The Income Tax Officer, Ward-3(2), Visakhapatnam V. Sri Mutchuakarla Appa Rao, Visakhapatnam

ITA 668/VIZ/2019

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The case involves Sri Mutchuakarla Appa Rao, a real estate broker, who was intercepted at Visakhapatnam Airport with Rs. 12 lakhs in cash. Following this, a survey under Section 133A of the Income Tax Act was conducted, leading to various additions in his income for the assessment year 2011-12. The primary issues revolved around the source of the cash, ownership and investment in properties, and unexplained cash deposits in bank accounts. The Tribunal examined the submissions and evidence presented, including bank statements, cash books, and the assessee's statements under Section 131 of the Act, and made determinations based on the credibility and substantiation of the evidence provided.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 113028 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2023
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 19-02-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 05-12-2019
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Capital asset; Capital Gains
• Section: 131; 143(3); 142(1); 133A; 143(2); 69A

Judgement Text

1 आयकर अपीलȣयअͬधकरण, ͪवशाखापटणम पीठ, ͪवशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM Įी दुåवूǽ आर एल रेɬडी, ÛयाǓयक सदèय एवं Įी एस बालाकृçणन, लेखा सदèय के सम¢ BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./ I.T.A. No.668/Viz/2019 (Ǔनधा[रण वष[ / Assessment Year : 2011-12) Income Tax Officer, Ward-3(2), Visakhapatnam. Vs. Sri Mutchuakarla Appa Rao, Visakhapatnam. PAN: AHVPM 9813 F (अपीलाथȸ/ Appellant) (Ĥ×यथȸ/ Respondent) C.O. No.22/Viz/2021 (In आयकर अपील सं./ I.T.A. No.668/Viz/2019) (Ǔनधा[रण वष[ / Assessment Year : 2011-12) Sri Mutchuakarla Appa Rao, Visakhapatnam. PAN: AHVPM 9813 F Vs. Income Tax Officer, Ward-3(2), Visakhapatnam. (अपीलाथȸ/ Appellant) (Ĥ×यथȸ/ Respondent) अपीलाथȸ कȧ ओर से/ Assessee by : Sri C. Subrahmanyam, CA Ĥ×याथȸ कȧ ओर से / Revenue by : Sri ON Hari Prasad Rao, Sr. AR सुनवाई कȧ तारȣख / Date of Hearing : 20/02/2023 घोषणा कȧ तारȣख/Date of Pronouncement : 17/03/2023 O R D E R 2 PER S. BALAKRISHNAN, Accountant Member : This appeal filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals)-2, Guntur [CIT(A)] in ITA No. 0255/GNT/CIT(A)-2/2014-15, dated 30/09/2019 arising out of the order passed U/s. 143(3) of the Income Tax Act, 1961 [the Act] for the AY 2011-12. 2. Briefly stated the facts are that the assessee was intercepted by the Deputy Directory of Income Tax (Inv.), Unit-III(1), Visakhapatnam at Visakhapatnam Airport on 28/8/2010 and found Rs. 12 lakhs in his custody. A statement was recorded from the assessee u/s. 131 of the Act on 28/8/2010. The assessee is engaged in the Real Estate business and is also a partner in M/s. A.R. Builders and M/s. Sai Padma Developers along with his wife Smt. M. Padmavathi and others. Subsequently a survey U/s. 133A of the Act was conducted in the assessee’s case and in the case of M/s. A.R. Builders on the same date. In the statement recorded on 28/8/2010, the assessee stated that he has not filed his return of income and also stated that the money found in his possession belongs to him but could not give the details of the sources for the same. The assessee also voluntarily offered to pay the income tax on the same. The assessee also stated that no books of accounts have been maintained in respect of his business and that of the firms in which he is 3 a partner. Subsequently a notice U/s. 142(1) of the Act was issued on 3/10/2011 and duly served on the assessee. In response, the assessee filed his return of income on 19/12/2011 admitting a total income of Rs. 6,57,000/-. Subsequently, the case was taken up for scrutiny and notices u/s. 143(2) and 142(1) of the Act were issued and served on the assessee. In response, the assessee’s Authorized Representative appeared from time to time and furnished the information called for by the Ld. AO. Considering the information furnished and the material available on record, the Ld. AO concluded the assessment by making the following additions: (i) Unexplained money found in the possession of assessee Rs. 12,00,000 (ii) Unexplained investment in purchase of property at Pendurti Rs. 43,59,500 (iii) Short Term Capital Gains Rs. 99,00,500 (iv) Additional profit Rs. 1,99,510 (v) Unexplained credits in various bank accounts Rs. 54,89,800 Aggrieved by the above additions made by the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A), Visakhapatnam. Later the appeal was transferred to the Ld. CIT(A)-2, Guntur. 