Addition u/s 69 towards unexplained investment unsustainable as source for purchase duly established

ITO Vs Kavitha Siddareddy (ITAT Chennai)

ITAT Chennai held that addition towards unexplained investment under section 69 of the Income Tax Act unsustainable as source for purchase of property duly established with necessary evidences.

Facts- During the course of assessment proceedings, it was noticed that the assessee has purchased property for a consideration of Rs.3.40 Crs., and thus, the AO called upon the assessee to explain source for purchase of property. In response, the assessee submitted that she had received unsecured loan of Rs.1.40 Crs. from her husband, Mr.S.V.Ranga Reddy. She further stated that she had drawn a sum of Rs.1.90 Crs. from the partnership firm i.e. M/s.SVR Construction Co., where she was one of the partners, and she had also drawn Rs.60 lakhs from M/s.Vinayak Infra Projects.

Rejecting the arguments of the assessee and made additions towards source for purchase of property as unexplained investment u/s.69 of the Act.

CIT(A) deleted the said additions. Being aggrieved, revenue has preferred the present appeal.

Conclusion- Held that the assessee has established source for purchase of property with necessary evidences and thus, the AO is erred in making additions towards source for purchase of property as unexplained investment u/s.69 of the Act. The Ld. CIT(A) after considering relevant facts has rightly deleted the additions made by the AO and hence, we are inclined to uphold the findings of the Ld. CIT(A) and dismiss the appeal filed by the Revenue.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-4, Chennai, dated 11.11.2019and pertains to assessment year 2013-14.

2. The Revenue has raised the following grounds of appeal:

1. The order of the Ld. Commissioner of Income Tax(Appeals) is contrary to the law and the facts of the case.

2.1 The Ld. CIT(A) has failed to appreciate the findings of the AO that the partnership firms from which the assessee has stated to have withdrawn Rs.2.50 crores, had not furnished their return of income for the AY 2013-14.

2.2 The Ld. CIT(A) has erred in accepting the contention of the assessee that source for the partnership firms had been explained by merely furnishing copies of work orders obtained by the partnership firms.

2.3 The Ld. CIT(A) has erred in not appreciating the findings the AO that the financials of assessee’s husband disproves the assessee’s claim that source for Rs.1.40 crores was out of loans taken from the firm in which assessee’s husband is partner and that the said firm had also not filed its return of income for the AY 2013-14

2.4 The ld CIT(A) erred in not following the decision of the Hon’ble Apex Court’s rulings in the case of CIT vs P Mohanakala 291 ITR 278 wherein it was held that the transactions though apparent were held to be not real one.

2.5 The ld CIT(A) ought to have noted that as per the mandate of section 69 of the I.T. Act, where an assessee has made investments in respect of which. the assessee is not able to explain the nature and source, the same is deemed to be the income of the assessee.

3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the.Ld. CIT(A) may be set aside and that of the Assessing Officer restored.

3. The brief facts of the case are that the assessee is an individual filed her return of income for the AY 2013-14 on 31.10.2014 admitting total income of Rs.80,000/-.Information available with the Department shows that the assessee had purchased an immovable property for Rs.3.40 Crs. during the FY 2012-13 relevant to assessment year and market value of the property is at Rs.7.70 Crs. To verify the source for purchase of property, the assessment has been re-opened u/s.147 of the Income Tax Act, 1961 (in short “the Act”) and notice u/s.148 of the Act, dated 28.03.2018 was issued and served on the assessee. In response to the notice issued u/s.148 of the Act, the assessee vide letter dated 10.12.2018 submitted that the return filed on 31.10.2014 may be treated as return filed in response to notice issued u/s.148 of the Act, and also asked for the reasons for re-opening of assessment. The reasons for re­opening of assessment was furnished to the assessee. During the course of assessment proceedings, it was noticed that the assessee has purchased property for a consideration of Rs.3.40 Crs., and thus, the AO called upon the assessee to explain source for purchase of property. In response, the assessee submitted that she had received unsecured loan of Rs.1.40 Crs. from her husband, Mr.S.V.Ranga Reddy. She further stated that she had drawn a sum of Rs.1.90 Crs. from the partnership firm i.e. M/s.SVR Construction Co., where she was one of the partners, and she had also drawn Rs.60 lakhs from M/s.Vinayak Infra Projects. The AO called upon the assessee to file necessary evidences, including confirmation letters from the parties, their bank statements, and Income Tax return filed copy for the relevant assessment year. In response, the assessee has filed confirmation letters from Mr.S.V.Ranga Reddy, and their bank statements, and also financial statement along with ITR filed for the relevant assessment year. In respect of M/s.SVR Construction Co.&M/s.Vinayak Infra Projects, she had filed relevant partnership deed of two firms, bank statements.However, could not file ITR filed for the relevant assessment year, because, the firms did not file return of income due to losses. The AO did not accept explanation furnished by the assessee. According to the AO, the assessee could not satisfactorily explain source for purchase of property, although, she claims to have been received unsecured loan of Rs.1.40 Crs. from her husband. The assessee could not file any evidences to justify amount received from partnership firm along with Income Tax return filed for the relevant assessment year by the said firms. Therefore, rejected arguments of the assessee and made additions towards source for purchase of property as unexplained investment u/s.69 of the Act. The relevant findings of the AO are as under:

