed in human probabilities as decided by the Apex Court in the case of Sumathi Dayal Vs. CIT [1995] 214 ITR 801 (SC) and would have confirmed the assessment made."
12. While making the additions of Rs. 11,97,510/- being the gifts received by the assessee during the year from Sri K. Anil Kumar and Sri R. Sridhar, treating them as the unexplained cash credits, the AO held that merely by mentioning that amounts were received through banking channels and establishing the identity of the donors, a transaction shall not be accepted as genuine transaction. The AO drew his conclusions while making the addition as under:
"i) the entire amount of gifts are spent for purchase of immovable properties by the assessee,
ii) the gifts are obtained by the assessee, by request or by force,
iii) in case of Sri K. Anil Kumar, almost all his earnings were sent as gifts to the assessee,
iv) no confirmation furnished in respect of gift received from Sri R. Sridhar, and
v) there is no human probability in the said transactions and all the alleged gifts are appeared bogus."
13. The CIT(A) observed that as revealed through the confirmation/affidavit furnished by the donors as well as 6 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu discussion related to the loans/gifts obtained in the earlier years, Sri K. Anil Kumar is shown to be the close relative of the assessee, being his own sister's son. Further, he observed that the gifts/loans from such party were reasonably well documented, to indicate the identity and creditworthiness of the donor, so as to negate the treatment of the amounts received by such party as unexplained cash credits. As regards to the observation of the AO that the entire savings of the party are given as gift, the CIT(A) observed that there is no information on the record to indicate that the entire savings were transferred to the assessee as gifts and it was further indicated by the donor that the gifts were given by him before his marriage and subsequent to such occasion, the amounts were lent only as loans. Further, the CIT()A) observed that as observed in case of subsequent years of assessments, the loan was repaid by the assessee and no doubts were expressed about the creditworthiness of Sri K. Anil Kumar. In view of the above observations, the CIT(A) held that the gift received from Shri K. Anil Kumar cannot be treated as unexplained cash credit for the year under reference in the absence of any evidence found or gathered to indicate that such amounts were exchanged by any money or equivalent of monies between the donor and donee as per the ratio laid down by the decision of Hon'ble Rajasthan High Court in the case of CIT Vs. Padamsingh Chouhan, 315 ITR 433 wherein it was held that in absence of any evidence to show that transactions are by way of money laundering, the addition cannot be made in the hands of the done-assessee. Accordingly, the CIT(A) deleted the addition of Rs. 7,50,032/- representing the gift from Mr. K. Anil Kumar treating it as unexplained cash credit u/s 68 of the Act by the AO. The CIT(A) confirmed the addition of Rs. 4,47,478/- made by the Assessing Officer in the case of gift obtained from Shri R. Sridhar on the ground that the creditworthiness of the donor has not been 7 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu established beyond doubt. The CIT(A), thus, upheld the treatment of the amount of Rs. 4,47,478/- as unexplained cash credit in the hands of the assessee.
14. Aggrieved by the order of the CIT(A) the revenue is in appeal before us.
15. As contended by the revenue in its grounds of appeal, the learned DR submitted that the ld. CIT(A) ought to have appreciated the fact that the assessee is in the business of money lending and to boost up his capital, and to avoid tax incidence on such incomes, the assessee has resorted to introduction of gifts and credits from NRI relatives. According to the D.R. the alleged gifts are nothing but the undisclosed income of the assessee. He further submitted that the CIT(A) ought to have appreciated the fact that the assessee failed the test of human probabilities as decided by the Apex Court in the case of Sumathi Dayal Vs. CIT [1995] 214 ITR 801 (SC) submitted that the CIT(A) should have confirmed the assessment made.
16. On the other hand, the learned counsel for the assessee submitted that the amounts received by the assessee were through banking channels from USA and the donors have submitted affidavits confirming their gifts. He pointed out that the CIT(A) allowed the gifts received by the assessee following the decision of the Apex Court in the case of Sumathi Dayal Vs. CIT, 214 ITR 801 (SC), as they were genuine.
17. We have heard the rival submissions and perused the material on record. The department has also relied upon the decision in the case of Sumati Dayal Vs. CIT, 214 ITR 801, and has argued that donor Shri Anil Kumar does not have any means 8 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu of income and the creditworthiness of the donor has not been fully established and the donor is not a close relative, being only sister's son. We are of the opinion that since Shri Anil Kumar has been working in USA as a software engineer for about 7 years and after going through the affidavit filed by Shri Anil Kumar, which is placed at pages 35 to 38 of the paper book. In the interest of justice, the genuineness of the gift should be verified by the AO by perusing the account of Shri Anil Kumar which is being maintained by him in Bank America and accordingly, we remit the issue to the file of the AO to examine the bank account produced by the donor and decide the issue in accordance with law. The Assessing Officer shall consider the ratio of the decision in the case of RB Mittal Vs. CIT, vide ITC No. 79 of 1994, judgment dated 04/08/2000 wherein the Court held as follows:
"Section 68 of the Act gives statutory recognition to the principle that cash credits, which are not satisfactorily explained, may be assessed as income. Section 68 seeks to bring to tax any cash credits appearing in the books of accounts which are not satisfactorily explained as the income of the previous year. Judicial opinion even prior to the enactment of Section 68 for the first time under the Income-Tax Act, 1961 was that in the event of credit entry in the books of account the assessing officer had t o make an enquiry and give the assessee an opportunity to explain the credit entry, and if the assessee did not render the satisfactory explanation with regard to the nature and source of the cash received by him, then the assessing officer was entitled to draw the inference that the receipts are of an income nature and subject to charge...Section 68 constitutes a charging provision which applies when the assessee's explanation regarding a cash credit is rejected as being unsatisfactory or when the assessee does not render any explanation. Section 68 provides that the assessing officer may bring to charge a sum as income of the previous year if (i) the sum is found credited in the books of the assessee for any previous year and (ii) the assessee offers no explanation about the nature of source of that sum; or
(iii) the explanation is not in the opinion of the assessing officer satisfactory, whether the sum so credited may be in the assessee's name or in the name of the third party..... It 9 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu is well established by the decisions of the Supreme Court and High Courts that the burden of proving that a cash credit entry appearing in the assessee's account books does not represent income of the assessee is on the assessee.
Where any sum is found credited in the books of the assessee the initial onus is on the assessee to offer an explanation of the nature and source of cash credit. If the explanation is not found satisfactory or reasonable, the assessing officer can treat such money as the assessee's income from undisclosed source. It is not necessary for the assessing officer to locate the exact source of the credits. The assessee can prove the genuineness of the credits, the identity of the creditor and his creditworthiness by establishing some plausible evidence...The assessee's duty to prove that an unexplained entry in his account books does not represent undisclosed income is not discharged by merely showing that the entry appears in the account of third party and that the party in whose name the amount is credited is not a fictitious party but a real party but the assessee also has to prove further that the entry made in the account book is a genuine entry. It can be said that if the creditors are close relatives of the assessee or his employees the burden of the assessee to prove the creditworthiness of the creditors and genuineness of the transactions will be heavier in relative terms than in a case where the creditors are the outsiders. Therefore, the contention of the learned Counsel for the petitioner that under Section 68 of the Act the assessee is not expected to establish the capacity of the creditors to advance money and genuineness of the transactions is not acceptable to us, and we hold that the assessee is expected to establish proof of identity of his creditors, capacity of his creditors to advance money and genuineness of the transactions in order to discharge the onus imposed on him under Section 68 of the Act."
