2021 (1) TMI 359 - AT - Income Tax

Tribunal decision: Appeal allowed for AY 2009-10, partly for AY 2010-11, emphasizing cash flow and source verification.

Shailaja Kalvakuntla, Hyderabad. Versus Income-tax Officer, Ward – 1 (2), Hyderabad.

The Tribunal allowed the appeal for AY 2009-10, deleting the addition made under Section 69 of the IT Act for unexplained investment in land. For AY ... Addition u/s 69 - unexplained investment made in purchase of land at Shaikpet - Assessee entitled to claim the credit for the opening balance or not? - HELD THAT:- We are unable to accept the argument of the ld. DR that merely because the case was taken up for limited scrutiny, the AO is barred from verifying the other entries in the cash flow statement. Since the assessee has furnished cash flow statement during the assessment proceedings for the AY 2008-09, the entries in the cash flow statement, which were already reflected in AY 2008-09, cannot be disturbed by revisiting the same statements in later years. For income tax, each year is independent and what is to be examined in the impugned AY is the entries made in the relevant AY i.e. receipts and payments during the year under consideration, but, not the entries that were made in the earlier year. Thus, the closing balance declared by the assessee as at the end of the FY2007- 2008 stands explained and the assessee is entitled to claim the credit for the opening balance in the year under consideration. Hence, we hold that the assessee is permitted to take opening balance as source. Sources for receipts during the year - From the order of CIT(A), it is observed that during the appellate proceedings, G. Balkishna Rao and G. Narayana Rao have confirmed the payment to the assessee u/s 131 of the Act. Therefore, there is no reason to reject the credit. If the AO was not convinced with the explanation offered by the creditors, the same is required to be brought to tax in the hands of the creditors, since, they have confirmed the credit and explained the source, but, not in the hands of the assessee. Thus we hold that there is no case for rejection of opening balance and the loans from G.Balakrishna Rao and G.Narayana Rao and accordingly we direct the AO to accept the same. Amount received from Shri E. Madan Mohan Rao - Creditor has issued the legal notice for recovery of the loan with the dates of amounts lent. Since the legal notice is available the AO should have caused necessary enquiries instead of pressing the assessee to produce the creditor. Having not caused the enquiries and did not bring any material to show that the advance received from E.Madan Mohan Rao was bogus, the AO is not permitted to make the addition in the hands of the assessee. Thus we direct the AO to accept the credit from E.Madan Mohan Rao. Amount received from her husband, the same was reflected in the balance sheet of her husband and he is assessed to tax. Her husband Shri Ram Gopal Rao also filed confirmation having given the loans to the assessee, therefore, there is no reason to suspect the source. Even if it is to be suspected, the same is required to be examined in the AY 2005-06, but, not in the impugned assessment year. From the cash flow statement, we find that the payment of ₹ 97 lakhs on account of advance for land was clearly explained by the assessee and therefore, we hold that there is no case for making the addition, hence, we delete the addition made by the AO on this count and set aside the order of the Ld.CIT(A) and appeal of the assessee is allowed. Receipt as advance from the tenant - HELD THAT:- In the instant case, the assessee has claimed rent advance of ₹ 20 lakhs received from Shri M. Venkata Shiva Prasad for letting out the house at MLA Colony, Banjara Hills. Lease agreement was placed on record. However, the details of date of receipt and mode of payment were not furnished by the assessee. Similarly, the lessee has not responded to the notice issued u/s 133(6) of the Act. However, there was a civil case filed by the assessee in the Civil Court wherein the sum of ₹ 20 lakhs stated to have been adjusted towards monthly rentals. Therefore, the issue needs to be considered after verification of the details and genuineness of the transaction. Both the parties have agreed to remit the issue back to the file of the AO to examine the receipt of ₹ 20 lakhs as advance from the tenant. This issue is treated as allowed for statistical purposes. Issues Involved:1. Addition under Section 69 of the IT Act for unexplained investment.2. Validity of cash flow statements and opening balances.3. Credibility of sources for investment.4. Treatment of rental deposits as sources of investment.Issue-wise Detailed Analysis:1. Addition under Section 69 of the IT Act for Unexplained Investment:The primary issue in ITA No. 734/Hyd/2014 for AY 2009-10 revolves around the addition of Rs. 85,63,498/- confirmed by the CIT(A) under Section 69 for unexplained investment in land at Shaikpet. The assessee did not file a return for AY 2009-10, prompting the AO to issue notices under Sections 148 and 142(1). The AO completed the assessment under Section 144 r.w.s. 147, adding Rs. 97,00,000/- for unexplained investment. The Tribunal found that the assessee had explained the payment through a cash flow statement, which showed an opening balance of Rs. 75,70,268/- and receipts during the year. The AO's rejection of this balance was deemed incorrect as the cash flow statement for AY 2008-09 had already been scrutinized and accepted except for Rs. 5,00,000/-. Therefore, the Tribunal allowed the appeal, deleting the addition made by the AO.2. Validity of Cash Flow Statements and Opening Balances:The assessee provided cash flow statements for FYs 2007-08 and 2008-09, which were scrutinized during the assessment for AY 2008-09. The AO had accepted the cash flow statement except for one entry of Rs. 5,00,000/-. The Tribunal held that the AO could not revisit the accepted cash flow statement in subsequent years. The opening balance of Rs. 75,70,268/- as on 01.04.2008 was deemed valid, and the assessee was allowed to claim this as a source for the investment in land.3. Credibility of Sources for Investment:The AO had disallowed credits from certain individuals and the assessee's husband, questioning their creditworthiness. The Tribunal found that the assessee had provided confirmation letters and legal notices from the creditors, and there was no reason for the AO to reject these sources without further inquiry. The Tribunal directed the AO to accept the credits from Shri G. Balakishan Rao, G. Narayana Rao, and E. Madan Mohan Rao, as well as the amount received from the assessee's husband, which was reflected in his balance sheet and tax returns.4. Treatment of Rental Deposits as Sources of Investment:In ITA No. 1364/Hyd/2015 for AY 2010-11, the AO had added Rs. 50,50,000/- for investments in partnership firms and land, disbelieving the claimed sources, including a rental deposit of Rs. 20,00,000/-. The Tribunal found that the opening balance of Rs. 33,13,802/- was valid based on the previous year's findings. However, the rental deposit required further verification. The Tribunal remitted the issue back to the AO to verify the details and genuineness of the rental deposit, directing the assessee to provide necessary information and the AO to make sincere efforts to verify the facts.Conclusion:The Tribunal allowed the appeal for AY 2009-10, deleting the addition made under Section 69. For AY 2010-11, the appeal was partly allowed for statistical purposes, with the issue of the rental deposit remitted back to the AO for fresh examination. The judgment emphasized the importance of finality in accepted cash flow statements and the need for thorough verification of sources before making additions under Section 69.