12. The submissions of the assessee is carefully examined and analyzed as under:

a. On perusal of purchase deed dated 04.03.2013 furnished by the assessee, it is ascertained that the purchase consideration paid by the assessee is at Rs.3,40,00,000/-and Stamp duty paid is at Rs.55,85,400/- against the stamp duty value of Rs.7,70,40,000/-. On perusal of bank statements furnished for the instant AY.2013-14, it is verified that the assessee had made cash deposits to the extent of Rs.23,75,600/-.

b. The assessee by furnishing copy of Form 16A issued by M/s.Indu Projects Ltd in respect of M/s.SVRC and M/s.VIP, had admitted that total gross receipts of the above firms stood at Rs.19,24,94,882/- and Rs.5,52,88,605/-respectively. However, the assessee claimed that due to continuous losses made in their contract works, the partnership firms referred above did not file their Returns of income. Assessee had not substantiated the above claim by furnishing relevant financials of the firms. She had just furnished copies of above stated work orders and bank statements. Assessee could not place proof to show source of funds and creditworthiness of donors was not proved. In the absence of material evidence, source for withdrawal made by the assessee to the extent of Rs..2 Crores from the above referred partnership firms remained unexplained. It is trite law that the initial burden of proving is always on the assessee to show that the property transactions was made out of disclosed sources. Thus the assessee had not discharged burden as regards source from which investment to the extent of Rs.2 Crores had been made.

c. Further, vide letter dated 26.12.2018, it was submitted that Shri. S.V. Ranga Reddy on receipt of amount to the extent of Rs. l Crore by Venkatshiva from M/s. SVRC on 27.05.2010 & 21.12.2010, had given Rs. l Crore directly to the seller. However, on 28.12.2018, it was submitted that the aggregate sum of Rs.1,40,00,000/- shown by the assessee as part of the purchase consideration, had been paid by the assessee’s husband, Mr. S.V. Ranga Reddy directly to the seller Mr. D.S. Reddy and the same had been reflected in his books of accounts and had figured in the Returns of income filed by him for the AYs.2011-12 and 2012-13. The assessee also submitted financials as on 31.03.2010 and 31.03.2011 in respect of Mr. S.V. Ranga Reddy. However, on perusal of above financials furnished for the FYs.2010-11 and 2011-12, it is seen that there was no whisper about M/s. Venkatshiva Engineering Works(JV). Hence the claim of the assessee that receipt of Rs. lcrore by M/s. Venkatshiva Engineering Works(JV) from M/s. SVRC is the source for the loan given by Shri. S.V. Ranga Reddy is not a bona fide one and liable to be rejected.

d. source for loan to the extent of Rs.40 lakhs given by Mr. S.V. Ranga Reddy to the assessee explained as money received from Shri. O.P. Kripalani . There was no material evidence produced by the assessee in support of the above claim except furnishing bank statements. 0Thus the assessee had not discharged burden as regards source from which investment to the extent of Rs.l.40 Crores had been made.