18. In the result, appeal of the revenue is allowed for statistical purposes.
ITA NO. 418/Hyd/12 appeal by the revenue for AY 2003-04
19. The revenue has raised the following grounds of appeal in this appeal:
10ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu "1. The ld. CIT(A) erred in both fact and in law.
2. The ld. CIT(A) ought to have appreciated the fact that though the assessee is able to submit confirmation letters from the donors, they did not show any palpable evidence in support of the contention that the donors have gifted the amount the assessee in a quid pro quo.
3. The ld. CIT(A) ought to have appreciated the fact that the assessee is in the business of money lending and to boost up his capital, and to avoid tax incidence on such incomes, the assessee has resorted to introduction of gifts and credits from NRI relatives. But the alleged gifts are nothing but the undisclosed income of the assessee.
4. The learned CIT(A) ought to have appreciate the fact that the alleged donors never made gifts to their own parents and the assessee also never made gifts to any of his relatives except his wife and children.
5. The ld. CIT(A) has gone to the basic ingredients necessitated for confirmation of the gift. But failed to appreciate the intention and genuineness of the gifts.
6. The ld. CIT(A) ought to have appreciated the fact that the assessee failed in human probabilities as decided by the Apex Court in the case of Sumathi Dayal Vs. CIT [1995] 214 ITR 801 (SC) and would have confirmed the assessment made."
20. Briefly the facts of the case are that while making the additions of Rs. 15,99,039/- being the gifts received by the assessee from Sri K. Anil Kumar and Sri M.R. Balaji, the AO treating the gifts from the NRI relatives as the unexplained cash credits. However, the AO has not expressed any doubts on the identity of the donors, creditworthiness of the donors or the genuineness of the transactions. The conclusions drawn by the AO while making the said addition are as follows:
"1. The assessee is basically a money lender, actively involved in the business of finance and undisclosed income is routed into the books in the form of gifts and loans.11
ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu
2. The sworn statement recorded from the assessee established the fact that the alleged gifts and loans are not genuine and they are the undisclosed income of the assessee for the relevant assessment year.
3. gifts were not obtained in connection with any occasion,
4. the assessee has never helped the parents of the donor who also stay in a same location,
5. gifts were obtained by force or request but not voluntarily,
6. the alleged gifts are mostly spent for purchase of agriculture lands and repayment of various persons, and
7. there is no human probability in the said transactions and all the alleged gifts appeared to be bogus.
21. On appeal, the CIT(A) observed that the AO tried to draw extra inferences from the facts of the case where the assessee has proved the genuineness of the transactions, identity of the creditors, who are none but close relatives of the assessee and the genuineness of the transaction wherein the gifts have been routed through the banking channels. He further observed that in the affidavits submitted by the donors, it was categorically stated Mr. M. Babu, the assessee is their uncle who looked after their earlier part of the education and child hood and such gifts were made in return of the services and nurturing they had received and it was also confirmed by the said donors/creditors that apart from the gifts, they have also given loans to the assessee but only subsequent to their marriages. The CIT(A) therefore was of the view that in the light of the clarity emerged from the confirmations/affidavits submitted by the donors, it can be held that there is no reason for the AO to doubt the genuineness of the transaction based on the theory of human probability as evolved in the case law cited by the AO himself. The CIT(A) observed that this being a search case, there is no evidence bought on the 12 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu record to indicate that such gifts are bogus and money has exchanged for the said transactions to make them fabricated ones. The CIT(A) in view of the above observations and after examining the issue with various case laws, deleted the addition made by the AO by holding as under:
" 4.7 As per the provisions of section 68, three main ingredients have to be fulfilled and failure of any of such ingredients may help to conclude the transactions as unexplained cash credits. In this case, the identity of the donor, the details of the transaction with reference to the sources and creditworthiness of the donors, are well established. What mattered in this case is only the opinion of the AO as regards to the genuineness of the transactions or creditworthiness of the donors which has formed the basis for additions/treatment of gifts as unexplained cash credits. As opined by the Hon'ble Supreme Court in the case of CIT Vs. P. Mohana Kala, reported in 291 ITR 278, it was held that the opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory, is required to be based on proper appreciation of material and other attending circumstances available on record and the opinion of the AO is required to be formed objectively with reference to the material available on record, since the application of mind is the sine qua-non for forming the opinion. In this case, it appears that the AO has deviated from appreciating the correct facts and fallen on inferences that are drawn mostly based on surmises and suspicions. Further, as held in the case of CIT Vs. Ramdev Kumar Chitlangia, reported in 315 ITR 435 by Hon'ble High Court of Rajasthan that where there is no tangible material on record to show anything which may cast any doubt on genuineness of the gift or to establish that the purported transaction of gift were transactions of money laundering, the credentials of the gift cannot be doubted. In the instant case, there is no such evidence noticed or was brought on record to attract the treatment for the gifts, as unexplained cash credits. Hence, the stand taken by the AO in treating the said gifts as unexplained cash credits, do not stand on a justifiable ground. Therefore, the additions of Rs. 15,99,093 representing the gifts from Mr. K. Anil Kumar and Mr. M.R. Balaji, treating them as unexplained cash credit u/s 68 of the IT Act, 1961, do not survive and accordingly directed to be deleted."13
ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu
22. Aggrieved by the order of the CIT(A), the revenue is in appeal before us and contended that the CIT(A) failed to appreciate the facts on record and deleted the addition made by the AO on account of gifts received by the assessee.
23. On the other hand the learned counsel for the assessee invited our attention to the following documents placed in paper book to establish that the gifts received by the assessee are genuine:
1. Copy of statement of bank account furnished by SBI placed at page 9.
2. Copy of receipts in favour of Sri M. Babu, placed at page 10.
3. Copies of letters from Sri M. Balaji confirming the amounts given to Sri M. Babu as gift along with evidences, copy of passport, salary certificates etc., placed at pages 11-21.
4. Copy of affidavit submitted by Anil Kumar Kommareddy confirming the loans given to Sri M. Babu, placed at 22-23.
5. Copy of affidavit submitted by Mittapalli R. Balaji confirming the loans given to Sri M. Babu.
24. We have heard both the parties, perused the record and have gone through the orders of the authorities below. The categorical finding of the CIT(A) while deleting the additions made by the AO is that the AO failed to bring on record material to conclude the treatment for the gifts as unexplained cash credits and the AO had deviated from appreciating the correct facts and fallen on inferences that are drawn mostly based on surmises and suspicions. From the observation of the CIT(A) and the submissions made by the assessee substantiated with evidences produced at para 23, we are of the opinion that the issue has to be reconsidered by the Assessing Officer after 14 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu verification of the materials produced by the assessee in support of his claim. In these circumstances, we remit the issue to the file of the Assessing Officer to give a reasonable opportunity to the assessee to represent his case. The appeal is allowed for statistical purposes.