3. On appeal, the Ld. CIT(A), issued notices U/s. 250A on 14/7/2014; 10/12/2014 and 19/3/2019. In response to the notices, the assessee’s Authorized Representative filed various details and made written 4 submissions before the Ld. CIT(A). During the course of the appeal proceedings, the Ld. CIT(A) forwarded the additional evidence filed by the assessee and called for remand report from the Ld. AO. The Ld. AO submitted his remand report on 3/3/2017. The remand report of the Ld. AO was forwarded to the assessee for his rebuttal thereon. In addition to rebuttal of the remand report, the assessee’s Representative filed a detailed note before the Ld. CIT(A). Considering the submissions of the assessee and the material furnished before the Ld. CIT(A), the Ld. CIT(A) partly allowed the appeal by deleting the additions made by the Ld. AO. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal. 4. The Revenue has raised the following grounds of appeal: “1. The Ld. CIT(A) has erred in both in law and facts of the case. 2. The Ld. CIT(A) ought not have give relief in respect of unexplained cash of Rs. 12 lakhs found in the possession of assessee since the assessee failed to prove the nexus between the cash withdrawals from bank and the subject cash in absence of maintenance of books of account. 3. The Ld. CIT(A) erred in deciding ownership of the two immovable properties vide registered deeds No. 15558/2010 to be in the hands of the firm M/s. AR Builders rather than in the hands of the assessee individual by ignoring the fact that the assessee himself has acquired the properties in his name and subsequent action on these lands ie., the development agreement and the sale agreement have been entered by the individual assessee but not the firm. 4. The Ld. CIT(a) has erred in not considering the fact that as the ownership lies with the assessee himself, the sources for 5 investment amounting to Rs. 43,59,500 has to be explained by the assessee individual. 5. The Ld. CIT (A) ought not have given relief for the assessee in respect of addition of short term capital gains of Rs. 99,00,500/- solely on the issue that the amounts have been repaid by the consideration was received by the assessee in his individual capacity as part performance of contract U/s. 2(47) of the IT Act and also when the final order of the Hon’ble High Court of Andhra Pradesh dated 3/3/2016 on the Writ Petition No. 32622/2011 filed by the petitioner assessee as regards the possession of subject properties was decided in favour of the petitioner – assessee. 6. The Ld. CIT(A) ought not have given relief in respect of unexplained cash deposits of Rs. 54,89,800/- into bank account as since the assessee failed to prove the nexus between the cash withdrawals from bank and the subject cash in absence of maintenance of books of accounts.” 5. With respect to Ground No.2, the Ld. AR submitted that the assessee is a Real Estate broker earning income from commission by way of cash. The Ld. AR further submitted that the assessee has received advances from his customers for identifying and buying a property for one of his customer and hence carried the money from Hyderabad to Visakhapatnam when he was intercepted by the DDIT (Inv.) in Visakhapatnam Airport. The Ld. AR further submitted that since the purchase could not go through, the assessee was returning with the same money from Hyderabad to Visakhapatnam. The Ld. AR further submitted that various judicial decisions have rendered and laid down the ratio that the statement recorded U/s. 131(1) of the Act is not binding on the assessee and hence the additions cannot be made based 6 on the statement recorded from the assessee U/s. 131(1) of the Act. The Ld. AR further submitted that the books of accounts, balance sheet, bank statements have been produced before the Ld. AO but the Ld. AO has not examined the same but has purely relied on the statement made by the assessee U/s. 131 of the Act while making the addition of Rs. 12 lakhs cash found and seized by the Department. Per contra, the Ld. DR submitted that the assessee could not explain the sources for the cash and has voluntarily admitted to pay the amount as advance tax in his hands and in the hands of his wife and has paid the taxes accordingly. The Ld. DR further submitted that the assessee has recorded a statement U/s. 131 that he does not maintain any books of account for the purpose of business activities carried out by him. The Ld. DR therefore pleaded that the order of the Ld. AO be upheld as the assessee could not explain the sources even during the scrutiny proceedings. 6. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. Admittedly, the assessee has carried cash of Rs. 12 lakhs and while recording the statement in response to Q.No. 15, the assessee denied to give the detailed sources for the same. However, the assessee has submitted bank statements, copy of cash book and balance sheet which was 7 prepared based on the entries in the bank pass book before the Ld. CIT(A). The Ld. CIT (A) observed that the Ld. AO has neither examined nor rejected the books of accounts, but by relying on the statement recorded u/s. 131 of the Act made the addition of Rs. 12 lakhs U/s. 69A of the Act. The Ld. CIT(A) found that the assessee has shown cash balance as on 30/08/2010 at Rs. 64,62,446/- and concluded that sufficient cash balance was available with the assessee and therefore directed the Ld. AO to delete the addition made for Rs. 12 lakhs. In the statement recorded by the assessee on 28/8/2010, the assessee has clearly stated in response to Q. No. 14 that he has not taken any loan from any person and has also denied to give any detailed sources for the seized amount. The assessee also in response to Q.No. 16 has voluntarily agreed to pay income tax both in his name and in his wife’s name. The Ld. AO observed in para 2.1 that after repeated opportunities provided to the Ld. AR of the assessee, the assessee filed a letter dated 5/11/2012 that the seized amount of Rs. 12 lakhs is appearing in the books of accounts. The Ld. AO found that since the assessee has not maintained any books of accounts and has accepted that he has not maintained any books of accounts at the time of interception as well as during the survey action, production of books of accounts after a period of 3 months is an afterthought of the assessee and hence the Ld. AO did not consider the 8 books of accounts submitted by the assessee. We find that the Ld. AO has rightly considered the issue of submission of books of accounts as an afterthought of the assessee and hence we do not find any reason to interfere in the decision of the Ld. AO and we hereby set-aside the order of the Ld. CIT(A) on this ground. Accordingly, Ground No.2 raised by the Revenue is allowed. 7. With respect to Ground No.3, regarding the ownership of two immovable properties, the Ld. DR submitted that the assessee has purchased two acres of property at Pendurti for Rs. 60 lakhs vide Doc. No. 1558/2010 and 1559/2010, dated 29/4/2010 from Sri R.P. Naidu and Sri Gandhi Babji. The Ld. DR further submitted that the Document was registered in the individual name of the assessee but the assessee has explained the sources that the purchase of property was made from partnership firm M/s. A.R. Builders. The Ld. DR further submitted that the property cannot be considered as a firms property as it is registered in the individual name and subsequently, the assessee in his individual capacity has entered into a development agreement with M/s. MVV Builders. The Ld. DR further submitted that the assessee has paid cash of Rs. 30 lakhs for the purchase of the property but has not furnished any sources for the cash payment and for the payment of stamp duty aggregating to Rs. 43,59,500/-. The Ld. DR therefore pleaded that the 9 Ld. AO has rightly treated the same as assessee’s unexplained investment u/s. 69A of the Act and the order of the Ld. AO be upheld. Per contra, the Ld. AR submitted that the assessee and his wife are partners in M/s. AR Builders and the property was purchased in the name of the assessee due to sentimental reasons. Further, the Ld.AR submitted that the payment for the purchase of the property through cheques and cash was made by the firm M/s AR Builders which is evidenced by the submissions in the paper book. Further, the Ld. AR also submitted that the stamp duty for the same was also paid by cheque which is also evidenced by the recitals in the sale deed and the bank statements. The Ld. AR further submitted that with respect to the cash payments that the firm has received an advance from RP Naidu which was utilized for the purchase of the property along with the advance for land received from M/s. MVV Builders and capital infusion by the partners. The Ld. AR further submitted that the cash book of the firm has been submitted the paper book page 27. The Ld. AR therefore pleaded that the order of the Ld. CIT(A) be upheld. 