13. In view of the above foregoing, the reply of the assessee is not acceptable. The Act of assessee by furnishing copy of work orders of the partnership firms is clearly an afterthought with a motive to avoid payment of taxes which are lawfully due to the Government.

Just because the transactions are made through banking channels, it could not be treated as genuine one. The Hon’ble Apex Court in the case of CIT vs. P. Mohanakala 291 ITR 278 (2007) supports the case of revenue, wherein it is held that the transactions though apparent were held to be not real one. May be the money came by way of bank cheques and paid through the process of banking transaction but that itself is of no consequence. Merely because the assessee has furnished bank statements does not mean that the assessee has discharged his burden of proving the money obtained from Shri. S.V. Ranga Reddy, M/s. SVR Construction and M/s. Vinayak Infra and that too without providing source from where the money was given by them towards purchase of property made by her during the instant assessment year. Creditworthiness of Donors is not proved by the assessee. Thus totality of facts clearly indicate that the investment made by the assessee towards purchase of property, represented unaccounted income of the assessee, as the same was not disclosed by her in the returns of income. Onus is on the assessee to prove the source of amounts and merely by furnishing copy of bank statements does not shift the onus to the Department.

Assessee had not discharged burden as regards source from which investment had been made. Since no plausible explanation has been furnished about the investment in the purchase of immovable property and stands clearly establishes that the investment in the property has been made by the assessee herself which was nothing but clearly the undisclosed source and accordingly the addition under section 69 to the extent of Rs.3,40,00,0007- is made as unexplained investment and the same is added back to the returned income of the assessee for the AY.2013-14 as under.

Accordingly, the assessment is completed as under:

Computation sheet and Demand Notice is enclosed. Penalty u/s.271(l)(c) initiated separately.

4. Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee has filed necessary evidences to support source for purchase of property along with confirmation letters from Mr. S.V. Ranga Reddy, her husband, for proof of receipt of unsecured loan of Rs.1.40Crs. The assessee had also filed financials of partnership firm and bank statements to prove that she had received Rs.2 Crs. from the partnership firm. The Ld. CIT(A) after considering relevant submissions of the assessee and also taken note of certain judicial precedents, opined that the assessee has discharged primary onus by filing necessary evidences to prove source for purchase of property. The assessee had also proved unsecured loans received from her husband, Mr. S.V. Ranga Reddy, along with evidences. The assessee had also filed relevant financial statements of partnership firm along with bank statements to prove that firm is having enough source of income to establish drawings made by the partner amounting to Rs.2 Crs. Therefore, opined that the assessee has satisfactorily discharged onus cast upon by filing various details to prove identity of the creditors, genuineness of the transactions, and their creditworthiness, and in that process, she had also proved source for purchase of property. Therefore, opined that the AO erred in making additions towards investment in property as unexplained investment u/s.69 of the Act. The relevant findings of the Ld. CIT(A) are as under:

6. Now, I have carefully gone through the undisputed/uncontroverted facts marshalled and presented by the AO/AR as reflected, in essence, in the excerpts from the said assessment order and the submissions of the AR quoted supra bolstered by relevant and supporting evidence relied on by the rival parties but on a relative and comparative consideration of the same, I am however persuaded by the more substantive and meritorious reasoning substantiation adduced by the AR on the issue at hand.

7. During the appellant proceedings it was verified that the appellant had received cheque 451311/27.10.2010 for Rs.50.00 lakhs, another cheque No. 466157/21.12.2010 for Rs.50.00 lakhs and another No.000040/24.01.2013 for Rs. 40.00 lakhs aggregating to Rs.1,40,00,000/- from her husband S.V. Ranga Reddy and the sum of Rs.2,00,00,000/-paid as part of sale consideration for purchase of the property had been met out of the drawings from the aforementioned partnership firms and that the appellant being the managing partner of the partnership firm viz., M/s. SVR Construction Company, during the year ending 31.03.2013 had also drawn about Rs.190.00 lakhs from the firm whose source was contract receipts.