25. In the result, appeal of the revenue being ITA No. 418/H/12 is allowed for statistical purposes.
ITA NO. 420/Hyd/12 by the revenue for AY 2006-07
26. Ground Nos. 1 & 8 are general in nature, therefore, need no adjudication.
27. Ground No. 4 are as follows:
4. The ld. CIT(A) ought to have confirmed the additions as the bank account shown by the assessee in respect of the payment of loan to the creditor Sri Pratap Reddy is concerned, the same does not belong to Sri Pratap Reddy but belongs to some other person Sri Settipally Reddy.
28. Ground Nos. 2, 3, 5, 6 & 7 are as follows:
"2. The learned CIT(A) ought to have appreciated the fact that when the gifts introduced by the assessee were assessed as per the provisions of section 56(1)(ii) the assessee has taken the alternative ground to the remittances appearing in his bank accounts as loans from the same donors."
3. The ld. CIT(A) ought to have appreciated the fact that the assessee is in the business of money lending and to boost up his capital, and to avoid tax incidence on such incomes, the assessee has resorted to introduction of gifts and credits from NRI relatives. But the alleged gifts/loans/credits are nothing but the undisclosed income of the assessee.
15ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu
5. The ld. CIT(A) ought to have appreciated the fact that mere filing of confirmation from the creditors does not prove that the loan is genuine. The assessee has not brought any circumstantial evidence to prove the credit as genuine.
6. The ld. CIT(A) has gone to the basic ingredients necessitated for confirmation of the loan/credit. But failed to appreciate the intention and genuineness of the above gifts/loans/credits.
7. The ld. CIT(A) ought to have appreciated the fact that the assessee failed in human probabilities as decided by the Apex Court in the case of Sumathi Dayal Vs. CIT, [1995] 214 ITR 801(SC) and would have confirmed the assessment made.
29. While making the addition under the head 'unexplained cash credits' u/s 68 of the I.T. Act, 1961, the Assessing Officer has arrived at some adverse conclusion as regards to the details, nature of loan transactions in case of each individual creditor. In case of Sri K. Anil Kumar, who shown to have given a loan of Rs.2,80,548/- to the assessee Mr.M.Babu, who runs the finance business in the name of 'Vijayalakshmi Finance', as a proprietary concern, the Assessing Officer has added the amount treating it as the unexplained cash credit, observing that the said creditor has given the loan and gift together in the same year and the assessee not explained the reason for such splitting of the amounts. Regarding the loan of Rs.2,55,741 taken from Mr.Pratap Reddy, it was observed by the Assessing Officer that a person who has left the country for the purpose of employment cannot give the hard earned money to his uncle at free of interest and accordingly concluded it as an unexplained cash credit. In case of loan of Rs.6, 00,000/- from Mr.Sahadeva Reddy with interest @ 12% p.a., the Assessing Officer has applied the technical reason that TDS was not made on the interest of Rs.72,000/- payable on presumptive basis and accordingly treated it as unexplained cash 16 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu credit.
30. The assessee has taken objections for the above additions and furnished the written submissions during the course of appeal proceedings. Regarding the additions on account of treating the loan of Rs.6,00,000/- taken from Mr.Sahadeva Reddy, as unexplained cash credit, it was submitted by the assessee that the Assessing Officer has made the addition without raising any doubts on the identity of the creditor, genuineness of the transaction and creditworthiness of the loan vendor and has made the addition merely on the technical issues such as TDS default on interest payments on the loan amounts borrowed from the said party. Regarding the TDS on the interest payments it was submitted that since interest was not paid or credited during the year, no TDS provisions are applicable to this case and it was further submitted that loan amounts cannot be added as an income merely on presumed technical defaults or surmises. It was further submitted that the amounts were taken by cheques and creditor is an NRI who has furnished the confirmation letter before the Assessing Officer.
31. Regarding the loan from Mr. Anil Kumar, it was stated that the creditor is a close relative of the assessee and the amounts were given both as gifts and loans at nominal interest rates and the opinion of the Assessing Officer is entirely wrong since the said addition was made only on the presumptions and assumption, without any material against the assessee. Regarding the loan from Mr.Pratap Reddy, it was submitted that the creditor is an NRI and amounts are borrowed through banking channel by way of wire transfer to IClCI Bank at Tirupati in US dollars, with the creditworthiness of the creditor was clearly established, there was no basis for the Assessing Officer for making such addition.
17ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu The affidavits of Mr.Sahadeva Reddy, Mr.Pratap Reddy and Mr.Anil Kumar were filed, wherein the loan amounts have been confirmed while indicating the rates of interest payable to them on such loans along with the dates of repayment of the principal amounts of the loan.
32. On appeal, the CIT(A) observed that while making the addition of Rs.2,80,548/- being the loan taken by the assessee from Mr. K. Anil Kumar, treating it as the unexplained cash credit, the Assessing Officer has taken a stand that the said creditor was giving gifts and loans simultaneously and it was not clarified by the assessee why some of the amounts shall be given as gift and balance was given as loan in the same year. Further, the CIT(A) observed that it is a fact that for the year under reference, the assessee has surrendered the gift of Rs.2,21,200/- and admitted as his additional income for the year, as part of the declaration made during the course of the search proceedings. The CIT(A) observed that it is also a fact that the assessee was surrendering the gifts for buying the peace with the department, as per the statement made u/s 132(4), though there was no evidence against the genuineness of the gifts. The CIT(A) held that the ground taken by the Assessing Officer to cast doubts on the genuineness of the loan transactions with a creditor on the presumption and without evidence will not help in sustaining the additions made, where no doubts were raised on the creditworthiness and the identity of the creditor. He further held that as submitted by the assessee, there is no bar in giving loan and gift separately by the same party to the same assessee in the same year and that alone cannot be the ground for treating the loan as unexplained cash credit. As mentioned, the gift from the same creditor was surrendered as part of the disclosure made by the assessee for the year under reference. It was also submitted 18 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu by the assessee that the creditor is his close relative and explained the background in which such loans were obtained. The CIT(A) concluded that in absence of any information to indicate that these loans were squared up by any other means such as money laundering activity or writing off, there is no reason for the Assessing Officer to resort to such additions by treating the loans which were not doubted, as the unexplained cash credits and in fact, all the loans obtained by the assessee, from his NRI relatives were shown to have been repaid in the subsequent years, along with interest. Accordingly, the CIT(A) held that the addition of Rs.2,80,548/- made in the hands of the assessee, being the loan taken from Mr. K. Anil Kumar, treating it as unexplained cash credit is to be deleted.
33. Regarding the loan taken from Mr.Pratap Reddy at Rs.2,55,741 by the assessee, the CIT(A) observed that the Assessing Officer has jumped to a conclusion that a person who has left the country for the purpose of employment cannot give the hard earned money to his uncle, free of interest and it was also observed by the Assessing Officer that the assessee has never repaid this loan till the date of assessment, hence, it was treated as unexplained cash credit. Against this observation, it was submitted by the assessee that there were no doubts about the creditworthiness of the creditor ever expressed by the Assessing Officer and with the amounts routed through banking channels, confirmation letters furnished, the genuineness of transaction and identity of the creditor are also explained to be proved. It was further submitted by the assessee that this amount was repaid by the assessee by account payee cheque on 1.8.2011 and being a relative, the creditor has not charged interest on the loan. Based on the facts that are brought on the record, it can be held that the observations of the Assessing 19 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu Officer amounted to presumptions to say that loan is not repaid by the assessee, since the said amounts were repaid as indicated above. The CIT(A) held that since there were no doubts about the creditworthiness, identity of the creditor, there is no reason for the Assessing Officer to treat the said amount as unexplained cash credit and in absence of any evidence that has been brought on the record, this addition was deleted.