8. We have heard both the parties and perused the material available on record and the orders of the Ld. Revenue Authorities. We find from the sale deed copies submitted by the Ld. AR in page 51 of the paper book that the assessee has paid registration fees by way of cheque for 10 registering the documents on 29/4/2010. Further, we find that the partnership firm M/s. AR Builders has paid a cheque of Rs. 15 lakhs for each document by way of cheque to the power holder of the vendors. The payment of cash of Rs. 15 lakhs for each for the two documents was also mentioned in the copies of the sale deed submitted before us. However, the cash book submitted by the Ld. AR could not be relied upon on the issue of receipt of advance from Mr. RP Naidu who also happened to be the power holder of the vendor. Hence, we find the cash book of the firm M/s. AR Builders could not be relied upon on the cash payments made by the firm towards purchase of the land from Mr. RP Naidu. We therefore are of the considered view that the sources for the cash of Rs. 30 lakhs paid for the purchase of the land has not been properly explained by the Ld. AR and we hereby uphold the order of the Ld. AO on this ground for the limited amount of Rs. 30 lakhs where the balance of Rs. 13,59,500/- paid towards the registration charges has been demonstrated by the Ld. AR. We therefore partly allow the ground raised by the Revenue on this issue. 9. Ground No.5 is with respect to short term capital gains. The Ld. DR argued that the assessee has sold one acre of property / land on outright basis for Rs. 70 lakhs and has entered into a development agreement with M/s. MVV Builders for the construction of flats. The Ld. DR 11 submitted that the assessee has received Rs. 65 lakhs by way of cheques and Rs. 70 lakhs by way of cash for the same of property. The Ld. DR relied on the order of the Ld.AO. Per contra, the Ld. AR submitted that the sale of property has been stalled by the Government and the assessee has filed a Writ Petition before the Hon’ble High Court of Andhra Pradesh vide its Petition M.P. No. 40552/2011 praying to direct the State of Andhra Pradesh and others not to interfere in the possession of the assessee. The Hon’ble AP High Court has directed the State that the cancellation of the Registered Sale Deeds unilaterally is illegal and without any jurisdiction and authority and set aside the impugned order. The Ld. AR further submitted that the amount of Rs. 65 lakhs from M/s. MVV Builders against the development agreement was refunded to M/s. MVV Builders by way of cheque on 5/5/2010. Similarly, the cash receipts for Rs. 70 lakhs was also refunded to M/s. MVV Builders which is evidenced by the confirmation letters provided by M/s. MVV Builders as submitted in the paper book. The Ld. AR further submitted that advance received from Mr. MVV Satyanarayana for Rs. 46 lakhs by way of cash was also repaid to Mr. MVV Satyanarayana during the year 2011. The Ld AR further pleaded that the confirmation letter from Mr. MVV Satyanarana confirming the repayment of Rs. 46 lakhs from the assessee was also 12 submitted before the Ld. AO during the assessment proceedings. The Ld. AR therefore pleaded that since the transaction has not been materialized no transfer of property has taken place and hence capital gains does not arise. He pleaded that the order of the Ld. CIT(A) be upheld. 10. We have heard both the parties and perused the material available on record and the orders of the Ld. Revenue Authorities. We find from the submissions made by the Ld. AR and demonstrated before us that the assessee has repaid the amounts to M/s. MVV Builders and also to Mr. MVV Satyanarayana being the advances received from them towards sale of property and development agreement. We also find from the paper book submitted by the Ld. AR in page 96 and 97, confirmations received from M/s. MVV Builders against the payments and receipt of advances. Further, from the submissions made by the Ld. AR the Appellate Authority under Andhra Pradesh (Andhra Area) Inams (Abolition And Conversion Into Ryotwari) Act, 1956, the Revenue Divisional Officer [RDO], Visakhapatnam has directed to issue Ryotwari Patta in the name of the assessee and others vide his order dated 8/1/2018. The Ld. AO has also produced copy of Ryotwari Patta issued in the name of the assessee for the two acres of land owned by him. These additional evidences further strengthen the argument of the Ld. AR that the 13 transfer of property has not taken place in the impugned assessment year. We therefore are of the considered view that since the “transfer” as defined U/s. 2(47) of the Act has not taken place during the impugned assessment year, the computation of short term capital gains does not arise and the Ld. CIT(A) has rightly directed the Ld. AO to delete the addition of Rs. 99,00,500/-. We therefore find no infirmity in the order of the Ld. CIT(A) and do not wish to interfere in the order of the Ld. CIT(A) on this issue. 