7.1. The aggregate sum of Rs.1,40,00,000/- shown by the assessee as part of the purchase consideration, had been paid by the assessee’s husband, Mr. S.V. Ranga Reddy directly to the seller Mr. D.S. Reddy and in the Balance Sheet as at 31.03.2011 of Mr. S.V. Ranga Reddy the sum of Rs.1,00,00,000/-paid had been shown against D.S. Reddy in the schedule ‘Current Assets, Loans & Advances’. This amount was transferred to the assessee on 01.04.2011 the balance sum of Rs.40,00,000/- 24.01.2013 paid to Mr. D.S. Reddy had been transferred to the account of the assessee. As such, it was seen that the sum of Rs.1,40,00,000/- paid by Mr. S.V. Ranga Reddy to the assessee had been reflected in his books of accounts and figured in the returns of income filed by him and therefore explained with credible evidence which has been rejected without any proper reasoning adduced by the AO which renders the order weak without any meritorious legal backing.

7.2. Further the appellant also being a partner in the partnership firm viz., M/s Vinayak Infra Projects during the year ending 31.03.2013 had further drawn about Rs.60.00 lakhs from the firm whose source was again contract receipts and therefore the AO appears to have erred in holding that the appellant had not discharged the burden of proof as regards the receipt from Mr. O.P.Kriplani of Rs.1.40 crores and failed to appreciate the letter of confirmation from Mr. O.P.Kriplani submitted vide letter dated 26.12.2018 by way of evidence.

7.3. It was also seen that the above said assessee’s partnership firms M/s. SVR Construction Co., (SVRC) and M/s. Vinayak Infra Projects (VIP) had secured a contract work of about Rs.19.25 crores and Rs.5.53 crores from M/s. InduProjects Ltd, Hyderabad and for executing this contract works, the firms had obtained working capital facility from Andhra Bank, Ramachandrapuram Branch for Rs. 900 lakhs each on the strength of the work orders and also on the security of land belonging to the assessee’s mother and of her husband and both the firms had drawn cash from its OD account with Andhra Bank and the funds so brought in to the books of M/s. VIP were utilised by the assessee to pay towards part of the purchase consideration of the said property and in support of the above claim, the assessee furnished copies of the work order dated 26.09.2010 issued to M/s. VIP and 25.12.2010 issued to M/s. SVRC by M/s. Indu Projects Ltd. Copies of the loan sanction letters dated 22.03.2010, 28.05.2011, 05.06.2012 issued by Andhra Bank and copy of Form 16A issued by M/s. Indu Projects Ltd. to M/s. VIP and M/s. SVRC and copies of letter of balance confirmation dated issued by M/s. Indu Projects Ltd. and copies of Registration Certificates were also furnished during the appellate proceedings.

8. During the appeal proceedings appellant had been asked to provide details of the income tax returns filed by the following partnership firms in which the appellant is a partner:

– M/s. SVR Construction company;
– M/s. Vinayak Infra Projects

and it was seen that M/s. SVR Construction Company executed contract works only during the first year of its existence i.e. F.Y. 2010-11 and since its client (from whom the appellant had obtained work) got into legal trouble and the contract work had to be abandoned and since it resulted in heavy losses and in the absenceof any other profitable activity, this firm did not file any income tax returns duringthe impugned year.

8.1. Similarly M/s. Vinayak Infra Projects filed its return of income for the first year of its existence i.e. A.Y. 2011-12 on 31.12.2011 and a copy of the return filed acknowledgment along with financial statements for that year were enclosed which also showed losses thereby not filing the return of income.

9. Therefore the AO’s contention that the withdrawals of Rs.2.00 crores by the appellant from the partnership firms remained unexplained merely because those firms did not file their returns was not a valid inference since they were separate legal and taxable entities under the Act and she ought to have confined herself to the genuineness of the source of funds to these partnership firms and merely because of non-filing of the returns of income by these firms AO was not justified in treating the transactions with these firms as unexplained and further the AO appears to have also failed to comprehend that the undisputable work orders were issued to these firms by third parties on the basis of which the loan amounts were obtained which fact has not been disputed by her and she should have substantiated her allegation of ‘after thought’ by disproving that the work orders were not issued on the dates mentioned therein by conducting enquires from the donors/third parties/banks, advancing the sums and the dates and modes of such receipts which she has failed to carry out calling into serious question the inference/con elusions drawn by her of such unexplained investment as she termed it.

10. In this context it is worthwhile to mention that deeming provisions of Sections 68 to 69C obviously have to be strictly construed and the onus to show that the necessary and requisite conditions for the application of these section sare present in a case so that the same are attracted in the facts and circumstances of the appellant’s case stands met, was on the AO, who sought to apply/invoke the same. No doubt, the particular facts are only in the intimate knowledge of the assessee, who for reasons best known to him, and perhaps for apparent reasons chooses not to divulge the same. However, that by itself would neither satisfy the mandate of the section nor entitle the AO to presume or consider the required conditions as having been satisfied or proved. In other words, the same, though not disproved, were, yet, not proved, i.e., remained unproved, so that the deeming provisions could not be invoked. It was incumbent on the AO, under the circumstances to apply the deeming provisions to bring on record material evidence which could be said to lead to the satisfaction of the AO as well, making requisite investigation or adopt such other means permissible in law at his command. The AO, thus, having not discharged the onus for proving the satisfaction of the precedent conditions for application of the deeming sections, the AO’s conclusions in the case of the appellant, under consideration, in my considered view, could not merit judicial approval [Sai Construction v. ITO (2010) 127 TTJ (Ctk.) (UO) 15].

10.1. The Hon’ble Supreme Court in CIT vs. Smt. P.K. Noorjahan (1999) 237 ITR 570 (has held that the language used in the deeming provisions of Sections 68 to 69C, is “may” and not “shall” and hence significant amount of discretion has been vested with the AO which has to be judicially exercised. In the case of the assessee, under consideration, the assessee urges that the principles laid down by the Supreme Court in the above decision were not followed since the entire expenditure/investment were presumed and assessed by the AO as unexplained in the hands of the appellant, that too, without bringing any corroborative evidence on record to substantiate such presumptions and suspicions which is clearly not tenable and the onus is on the Revenue to prove on the strength of evidence that the impugned expenditure was not genuine or legitimate which is cardinal principle of jurisprudence. Further, in Mirah Exports (P) Ltd. vs. Collector of Customs (1998) 3 SCC 292 (SC) it was observed that the burden of proving a charge lies upon the Revenue and the Revenue has to produce necessary evidence to prove the said charge. Ordinarily, the Court should proceed on the basis that the apparent tenor of the agreement reflects the real state of affairs and what is to be examined is whether the Revenue has succeeded in showing that the apparent is not the real and that the impugned claims made by the appellant does not reflect the true state of affairs. It is settled position that assessment proceedings under the Act are quasi-judicial proceedings and as such additions made on mere suspicion or personal imaginations of the AO, unsubstantiated on the strength of corroborative evidence are unsustainable. Since the appellant tendered some explanation on the basis of documentary evidence, which were prima facie reasonable and the AO was bound to accept the same unless disproved by him, by bringing corroborative evidence and the same could not be rejected light heartedly on capricious or arbitrary grounds or mere suspicious and irrelevant considerations, as held in the following decisions among others.

Naidu v. CIT (1956) 29 ITR 194 (Nag.), LajwantiSial v. CIT (1956) 30 ITR 228 (Nag.), and Kanpur Steel Company Ltd. v. CIT (1957) 32 ITR 56 (All.)

Vide the above cases, it was held that the presumptions and hypotheticalobservations made by the AO for making the impugned addition, were extraneous, irrelevant and opposed to the facts obtaining from the record and the fate of the appellant could not be decided by the AO on mere surmises or probabilities which appears strongly in the instant case (Northern Bengal Jute Mills Trading Co. Ltd. v. CIT (1968) 70 ITR 407).

11. I am also in agreement with the AR’s submission that in the context of the provisions of Section 69C one has to keep in mind the legal maxim -“lex non cojitadimpossibila” which means, that the law does not compel a person to do that which he cannot possibly perform.

The burden of proof can seldom be discharged to the hilt by the assessee and if the AO harbours doubts of the legitimacy of the investment claimed she is empowered, nay, duty bound, to carry out thorough investigations as she could very well have done in the instant case but if the AO fails to unearth any wrong or illegal dealings as she clearly appears to have failed to do he cannot obdurately adhere to his suspicions and treat the supposedly unexplained investment as it is in the instant case, as the undisclosed income of the appellant. Rejection of the explanation of the assessee by ignoring to consider important pieces of evidence as it is again in theinstant case particularly in relation to the investment mentioned supra is an error in law as held in Bhagwati Prasad Misra v CIT 35 ITR 97 (Ori).

12. It has been pertinently held in the case of Divine Leasing and Finance Ltd. 299 ITR 268 (Del) that where the preponderance of evidence indicated absence ofculpability and complicity of the assessee it should not be harassed by the Revenue insistence that it should prove the negative and further that a delicate balance must be maintained while walking the tight rope of Section 69 of the IT Act.

12.1. As already stated earlier the primary onus even though discharged by the appellant in the instant case but since the Assessing Officer has not been able to establish that the transactions are not genuine and hence the addition of the investment purportedly made u/s 69 of the Act is not legally tenable in view of the ratio of the judicial precedents quoted supra and therefore directed to be deleted.

5. The Ld. DR, Mr. AR. V. Sreenivasan, Addl. CIT, submitted that the Ld. CIT(A) erred in not appreciating the fact that the partnership firm from where the assessee claims to have been withdrawn a sum of Rs.2.5 Crs. had not furnished the return of income for the AY 2013-14. The Ld. DR further submitted that the Ld. CIT(A) erred in accepting the contention of the assessee without appreciating the fact that the evidences filed by the assessee clearly shows that there are cash withdrawals from bank account of firm in FY 2011-12, whereas, the property has been registered in March, 2013. He further submitted that the AO has rightly relied upon the decision of the Hon’ble Supreme Court in the case of CIT v. P. Momhanakala reported in [2007] 291 ITR 278 (SC), wherein, it was held that the transactions though apparent were held to be not real one and if you go by transactions between the assessee and her husband and also partnership firms, it appears that they are not genuine. Therefore, the AO has rightly made additions towards source for purchase of property as unexplained investment u/s.69 of the Act.

6. The Ld. Counsel for the assessee referring to various documents, including bank statements of Mr. S.V. Ranga Reddy, her husband, from whom the assessee claims to have been received Rs.1.40 Crs. as unsecured loans towards purchase of property submitted that Mr. S.V. Ranga Reddy has paid a sum of Rs.1.40 Crs. on various dates through proper banking channel to seller of the property. Further, the assessee had also filed necessary evidences to prove source for Mr. S.V. Ranga Reddy, to pay amount directly to seller, and as per which, Mr. S.V. Ranga Reddy, has received funds form M/s. Venkateswara Engineering Works (JV) and Mr. O.P. Kripalani. All evidences have been filed before the AO and the Ld. CIT(A), including confirmation letters received from the parties. The Ld. Counsel for the assessee further submitted that the assessee has received a sum of Rs.2 Crs. drawing from M/s. SVR Construction Co., and M/s. Vinayak Infra Projects, where she was one of the partners. M/s. SVR Construction Co,. has availed Rs.9 Crs. loans from Andhra Bank and out of loan, the partner has withdrawn a sum of Rs.2 Crs. on various dates and given to seller of the property. Although, the firm has not filed ITR for the relevant assessment year, but, financial statements of the firm and their bank statements have been filed, which clearly shows that the firm has availed over draft facility of Rs.9 Crs. and the same has been drawn on various dates. The cash withdrawn from partnership firm has been debited to partners’ capital account as drawings. The assessee had also filed ledger extract of partners account in the books of firm to prove that money has been received from the firm. Further, if you go through payments made by cheque by Mr.S.V.Ranga Reddy to seller and cash withdrawals from partnership firm, the date of payment by cheque and cash withdrawals from partnership firm had same dates which clearly prove that the assessee has withdrawn money from bank account of partnership firm, and paid to seller for purchase of property. From the above, it is very clear that there is an enough source for purchase of property, and thus, question of making addition towards purchase of property as unexplained investment u/s.69 of the Act, does not arise. The Ld.CIT(A) after considering relevant facts has rightly deleted the additions made by the AO, and their orders should be upheld.

7. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The provisions of Sec.69 of the Act deals with unexplained investment, and as per said provisions, where in the Financial Year immediately preceding assessment year, the assessee has made investments which are not recorded in the books of accounts, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investment or the explanation offered by him is not, in the opinion of the AO satisfactory, the value of the investments may be deemed to be income of the assessee of such Financial Year. A plain reading of sec.69 of the Act, make it clear that in order to bring any investment within the ambit of said provisions, investment made during any Financial Year, which are not recorded in the books of accounts, and further, the assessee offers no explanation about the nature and source of the investment or explanations offered by the assessee in the opinion of the AO is not satisfactory, then, value of the investment may be deemed to be income of the assessee in such Financial Year. In other words, two conditions must be satisfied in order to invoke provisions of Sec.69 of the Act. The first condition is investment made is not recorded in the books of the assessee maintained for that Financial Year, and secondly, the assessee offers no explanation about source for investment. In this case, the first condition is satisfied. In fact, the AO is not disputed the fact that the assessee has recorded investment made in purchase of property, in books. The only dispute with regard to his second condition i.e. explanation offered by the assessee for source for investment. The AO disputed explanation offered by the assessee with regard to source for purchase of property on the ground that although, the assessee claims to have been received a sum of Rs.1.40 Crs. loan from her husband, Mr. S.V. Ranga Reddy, but could not explain loan with necessary evidences. The AO had also rejected explanation offered by the assessee with regard to drawings form two partnership firms amounting to Rs.2 Crs. on the ground that the partnership firms did not file the return of income for the relevant assessment year.

8. We have given our thoughtful consideration to the reasons given by the AO in light of various evidences filed by the assessee and we ourselves do not subscribe to the reasons given by the AO to reject explanation offered by the assessee in respect of loan received from Mr. S.V. Ranga Reddy amounting to Rs.1.40 Crs. for the simple reason that, the assessee has filed confirmation letters from Mr. S.V. Ranga Reddy, bank statements and also IT return filed by the creditors for the relevant assessment year to prove identity, genuineness of the transactions and creditworthiness of the parties. From the details filed by the assessee, we find that Mr. S.V. Ranga Reddy, has paid a sum of Rs.50 Lakhs by Cheque No.451311 dated 27.10.2010 drawn on Andhra Bank to Mr. D.S. Reddy, the seller of the property and said information is available in the recitals of Sale Deed dated 04.03.2013.Mr. S.V. Ranga Reddy had paid a sum of Rs.50 lakhs by Cheque No.466157 dated 21.12.2010 and another Rs.40 lakhs through RTGS from Andhra Bank A/c to HDFC Bank account of the sller Mr. D.S. Reddy. All three payments have been made through proper banking channel. Further, the assessee had also proved source of income by filing necessary evidences, including ledger extract of M/s. SVR Construction Co., and Mr. Venkateswara Engineering Works along with their bank statements to prove, Mr. S.V. Ranga Reddy drawn funds from partnership firm before making payments to Mr. D.S. Reddy, the seller of the property. Further, Mr. S.V. Ranga Reddy, has filed confirmations and confirmed the transactions where it has been clearly stated that he has paid a sum of Rs.1.40 Crs. loan to his wife for purchase of property and said sum has been directly paid to seller of the property on behalf of his wife. Therefore, we are of the considered view that the assessee has filed all evidences to prove genuineness of the transactions, and creditworthiness of the parties in respect of all payments received from Mr. S.V. Ranga Reddy, which is source for purchase of property, by the assessee.

9. Having said so, let us come back to cash payment of Rs.2 Crs. for purchase of property. The assessee had paid a sum of Rs.2 Crs. to seller Mr. D.S. Reddy, for purchase of property and claimed that said sum of Rs.2 Crs. has been paid over the period and not in a single occasion as stated in the Sale Deed. We find that the assessee has claimed source forRs.2 crores paid to seller of the property, is out of drawings from M/s. SVR Construction Co., a partnership firm, in which the assessee is one of the partners. In fact, the AO is not disputing the fact that the assessee has drawn money from partnership firm. However, rejected the arguments of the assessee for the simple reason that the partnership firm did not file return of income. We do not agree with the reasons given by the AO to reject explanation furnished by the assessee in respect of source for cash payments of Rs.2 crores for purchase of property, because, it is an admitted fact that from ledger copy of the assessee’s account, in the books of accounts of M/s. SVR Construction Co., the assessee drawn a sum of Rs.75 lakhs from M/s. SVR Construction Co., on 04.02.2013 and source for said withdrawal is cash withdrawal from Andhra Bank Ramachandra Puram Branch of M/s. SVR Construction Co. The assessee had also filed necessary evidences to prove that M/s. SVR Construction Co., has availed Rs.9 Crs. loan from ‘Working Capital Loan’ from Andhra Bank on the basis of works contract awarded by M/s. Indu Projects Ltd., and out of ‘Working Capital Loan’, the firm has withdrawn a sum of Rs.1.90 Crs. cash from M/s. SVR Construction Co. All these evidences are part of Paper Book filed by the assessee. In fact, the AO is not disputing the fact that M/s. SVR Construction Co., has availed ‘Working Capital Loan’ from Andhra Bank and out of said loan, the firm has drawn cash from the bank account and treated it as drawing of the partner. However, rejected the claim of the assessee only for the simple reason that the firm did not file return of income for the relevant assessment year. In our considered view, when evidences filed by the assessee clearly shows that there is enough source for partnership firm to explain drawings of the partner, then, non-filing of return of income by the firm, cannot be a reason to reject explanation of the assessee for explaining source for purchase of property. In this case, the AO has rejected explanation furnished by the assessee only on the ground that the assessee has filed certain evidences to prove source for purchase of property and such claim is an afterthought. But, fact remains that when the AO is invoking deeming provisions, it was incumbent on the Assessing Officer, to bring on record material evidences which canbe said to lead to the satisfaction of the AO while making requisite investigations or adopt such other means permissible in law at his comment. The AO having not discharged onus for proving the satisfaction of the condition for application of deeming sections, he cannot invoke provisions of section 69 of the Act. As already stated by us in the earlier part of this order, the assessee has discharged primary onus and proved source for purchase of property. However, the AO has not been able to establish that the transactions are not genuine, but merely went on to make additions only on the basis of suspicion without there being any material evidences to suggest that the assessee is not able to prove source for purchase of property, and thus, investment made in property is assessable as unexplained investment of the assessee, taxable u/s.69 of the Act. In this case, the assessee has discharged burden of proof by filing details of loans taken from Mr. S.V. Ranga Reddy, and also drawings from M/s. SVR Construction Co., by filing necessary details, including relevant ledger account copies through parties in their respective accounts, bank statements of partnership firm, and Mr. S.V. Ranga Reddy and also confirmation letters from the parties along with their ITR filed copies for the relevant assessment year. From the above, it is abundantly clear that the explanation offered by the assessee with regard to source for purchase of property is genuine transaction, which is supported by necessary evidences. Therefore, we are of the considered view that the AO is erred in making addition towards source for purchase of property as unexplained investment and taxed u/s.69 of the Act. The Ld. CIT(A) after considering relevant submissions of the assessee and also taken note of relevant details has rightly deleted the additions made by the AO.

10. At this stage, it is relevant to refer to the decision of the Hon’ble High Court of Madras in the case of CIT v. Mark Hospitals (P) Ltd., reported in [2015] 373 ITR 0115 (Madras), where the Hon’ble High Court has considered the issue of cash credits in light of additions made by the AO u/s.68 of the Act, and after considering relevant facts held that where the loans were given to assessee through cheques and all creditors had confirmed that they had advanced loans to assessee and identity of creditors were also established, merely because of creditors did not have PAN numbers, that by itself could not be a reason to discredit their creditworthiness, since all creditors were agriculturalist and therefore, they did not required any filing of return of income.

11. In this view of the matter and considering facts and circumstances of the case, we are of the considered view that the assessee has established source for purchase of property with necessary evidences and thus, the AO is erred in making additions towards source for purchase of property as unexplained investment u/s.69 of the Act. The Ld. CIT(A) after considering relevant facts has rightly deleted the additions made by the AO and hence, we are inclined to uphold the findings of the Ld. CIT(A) and dismiss the appeal filed by the Revenue.

12. In the result, appeal filed by the Revenue is dismissed.

Order pronounced on the 14^th day of June, 2023, in Chennai.