34. As regards the loan of Rs.6,00,000/- which was taken by the assessee from Mr. Sahadeva Reddy, the CIT(A) observed that during the assessment proceedings, the confirmations indicating the loan details and their sources were shown to have been submitted before the Assessing Officer and accordingly the Assessing Officer has not expressed any doubts about the identity of the creditor and his creditworthiness or the genuineness of the transaction. Instead, the Assessing Officer has treated such amount as unexplained credit for the technical reasons that the assessee failed to comply with the TDS provisions for making the TDS on interest payable on loan obtained. In this regard, it was stated by the assessee that no interest was either provided or paid and thereby not attracting the provisions of TDS. The stand taken by the assessee appears to be acceptable. Further, the affidavits furnished by the said creditor indicate the rate of interest as 12% p.a. and that the Interest is receivable by him only at the time of repayment of the loan. It is also relevant to observe that the mere failure of the assessee on the ground of TDS defaults on such interest payments would have only disentitled the assessee to claim the interest as an expense but not the principal amounts getting treated as unexplained cash credit. Hence, the stand taken by the Assessing Officer in treating the said amounts as unexplained cash credit, do not survive. It is an established law that in absence of anything to show that such 20 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu transactions were squared up in any other manner including the money laundering, the addition could not be made in the hands of the assessee loanee, where the loan is taken from NRI loan vendor. The CIT(A) held that no such evidence to indicate that the assessee has paid the amounts back through money laundering etc. to the creditor was brought on the record or proved by the Assessing Officer. Therefore, it is held that the addition in this case is merely made on surmises and presumptions without any evidence to doubt the genuineness of the loan for treating it as unexplained cash credit. Further, as observed in other assessment years, the assessee has repaid/repaying the loans along with interest, in the subsequent years. Accordingly, the addition of Rs.6,00,000/- representing the loan obtained by the assessee, from Mr. Sahadeva Reddy, which was treated as unexplained cash credit, was deleted by the CIT(A).
35. Aggrieved by the order of the CIT(A), the revenue is in appeal before us.
36. We have heard both the parties and perused the material on record. The learned counsel for the assessee filed paper book containing the copy of balance sheet as at 31/03/2006, copies of the confirmation letters from all the creditors along with affidavits from them and copy of receipts and payment account. The donors have remitted the amounts to the bank accounts of the assessee and, hence, the amounts were received through banking channels from USA. It was explained by the learned counsel for the assessee that Shri Anil Kumar was unmarried and in the AY 2004- 05, he had remitted some gifts to his uncle M. Babu, the assessee and later on in this assessment year since he has set up his family, he had given certain amounts as loan to his uncle i.e. the 21 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu assessee. In these circumstances, applying the ratio of the decision in the case of Sumati Dayal Vs. CIT, 214 ITR 801 and also taking into consideration the test laid down in the case of R.B. Mittal (supra), we are of the view that the onus lies on the assessee to satisfy three conditions laid down u/s 68 of the Act, namely, the identity of the creditors, capacity of the creditors to advance money and genuineness of the transaction. Hence, the issue has to be reconsidered by the Assessing Officer after verification of the materials produced by the assessee in support of his claim in the light of the said cases. Therefore, we set aside the order of the CIT(A) and remit the issue to the file of the Assessing Officer to give a reasonable opportunity to the assessee to represent his case. Accordingly, the grounds 2, 3, 5 ,6 & 7 raised by the revenue are allowed for statistical purposes.
37. Ground No. 4 is as follows:
"The ld. CIT(A) ought to have confirmed the additions as the bank account shown by the assessee in respect of the payment of loan to the creditor Sri Pratap Reddy is concerned, the same does not belong to Sri Pratap Reddy but belongs to some other person Sri Settipally Reddy."
38. The AO has observed that in case of Shri Pratap Reddy, the assessee had enclosed a copy of bank account of Mr. Settipalli Reddy and claimed that it is the bank account of Sri Pratap Reddy. The AO further observed that on examination of the confirmation letter, it was found that the said amount was given as interest free loan. The AO concluded that the person, who has left the country for the purpose of employment cannot give the hard earned money to his uncle at free of interest and the assessee has never repaid this loan till the date. Hence, the AO treated this amount of Rs. 2,55,741/- as unexplained cash credit.
39. On appeal, the CIT(A) at para 5 of his order observed that 22 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu the amounts were routed through banking channels, confirmation letters have been furnished and hence, genuineness of the transaction and identity of the creditor has been proved. The CIT(A) further observed that the amount was repaid by the assessee by account payee cheque on 01/08/2011 and being a relative, the creditor has not charged interest on the loan. The CIT(A) based on the said observations, held that the observations of the AO were based merely on presumptions and, hence, he directed the AO to deletion the addition.
40. On further appeal before us, the learned AR in respect of the loan taken from Shri Pratap Reddy submitted that even though the same does not belong to Shri Pratap Reddy but belongs to some other person Shri Settipalli Reddy, the amount has been routed through Shri Pratap Reddy.
41. We have heard both the parties and perused the record. We find that the amounts have been routed through account payee cheques on 01/08/2011 and hence the amount has been taken as loan for the purpose of running business of Vijayalakshmi Finance and therefore cannot be treated as unexplained cash credit. In the absence of evidence brought on record by the department against creditworthiness or identity of the creditor or genuineness of the transaction in respect of Shri Pratap Reddy, who has in turn taken the fund from Settipally Reddy, the criteria laid down in the case of R.B. Mittal (supra) has been fulfilled by the assessee, we confirm the order of the CIT(A) on this count and dismiss the ground No. 4 raised by the revenue.
42. In the result, appeal being ITA No. 420/Hyd/12 is partly allowed for statistical purposes.
ITA NO. 421/HYD/2012 by the revenue for AY 2007-08 23 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu
43. Ground Nos. 1 & 7 are general in nature, hence, need no adjudication.
44. Ground No. 5 is regarding to failure deduct tax u/s 195 by the assessee.
45. Ground Nos. 2,3,4 & 6 are pertaining to the addition of gifts by the donors and credits from NRI relatives under the provisions of section 68 of the Act.
46. Briefly the facts of the case are that while completing the assessment, the Assessing Officer determined the total income at Rs. 21,89,887/- making the additions under the two heads, namely, unexplained cash credit representing the loans obtained from two parties, namely, K. Madhusudhana Babu - Rs. 5,00,000/- and M.R. Sudhir - Rs. 8,93,111/-, totalling to Rs. 13,93,111/- and disallowance of depreciation on car amounting to Rs. 1,15,058/-.
47. Aggrieved the assessee carried the matter in appeal before the CIT(A).
48. The CIT(A) observed that while making the addition of Rs.8,93,111/- being the loan taken by the assessee from Mr.M.R.Sudhir, treating it as the unexplained cash credit, the Assessing Officer has taken a stand that the assessee could not explain the correct purpose for which such loan was taken. The CIT(A) further observed that as indicated by the Assessing Officer, on a specific question regarding the purpose of obtaining the loans, the assessee is stated to have replied that he does not have any friends and relatives in India, hence, he has taken the loan from NRI relatives. Such amounts were shown to have invested in construction of house and purchase of sites and such explanation was not acceptable to the Assessing Officer.
24ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu Accordingly, the loan was treated as not genuine. The CIT(A) observed that it is clear from the assessment order that no enquiries were made as regards to the genuineness of the transaction and in fact it was not doubted. As it was indicated, the assessee is engaged in the business of real estate and it is not a wrong reason or false that amounts were taken as loan to borrow and invest in the plots/sites. The loan has been confirmed by the creditor along with the rate of interest and the purpose of the giving loan and the time of withdrawing the loan from the assessee has also been indicated. The CIT(A) held that, accordingly, it can be held that the conclusion drawn by the Assessing Officer as regards to the genuineness of the loan transaction holding that the purpose for which it is obtained, is not on a sound basis is not correct and the Assessing Officer erred in not treating the loan as unexplained cash credit in the hands of assessee. Further, the technical reason of non-deduction of TDS was explained by the assessee and it cannot be the reason for treating a loan as unexplained cash credit. The CIT(A) concluded that as observed in other appellate proceedings, the loans as obtained from NRI relatives have been repaid by the assessee, in the subsequent years along with Interest and there is no adverse information on such transactions. Accordingly, the addition made by the Assessing Officer at Rs.8,93,111/- being the loan from Mr.M.R.Sudhir, treating it as unexplained cash credit, was deleted by the CIT(A).
49. As regards the loan of Rs.5,00,000/- from Mr. I. Madhusudhan Babu, which was added as an unexplained cash credit in absence of the confirmation, the CIT(A) observed that the information has been brought on the record, to prove the creditworthiness of the creditor, during the course of the appeal proceedings. He noted that the loan of Rs.5,00,000 from Mr. 25 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu Madhusudhan Babu has been explained to be the amount taken on 26.08.2006 and repaid partially on 13.10.2006 (Rs.2,25,000) and balance on 18.11.2006 (Rs.2,75,000), through account payee cheques. The loan creditor viz. Sri I. Madhusudhan Babu, shown to be the resident of 51, TUDA plots, Royal Nagar, R.C.Road, Tirupati, has not only confirmed the loan but also filed the affidavit indicating the details as narrated above. He is also shown to be assessed to Income tax for last several years, whose sources of income are from real estate business.
50. Further, the CIT(A) noted that the information furnished by the assessee before the CIT(appeals)- VII, Hyderabad, in the form of confirmation letter and affidavit along with the copies of the cheques used for obtaining and repayment of the loan amounted to additional evidence, as such the same were forwarded to the Assessing Officer for his comments, in view of rule 46A(3). The remand report submitted by the Assessing Officer on the issue runs, as under;
"The additional evidence furnished has been carefully perused and it is not acceptable for the reason that merely establishing identity of the creditor is not sufficient since onus is on the assessee to prove the creditworthiness of the said creditor. In this case, the assessee has not proved the creditworthiness of the alleged creditor. In view of the above, the assessee's contention on the above issue is not acceptable and this aspect may please be taken into consideration while disposing off the appeal in this case."
51. The CIT(A) held that from the remand report of the Assessing Officer, it appears that the said report has been furnished by the Assessing Officer without making any enquiries, where the bank account details have been indicated in the copies of the cheques, forwarded to the Assessing Officer by this office. The assessment details of the creditor were also indicated in the confirmation letter which were completely ignored by the 26 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu Assessing Officer and no enquiries as regards to the creditworthiness of the creditor were made with reference to the Income tax returns filed at Tirupati. Further, the copies of the income tax returns filed by the creditor for AY 2006-07 and 2007- 08 indicate the net taxable incomes of the creditor at RS.5,11,642 and Rs.2,97,140 and the main business indicated to be from real estate. Under these circumstances, it is relevant to hold that the evidences furnished by the assessee along with the affidavit of the creditor, clearly indicate that the creditworthiness of the loan creditor cannot be treated as doubtful and as such the said amount may not be treated as unexplained cash credit. The other details such as the modus of obtaining the loan etc. are clearly established leaving no scope for treating the said loan as unexplained cash credit. Further, the said amount is repaid, as reflected in the bank account of the assessee, during the same financial year. In view of the above findings, the CIT(A) held that the addition of Rs.5,00,000/- being the loan taken by the assessee from Mr. Madhusudhan Babu which was treated as unexplained cash credit, is not sustainable and directed the same to be deleted.
52. Aggrieved by the order of the CIT(A), the revenue is in appeal before us.
53. We have heard both the parties and perused the record. We find that the Assessing Officer has made the additions to the returned income by disallowing the loans taken from one Shri M.R. Sudhir - Rs. 8,93,111/- and Shri K. Madhusudhan Babu - Rs. 5,00,000/- as unexplained cash credits. The CIT(A) has deleted the said additions and the revenue is in appeal before us. In these circumstances, applying the ratio of the decision in the case of Sumati Dayal Vs. CIT, 214 ITR 801 and also taking into 27 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu consideration the test laid down in the case of R.B. Mittal (supra), we are of the view that the onus lies on the assessee to satisfy three conditions laid down u/s 68 of the Act, namely, the identity of the creditors, capacity of the creditors to advance money and genuineness of the transaction. Hence, the issue has to be reconsidered by the Assessing Officer after verification of the materials produced by the assessee in support of his claim in the light of the said cases. Therefore, we set aside the order of the CIT(A) and remit the issue to the file of the Assessing Officer to give a reasonable opportunity to the assessee to represent his case. Accordingly, the grounds 2, 3, 4 & 6 raised by the revenue are allowed for statistical purposes.
54. Ground No. 5 is regarding failure to deduct TDS as per the provisions of section 195 of the Act by the assessee. Taking into consideration the submission of the assessee's counsel that interest was not paid or credited during the year, the TDS provisions are not applicable to the case and further the loan amounts cannot be added as income merely on the presumption of technical defaults by the assessee, we are of the view that the additions made by the assessee based on presumptions and surmises cannot be sustained. Therefore, we uphold the order of the CIT(A) on this count and dismiss this ground of appeal of the revenue.
55. In the result, appeal of the revenue being ITA No. 421/Hyd/12 is partly allowed for statistical purposes.
ITA No. 422/Hyd/2012 by the revenue for AY 2008-0956. Ground Nos. 1 & 8 are general in nature, therefore, need no adjudication.
28ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu
57. Ground No.4 are as follows:
4. The ld. CIT(A) ought to have confirmed the additions as the bank account shown by the assessee in respect of the payment of loan to the creditor Sri Pratap Reddy is concerned, the same does not belong to Sri Pratap Reddy but belongs to some other person Sri Settipally Reddy.
58. Ground Nos. 2, 3,5,6 & 7 are as follows:
"2. The learned CIT(A) ought to have appreciated the fact that when the gifts introduced by the assessee were assessed as per the provisions of section 56(1)(ii) the assessee has taken the alternative ground to the remittances appearing in his bank accounts as loans from the same donors.
3. The ld. CIT(A) ought to have appreciated the fact that the assessee is in the business of money lending and to boost up his capital, and to avoid tax incidence on such incomes, the assessee has resorted to introduction of gifts and credits from NRI relatives. But the alleged gifts/loans/credits are nothing but the undisclosed income of the assessee.
5. The ld. CIT(A) ought to have appreciated the fact that mere filing of confirmation from the creditors does not prove that the loan is genuine. The assessee has not brought any circumstantial evidence to prove the credit as genuine.
6. The ld. CIT(A) has gone to the basic ingredients necessitated for confirmation of the loan/credit. But failed to appreciate the intention and genuineness of the above gifts/loans/credits.
7. The ld. CIT(A) ought to have appreciated the fact that the assessee failed in human probabilities as decided by the Apex Court in the case of Sumathi Dayal Vs. CIT, [1995] 214 ITR 801(SC) and would have confirmed the assessment made.
59. The Assessing Officer while completing the assessment, the total income of the assessee was determined at Rs. 53,26,856/- making additions under the head 'unexplained cash credits' 29 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu representing the loans obtained by the assessee from five parties to the extent of Rs. 48,25,636/-.
60. Aggrieved, the assessee carried the matter in appeal before the CIT(A).
61. While making the addition under the head 'unexplained cash credits' u/s 68 of the I.T. Act, 1961, the Assessing Officer has arrived at some conclusion as regards to the nature of such transaction in case of each individual creditor. Sri K.Anil Kumar shown to have given a loan of Rs.9,50,000/- to the assessee Mr.M.Babu, who runs the finance business in the name of 'Vijayalakshmi Finance', as a proprietary concern, at an interest rate of 12% p.a The Assessing Officer has added the amount of loan from Mr.K.Anil Kumar treating it as unexplained cash credit for the reasons that the said creditor was giving gifts to the assessee in the earlier years and on the face of the provisions of the sec.56(1)(v) of the IT Act, 1961 invoked by the Department, the amounts were shown as loans in the current year. In the case of loans taken from Sri K.Sunil Kumar, in two installments of RS.6,92,712 with interest rate of 9% p.a. and RS.14,09,128 with interest rate of 6% p.a., the Assessing Officer arrived at the conclusion that no person can give the amount on different dates, with different rates of interest. For treating the said loans as the unexplained cash credits in the hands of the assessee, the Assessing Officer further resorted to technical reasons observing that the assessee was using the said funds in the finance business of proprietary concern viz. Vijayalakshmi Finance for which the RBI permission was necessary but not obtained. Another technical reason taken by the Assessing Officer for giving similar treatment to the loans is that the assessee has not deducted the TDS on the interest payable to the creditor. In cases of Sri B.Sridhar 30 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu (Rs.3,OO,OOO), Sri Mittapalli Kulashekar (Rs.7,40,314) and Sri Ramprasad Reddy (Rs.7,33,482), where the interest rate was determined at 9% p.a., the Assessing Officer has taken the stand based on TDS default and treated the said amounts as unexplained cash credits.
62. The assessee has taken objections for the above additions and furnished the written submissions during the course of appeal proceedings. Regarding the additions or account of treating the loans taken from five parties as unexplained cash credits, it was submitted by the assessee that the Assessing Officer has made the additions merely or the technical issues such as default in obtaining permission from RBI and TDS on interest payments etc. The assessee submitted that no permission from RBI is required for taking a loan from NRI through banking channel and Assessing Officer has never mentioned the section under which the permission is required to find fault with the assessee. Regarding the TDS on the interest payments, it was submitted that since interest was not paid or credited during the year, application of TDS provisions have not come into picture and it was submitted that loan amounts cannot be added as income on mere technical defaults that too on suspicion. The assessee has furnished the affidavits from Mr.B.Sridhar, Mr.Mlttapally Kulashekar, Mr.K.Anil Kumar and Mr.K.Sunil Kumar, wherein the loans were confirmed along with sources of income, while indicating that the interest was requested to be paid to them, only at the time of prepayment of the loans. The assessee while submitting the written submissions has explained reasons for deleting the additions, with reference to the different stands taken by the Assessing Officer in treating the loans taken from the above five parties.
63. The CIT(A) observed that while making the addition of 31 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu Rs.9,50,000/- being the loan taken by the assessee from Mr.K.Anil Kumar, treating it as the unexplained cash credit, the Assessing Officer has taken a stand that the said creditor was giving gifts in the earlier years and since the department has invoked the provisions of sec.56(l)(v) and taxed the same in the earlier years, the subsequent amount sent by the creditor has been reflected as loan. It was also pointed out by the Assessing Officer that the confirmation letter filed by the creditor for the year under reference is not indicating anything about the interest whereas in the earlier years, the confirmations filed by the same party was indicating the interest rate of 12% p.a. It was concluded by the Assessing Officer that the assessee fearing the gift suffering tax as per sec.56(1)(v), the said amounts were shown as loan and for the said reasons, the amount of RS.9,50,000/- was treated as unexplained cash credit. There is no doubt that the said creditor was giving some gifts in the earlier year which have been either suffered tax by surrendering or by getting assessed as unexplained cash credit but no doubts were expressed by the Assessing Officer about the genuineness of the loan appearing for the year.
64. In this regard, it was explained by the assessee that Mr.K. Anil Kumar is an NRI and close relative and the amounts were routed through banking channel In US dollars. Further, it was submitted by the assessee that there is no bar for a person to give gift as well as loan, either during the same year or in the different years. In this case the loan and gifts have taken place in two different years and the inference drawn by the Assessing Officer for treating the said amount of loan as unexplained cash credit on this ground is not justified. Further, the affidavit filed by the creditor viz., Mr. K. Anil Kumar have confirmed the amounts given as gifts as well as loans. As per the information 32 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu available in the affidavit, no gifts were given beyond the financial year ending on 31.3.2005 and the loans have been obtained in the financial years 2005-06 & 2007-08. The creditor further confirms that the interest is receivable by him at the time of repayment of the loan, which is being undertaken by the assessee only in the subsequent years. Under the circumstances, it can be held that disallowances cannot be made merely on the surmises, where the identity of the creditor, genuineness of the transaction and creditworthiness of the loan vendor/creditor is not doubted.
65. The CIT(A) held that it is an established law that in absence of anything to show that the transaction was squared up by way of money laundering, the addition could not be made in the hands of the assessee loanee, where the loans are taken from NRI loan vendors and more so in a case where they are proved to be the relatives of the assessee. Accordingly, the addition of Rs.9,50,000/- made in the hands of the assessee on account of treating the loan from Mr.K.Anil Kumar, as unexplained cash credit, is deleted.
66. The CIT(A) held that further, during the year, the assessee has taken the loans from B.Sridhar (Rs.3,00,000), Sri Mittapalli Kulashekar (Rs.7,40,314), Sri Ramprasad Reddy (Rs.7,33,482) and Mr.K.Sunil Kumar (Rs.21,Ol,840) and used the said amounts in the finance business of the assessee being carried out in the name and style of M/s Vijayalakshmi Finance. The CIT(A) observed that during the assessment proceedings, the confirmation letters indicating the loan details and their sources were shown to have been submitted before the Assessing Officer and accordingly the Assessing Officer has not expressed any doubts about the identity of the creditors and their creditworthiness or the genuineness of the transactions. Instead, 33 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu the Assessing Officer has treated such amounts as unexplained credits for the technical reasons stating that the said loans were obtained by the assessee and taken to the business of Finance and as such require permission from RBI. The CIT(A) pointed out that no further details were either brought on record or discussed in assessment order, regarding the RBI guidelines on the subject matter. The CIT(A) observed that the technical reason cannot be taken as ground for treating the loans which have been otherwise proved genuine, as unexplained cash credits for making the additions u/s 68 of the I.T. Act, 1961. The other reason taken by the Assessing Officer for treating said loans as unexplained credits, are the failure of the assessee for making TDS on the interest which shown to have been promised by the assessee to the creditors. The CIT(A) pointed out that in this regard, it was stated by the assessee that no such interest was either provided or paid and thereby not attracting the provisions of TDS for the year under reference. Further, the affidavits furnished by the said creditors indicate that the interest is receivable by them at the time of repayment of the loans which has not taken place during the year of reference. The CIT(A) held that a mere failure of the assessee on front of TDS defaults on such interest payments would have only disentitled the assessee to claim the interest as expense but not the entire principal amounts getting treated as unexplained cash credits and hence, the credits, do not survive. He further held that it is an established law that in absence of anything to show that the transaction was squared up by way of money laundering, the addition could not be made In the hands of the assessee loanee, where the loans are taken from NRI loan vendors and more so in a case where they are proved to be relatives of the assessee. The CIT(A) pointed out that in this case, no such evidence to indicate that the assessee has paid the amounts back through money laundering etc. to the creditors was 34 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu either found in search proceedings or brought on the record during the assessment proceedings by the Assessing Officer. Further, it was pointed out that in case of Sri K.Sunil Kumar, Assessing Officer was of the opinion that no person can give the amount on different dates at different interest rates, referring to the two installments of the loans given by the said party. The CIT(A) observed that as submitted by the assessee, it is not the case of the Assessing Officer to decide the rate of interest and there is no bar that different loans will bear different rates and such observation cannot be a ground for suspecting a transaction. Therefore, the CIT(A) held that the additions in this case are made merely on surmises and presumptions without any evidence to doubt the genuineness of the loans, to be treated as unexplained cash credits. Accordingly, the additions representing the loans obtained by the assessee, from B.Sridhar (Rs.3,00,000/-), Sri Mittapalli Kulashekar (Rs.7,40,314), Sri Ramprasad Reddy (Rs.7,33,482) and Mr.K.Sunil Kumar (Rs.21,Ol,840) which were treated as unexplained cash credits by the Assessing Officer, were deleted. Therefore, this ground of appeal is treated as allowed.
67. Aggrieved, the revenue is in appeal before us.
68. We have heard both the parties and perused the material on record. Regarding the disallowance made by the Assessing Officer of the entire loans taken from i) Shri K. Anil Kumar - Rs. 9,50,000/-, ii) Shri K. Sunil Kumar - Rs. 21,01,840/-, iii) Shri B. Sridhar - Rs. 3,00,000/-, iv) Sri Mittapalli Kulasekhar - Rs. 7,40,314/- and v) Shri Ramprasad Reddy - Rs. 7,33,482/-, who are NRI relatives, we find that the assessee has been carrying on of finance business in the name of 'Vijayalakshmi' and has taken loans from NRI relatives, who also obliged the assessee as the 35 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu relatives had the intention of buying real estate/property on a later date by utilising the amounts, which shall be returned by the assessee with interest.
69. We find that to meet the ends of justice, this issue is also to be looked into after considering the ratio of the decision in the case of Sumati Dayal Vs. CIT, 214 ITR 801 and also taking into consideration the test laid down in the case of R.B. Mittal (supra) that the identity of the creditors, capacity of the creditors to advance money and genuineness of the transaction are to be discharged by the assessee u/s 68 of the Act. Hence, the issue has to be reconsidered by the Assessing Officer after verification of the materials produced by the assessee in support of his claim in the light of the said cases. In these circumstances, we set aside the order of the CIT(A) and remit the issue to the file of the Assessing Officer to give a reasonable opportunity to the assessee to represent his case. Accordingly, the grounds 2, 3, 5 ,6 & 7 raised by the revenue are allowed for statistical purposes.
70. As regards Gr. No. 4, on perusal of record, we find that this ground raised by the revenue does not arise out of the order of the CIT(A), therefore, the same is dismissed.
71. In the result, appeal being ITA No. 422/Hyd/12 is partly allowed for statistical purposes.
ITA NO. 423/Hyd/12 by the revenue for AY 2009-10
72. Ground Nos. 1 & 8 are general in nature, therefore, need no adjudication.
73. Ground No. 4 are as follows:
36ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu
4. The ld. CIT(A) ought to have confirmed the interest as two different interest rates mentioned by the assessee for loans taken from the same person also raise the doubt about the genuineness of the transactions. Further, the rate of interest is not commensurate with the prevailing rate of interest in the market.
74. Ground Nos. 2, 3,5,6 & 7 are as follows:
"2. The learned CIT(A) ought to have appreciated the fact that when the gifts introduced by the assessee were assessed as per the provisions of section 56(1)(ii) the assessee has taken the alternative ground to the remittances appearing in his bank accounts as loans from the same donors.
3. The ld. CIT(A) ought to have appreciated the fact that the assessee is in the business of money lending and to boost up his capital, and to avoid tax incidence on such incomes, the assessee has resorted to introduction of gifts and credits from NRI relatives. But the alleged gifts/loans/credits are nothing but the undisclosed income of the assessee.
5. The ld. CIT(A) ought to have appreciated the fact that mere filing of confirmation from the creditors does not prove that the loan is genuine. The assessee has not brought any circumstantial evidence to prove the credit as genuine.
6. The ld. CIT(A) has gone to the basic ingredients necessitated for confirmation of the loan/credit. But failed to appreciate the intention and genuineness of the above gifts/loans/credits.
7. The ld. CIT(A) ought to have appreciated the fact that the assessee failed in human probabilities as decided by the Apex Court in the case of Sumathi Dayal Vs. CIT, [1995] 214 ITR 801(SC) and would have confirmed the assessment made.
75. While making the additions under the head 'unexplained cash credits' u/s 68 of the I.T.Act, 1961, the Assessing Officer has arrived at some conclusion as regards to the details, nature 37 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu of such transaction in case of each individual creditor, separately. In case of Sri B. Kumar, who is shown to have given a loan of Rs.4,97,740 to the assessee and Mr.M.Babu, who runs the finance business in the name of 'Vijayalakshmi Finance', as a proprietary concern, with an interest payable @ 12% p.a., it was held by the Assessing Officer that permission from RBI was not taken for taking the loans from NRI for the purpose of business in finance. There were no doubts, whatsoever regarding the creditworthiness of the creditor or the transactions which have been confirmed by the creditor. The other reason taken by the Assessing Officer is that no TDS was made on the interest payable. In case of Sri M.Sudhir, where the interest rate was determined at 9% p.a. on the amount of Rs.10,25,585/-, the Assessing Officer has taken a similar stand and treated it as unexplained cash credit. In case of Sri J.A.Prasad, the addition was made since no confirmation was furnished by the assessee, for Rs.1,50,000/-.
76. Before the CIT(A), the assessee has taken objections for the above additions and furnished the written submissions during the course of appeal proceedings. Regarding the additions on account of treating the loans taken from three parties as unexplained cash credits, it is the submission of the assessee that the Assessing Officer has accepted the identity and creditworthiness of the creditors but made the additions based merely on technical issues such as permission from RBI for obtaining loans from NRI for using in Finance business, and default in TDS on interest payments etc. However, the assessee submitted that no permission from RBI is required for taking a loan from NRI through banking channel and Assessing Officer has not mentioned the section under which the permission is required. Regarding the TDS on the interest payments, it was submitted that since interest was not paid or credited during the year, no such 38 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu application of TDS provisions have come into picture and it was submitted that loan amounts cannot be added as income on mere suspicion. The assessee has furnished the affidavits from Mr.B.Kumar and Mr.M.Sudhir, for the loans obtained from them. Regarding the loan from Mr.J.A.Prasad for an amount of Rs.1,50,000/-, the assessee has submitted that the loan was taken through cross cheque but they could not obtain the confirmation since the creditor stated to be a busy businessman in USA.
77. After considering the submissions of the assessee, the CIT(A) observed that while making the additions of Rs.4,97,740 and Rs.10,25,585, being the loans taken by the assessee from Mr.B.Kumar and Mr.M.Sudhir respectively, treating the amounts as the unexplained cash credits, the Assessing Officer did not express any doubts about the identity of the creditors, creditworthiness of the creditors or the genuineness of the transactions. Instead, the Assessing Officer has treated the said amounts as unexplained credits, for the technical reasons and the reasons are that the said loans were obtained by the assessee, taken to the business of Finance and as such require permission from RBI. The CIT(A) pointed out that in this regard, no further details were brought on record or discussed regarding the specific RBI guidelines on the subject matter. The CIT(A) observed that the technical reason may not be taken as ground for treating the loans which have been otherwise proved genuine, as unexplained cash credits, for the purpose of making the additions u/s 68 of the I.T. Act, 1961. The other reason taken by the Assessing Officer, for treating said loans as unexplained credits, is the failure of the assessee for making TDS on the interest which is shown to have been promised by the assessee to the creditors. The CIT(A) observed that in this regard, it was 39 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu stated by the assessee that no such interest was either provided or paid during the year and thereby not attracting the provisions of TDS. Based on the facts of the case, the stand taken by the assessee appears to be on right ground. Further, it was observed that the affidavits furnished by the said creditors indicate that the interest is receivable by them only at the time of closing of the loan. The CIT(A) held that assuming that, even interest is paid or payable, the issue could have been decided on the correct right grounds than falling on the technical lapses, if any. Failure of the assessee, if any, being an individual, on the ground of TDS on such interest payments would have only disentitled the assessee to claim the interest as an expense but not the principal amounts getting treated as unexplained cash credits. The CIT(A) held that hence, the stand taken by the Assessing Officer in treating the said amounts as unexplained cash credits, do not survive and, therefore, the additions of Rs.4,97,740 and Rs.10,25,585 representing the loans from Mr.B.Kumar and Mr.M.Sudhir, treating them as unexplained cash credit u/s 68 of the I.T. Act, 1961, by the Assessing Officer were deleted. In case of Sri J.A.Prasad, the addition of Rs.1,50,000/- made by the Assessing Officer was confirmed by the CIT(A).
78. Aggrieved, the revenue is in appeal before us.
79. We have heard both the parties and perused the record. We find that the Assessing Officer has disallowed the loans taken by the assessee from Shri B. Kumar - Rs. 4,97,740/-, Shri J.A. Prasad - Rs. 1,50,000/- and Shri M. Sudhir Rs. 10,25,585/-, totalling to Rs. 16,73,325/-. The CIT(A) deleted the said additions and confirmed Rs. 1,50,000/- in case of Shri JA Prasad. After taking into consideration of the facts of the case, we are of the view that this issue also needs to be decided by taking into 40 ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu consideration the ratio of the decision in the case of Sumati Dayal Vs. CIT, 214 ITR 801 and also taking into consideration the test laid down in the case of R.B. Mittal (supra) that the identity of the creditors, capacity of the creditors to advance money and genuineness of the transaction are to be discharged by the assessee u/s 68 of the Act. Hence, the issue has to be reconsidered by the Assessing Officer after verification of the materials produced by the assessee in support of his claim in the light of the said cases. Therefore, we set aside the order of the CIT(A) and remit the issue to the file of the Assessing Officer to give a reasonable opportunity to the assessee to represent his case. Accordingly, the grounds 2, 3, 5, 6 & 7 raised by the revenue are allowed for statistical purposes.
80. Ground No. 4 is as follows:
"The ld. CIT(A) ought to have confirmed the interest as two different interest rates mentioned by the assessee for loans taken from the same person also raise the doubt about the genuineness of the transactions. Further, the rate of interest is not commensurate with the prevailing rate of interest in the market."
81. After hearing the parties and perusing the record, we are of the opinion that two different interest rates, which have been mentioned by the assessee for the loans taken from same person has no significance in casting any doubt with respect to the creditworthiness, genuineness or the identity of the parties except that rates of interest have been arrived at having regard to the agreement of the parties. Hence, this ground of appeal is dismissed.
82. In the result, appeal being ITA No. 423/Hyd/12 is partly allowed for statistical purposes.
41ITA Nos. 365 & 418 to 423/Hyd/12 Sri Mittapalli Babu
83. To sum up appeal No. 365/Hyd/12 is partly allowed for statistical purposes, appeal Nos. 418 & 419/Hyd/12 are allowed for statistical purposes and appeals No. 420, 421, 422 & 423/Hyd/12 are partly allowed for statistical purposes.
Order pronounced on 25 th September, 2013.
Sd/- Sd/-
(CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Dated: 25 th September, 2013.
kv
Copy to:-
1) ACIT, Central Circle, 3 rd Floor, Aayakar Bhavan, K.T.
Road, Tirupathi.
2) Sri Mittapalli Babu, Durgasamudram, Tirupathi Rural
Mandal.
3) The CIT (A)-VII, Hyderabad
4) The CIT(Central), Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.
Description Date Intls
1. Draft dictated on Sr.P.S./P.S
2. Draft placed before author Sr.P.S/PS
Draft proposed & placed before JM/AM
the second Member
3
4 Draft discussed/approved by JM/AM
second Member
5 Approved Draft comes to the Sr.P.S./P.S
Sr.P.S./PS
6. Kept for pronouncement on Sr. P.S./P.S.
7. File sent to the Bench Clerk Sr.P.S./P.S
8 Date on which file goes to the
Head Clerk
42
ITA Nos. 365 & 418 to 423/Hyd/12
Sri Mittapalli Babu
9 Date of Dispatch of order