11. With respect to Ground No.6 regarding unexplained cash deposits, the Ld. DR submitted that Rs. 45,37,100/- was deposited in cash and Rs. 9,52,700/- was deposited by cheque which was not explained by the assessee before the Ld. AO. The Ld. AO has not accepted the cash book submitted by the assessee in view of the statements recorded by the assessee that he does not maintain any books of accounts and hence the Ld. AO has rightly added the above amounts as unexplained cash credits. The Ld. DR pleaded that the order of the Ld. AO be upheld. Per contra, the Ld. AR submitted that the details of cheque deposits has been submitted before the Ld. AO and the Ld. CIT(A). The Ld. CIT(A) has rightly considered the amount of Rs. 9,52,700/- being the cheque deposits in the assessee’s account as explained. The Ld. AR further submitted that the Ld. CIT(A) has also accepted the cash deposits made 14 by the assessee out of the cash balance available with the assessee on the respective dates and hence pleaded that the order of the Ld. CIT(A) be upheld. 12. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. Admittedly the details of cheque deposits in the assessee’s bank account has been explained before the Ld. CIT(A) and was also demonstrated before us by the Ld. AR. Similar to the issue raised in Ground No.2, the Ld. AR submitted that there was sufficient cash balance in the books of accounts, for making cash deposits on various dates. However, the Ld. AO considered the submission of books of accounts as an afterthought of the assessee where the assessee has voluntarily declared while recording the statement U/s. 131(1) of the Act that he does not maintain books of accounts. It is also found from the order of the Ld. AO that the assessee vide statement recorded on 15/5/2010 denied to explain the sources for the cash deposits into the Karur Vysya Bank savings account. Further, in response to Q.No.16, the assessee has also refused to produce the confirmation letters from the various parties. Considering the above statements, the Ld. AO has rightly rejected the arguments of the Ld. AR and has disallowed a sum of Rs. 54,89,800/-. However, the Ld. AR has demonstrated the details of cheque deposited before the Ld. CIT(A) and 15 also before us to the extent of Rs.9,52,700/-. We therefore are of the considered view that since the details of cheque deposits are being demonstrated before us and before the Ld. CIT(A), we uphold the decision of the Ld. CIT(A) to the extent of Rs. 9,52,700/- allowed by the Ld. CIT(A) and reject the balance of Rs. 45,37,100/- which was deposited by way of cash into the bank account of the assessee. In the absence of any proper explanation with substantiated evidence by the Ld. AR, we find that these cash deposits remain unexplained and the additions made by the Ld. AO to this extent of Rs. 45,37,100/- are being upheld. Accordingly, this ground raised by the Revenue is partly allowed. 13. In the result, appeal of the Revenue is partly allowed. 14. With respect to the Cross Objection raised by the assessee it is supportive in nature and therefore the same is disposed off accordingly. Pronounced in the open Court on then 17 t h March, 2023. Sd/- Sd/- (दुåवूǽ आर.एल रेɬडी) (एस बालाकृçणन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) ÛयाǓयकसदèय/JUDICIAL MEMBER लेखा सदèय/ACCOUNTANT MEMBER Dated : 17.03.2023 OKK - SPS 16 आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the order forwarded to:- 1. Ǔनधा[ǐरती/ The Assessee – Sri Mutchakarla Appa Rao, Flat No.B/1A, D.No. 15-1-74, Sea Doll Apartment, Opp. Grant Bay Hotel, Visakhapatnam, Andhra Pradesh – 530003. 2. राजèव/The Revenue – Income Tax Officer, Ward-3(2), 1 st Floor, Infinity Towers, Sankara Matham Road, Visakhapatnam, Andhra Pradesh – 530016. 3. The Principal Commissioner of Income Tax-1, Visakhapatnam. 4. आयकर आयुÈत (अपील)/ The Commissioner of Income Tax (Appeals)-2, Guntur. 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण, ͪवशाखापटणम/ DR, ITAT, Visakhapatnam 6. गाड[ फ़ाईल / Guard file आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam