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Income Tax Appellate Tribunal, F BENCH MUMBAI
Before: SMT. BEENA PILLAI & SHRI MAKARAND VASANT MAHADEOKAR
आदेश / ORDER
PER MAKARAND VASANT MAHADEOKAR, AM:
This appeal by the assessee is directed against the order dated 14.05.2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] under section 250 of the Income Tax Act, 1961[hereinafter referred to as “the Act”], for the Assessment Year Salil Sadanand Phadte 2013-14, whereby the CIT(A) upheld the assessment order dated 10.05.2023 passed by the Assessing Officer (AO) under section 147 read with section 144B of the Act.
The brief facts of the case are that the assessee had not filed a return of income for A.Y. 2013-14. Information was received by the AO from ITO (TDS)-2(2)(1), Mumbai, that during the proceedings under section 201(1)/201(1A) in the case of M/s Sanda Wellbeing Pvt. Ltd., it was noticed that during FY 2012-13 the employer had credited/transferred a total sum of Rs. 1,70,57,344/- into the bank account of the assessee, including salary of Rs. 42,01,612/- and TDS of Rs. 9,21,627/-.Based on this information and the failure of the assessee to file a return, the AO recorded reasons to believe that income had escaped assessment and issued a notice under section 148 on 22.07.2022, which was duly served. The assessee thereafter filed a return on 22.08.2022, declaring total income of Rs. 19,11,780/- which included Rs.21,61,780/- as salary income.
In his reply dated 02.01.2023assessee stated that the other monies credited to his account was towards various expenses done on behalf of the company (M/s Sanda Wellbeing Pvt Ltd.). As per reply dated 25.03.2023 the assessee submitted bank statement and list of expenses incurred for the company. Again vide reply dated 22.04.2023 the assessee submitted Form 16, Form 26AS, letter from the employer (dated 03.09.2014) stating Salil Sadanand Phadte that the Company had advanced money which was recorded as staff advances in their books.
The Assessing Officer recorded that the employer, in response to notice u/s 133(6),submitted that total transfer of funds amounted Rs. 1,51,92,334/-, not Rs. 1,70,57,344/-. The Company also provided Break-up as follows: - Advance for company expenses: Rs. 1,20,85,000/- - Towards salary and incentives: Rs. 31,07,334/- 5. The Incentive included Rs. 13,00,000.- which was later reversed and shown as advance due to non-meeting of the set sales target.
Before the assessing officer, the assessee submitted a copy of declaration dated 01.04.2023 addressed to the employer. In the said declaration the assessee stated that the sums were transferred for sales promotions, customer acquisition, staff welfare, travelling and gifts to staff and the same were utilized for the purpose for which they were disbursed.
The Assessing Officer noted that assessee claimed expenses of Rs. 1,20,85,000/- in the declaration but no supporting bills/vouchers were submitted. Rejecting the contention of the assessee, the Assessing Officer concluded that the amount of advance received to the tune of Rs. 1,20,85,000/- is nothing but unexplained money and added to the total income u/s 69A of the Act. i. Advances were not income but business reimbursements routed through the assessee for customer acquisition in Goa ii. The company’s letter dated 03.09.2014 confirmed that the advances were given for business promotion iii. No TDS was deducted on these advances, which indicated they were not salary. iv. Form 16 issued by the employer reflected salary of Rs. 21,61,780/- and that alone was taxable.
The CIT(A) dismissed the appeal. The operative para from the order of CIT(A) is reproduced as under:
“5.5 On going through the submissions filed by the appellant, the following facts are critical in this case. The appellant did not file his return in the regular course and filed his return only in response to notice issued u/s 148 of the IT Act. Also there is no denial of receipt of money by the appellant. The issue is whether the same was for the purpose of business promotion/customer acquisition expenses reimbursed. The letter of the company placed on record by the appellant clearly brings out that the company and the appellant are in dispute with respect to the genuineness of claim of these expenses by the appellant. Also, perusal of the bank account of the appellant shows that the appellant has received customer acquisition amounts of over Rs. 20 lakhs and Rs. 25 lakhs on 03.07.2012 and 31.07.2012 respectively and the amounts have Salil Sadanand Phadte been withdrawn only partially which to my mind cannot be the practice of a company of advancing further amounts while the other previous advances had not been spent. Even otherwise, a perusal of the bank account shows substantial cash withdrawals making it difficult to accept the contention of the appellant that the money received from the company is an advance and is duly explained. More so, it is important also not to ignore that the appellant failed to give all due evidence during the assessment proceedings and the AO was constrained to pass the order by invoking section 144 of the IT Act. In the given circumstances, the action of the AO cannot be faulted with and the appeal of the appellant is accordingly dismissed.”
Aggrieved by the order of CIT(A), the assessee is in appeal before us raising following grounds of appeal:
GROUND I a) On the facts and circumstances of the case, and in Law, The CIT(A) erred in confirming the addition of Rs. 1,20,85,000/- received from the employer towards expenses, considering the same as salary income of the assessee. b) On the facts and circumstances of the case and in law the CITA and AO failed to appreciate that: i. The AO made the addition the assessee was not the owner of the funds, the assessee has explained the source of funds and use of the same, the same is confirmed by the employer. ii. The company in its letter has categorically stated that the assessee was given advance for making expenses on behalf of employer and the assessee regularly submitted bills and Salil Sadanand Phadte vouchers towards expenses against the advances received, the unspent amount to be returned to employer. iii. Form 16 issued by the employer clearly shows the salary income of the assessee to be Rs. 21,61,780/- c) Therefore, the addition of Rs. 1,20,85,000/- received from the employer towards expenses, considering the same as salary income of the assessee may please be deleted.
During the course of hearing before us, the learned Authorized Representative of the assessee reiterated the factual matrix and invited our attention to the material already placed before the Assessing Officer. It was submitted that the assessee had explained before the Assessing Officer that all expenditure incurred in connection with the business was being submitted to the Sales Director, who in turn was responsible for collating and forwarding the monthly statements of expenses to the accounts department of the company. The AR further pointed out that certain allegations were later raised by the company against the Sales Director, consequent to which he tendered his resignation, and the company itself initiated legal proceedings against him. Due to these developments, the assessee is presently unable to access the supporting bills for FY 2012–13, which were earlier in the possession and control of the Sales Director.
The AR drew our specific attention to page nos. 15 and 16 of the paper book, where the letter addressed to the assessee by the company has been placed on record. The AR submitted that the Salil Sadanand Phadte said communication clearly acknowledges that the amounts in question were advances, and the company had categorically intimated that if the assessee failed to refund the same, recovery would be effected together with interest. According to the AR, this demonstrates that the company itself never regarded these amounts as the assessee’s personal income.
The learned Departmental Representative, on the other hand, relied on the findings recorded by the Assessing Officer, particularly the conclusion in para 3.5 at page 8 of the assessment order, wherein the AO noted that, based on the letter dated 03-09-2014 issued by the company to the assessee, Mr. Mahesh Matta had clearly treated the amounts as advances and bonuses and such treatment, according to the AO, indicated that the assessee had considered the same as his personal income. The DR accordingly submitted that the assessee failed to substantiate the utilization of the advances and therefore the addition was rightly made.
We also notice that the assessee has placed at page 72 of the paper book a summary statement consolidated from the monthly expense sheets submitted during employment. The said summarized report reflects the following figures:- • Salary: Rs. 31,07,339/- • Customer Acquisition: Rs. 1,20,00,000/- • Expenses: Rs. 1,15,20,581.83 Salil Sadanand Phadte • Less: Adjustment: Rs. 4,79,418.17 • Cash Component: Rs. 29,32,600/- 15. When queried specifically by the Bench regarding the cash component of Rs. 29,32,600/-, the AR submitted that these were cash expenses incurred out of withdrawals made from the assessee’s bank account, and that such withdrawals can, to a large extent, be reconciled with the bank statements and the monthly report sheets. The AR further submitted that this consolidated statement evidences the regular pattern of expenditure incurred by the assessee on behalf of the company and demonstrates that substantial portions of advances were actually deployed for business operations.
Upon a comprehensive appreciation of the record, we find several important aspects that have not been adequately examined either by the AO or by the CIT(A). The cash component emerging from the consolidated sheet remains unexplained. Even if one were to assume that other part of the expenditure is otherwise supported by card statements and bank transfers, the substantial cash outflow requires proper reconciliation, party- wise details and verifiable evidence.
The Form No. 26AS placed at page 79 of the paper book reflects NIL tax deduction under section 192 of the Act and also discloses NIL income. In contrast, the unsigned Form No. 16 placed at pages 17 and 18 of the paper book records tax Salil Sadanand Phadte deduction of Rs. 4,15,640/- on a salary of Rs. 21,61,780/-. These two documents present a material inconsistency that has not been examined by the Assessing Officer.
The reversal of TDS by the employer company, which constituted the very foundation for reopening the assessment, has remained unverified. Upon such reversal, the assessee no longer retains credit for the tax purportedly deducted. The assessment order does not contain any finding on whether the reversal was justified, how the employer accounted for the underlying amount, whether it was treated as an advance, income or a recoverable item, and what ultimately transpired with respect to the TDS credit in the succeeding years following the reversal.
The company’s books show the impugned amounts as 'advance', not as business expenditure. The employer’s letter placed at page 15–16 expressly states that the amounts were paid for incurring expenses on behalf of the company. This position prima facie contradicts the AO’s conclusion that these were bonuses or personal income. Whether the company wrote off the alleged advances in subsequent years is not examined. The reply received under section 133(6) is neither placed on record nor confronted to the assessee. The absence of this vital document creates a lacuna in the fact-finding process.
Salil Sadanand Phadte 20. Monthly statements placed in the paper book prima facie indicate that the assessee was operating a structured field-level expense system under instructions of the Sales Director. The company claims that the Sales Director has later filed an affidavit before a court stating that certain amounts were appropriated against incentives. This dimension also remains unverified.
In our considered view, the factual matrix is mixed and incomplete. While there is material to show that the assessee was regularly incurring expenditure on behalf of the company, the lack of primary vouchers cannot be ignored. Equally, the failure of the AO to examine foundational aspects such as TDS reversal, treatment of amounts in the employer’s books, exact details of reply to notice u/s 133(6), and utilization of cash withdrawals renders the assessment unsustainable in its present form.
It is a well-settled judicial principle that additions under section 69A cannot be made merely on suspicion or without establishing that the assessee was the real owner of unexplained money. Equally, where an assessee fails to fully substantiate the expenditure with primary evidence, the Revenue is entitled to make a reasonable estimate rather than treat the entire amount as unexplained. The estimation principle has been recognized by courts to balance equity with revenue protection.
Having regard to the totality of circumstances, we are of the considered opinion that this is a fit case for restoration of the Salil Sadanand Phadte matter to the file of the Assessing Officer for a limited and specific verification, with the following mandatory directions: i. The AO shall verify the reversal of TDS credit and what is the present status of such TDS, the treatment of the advances in the books of the employer in subsequent years, whether the company has written off or recovered the amounts. ii. The Assessing Officer shall bring on record the complete response furnished by the employer-company to the notice issued under section 133(6) and shall supply a copy thereof to the assessee. The assessee shall be afforded an opportunity to rebut or clarify any inconsistency, if found, between such response and the correspondence earlier addressed by the company to the assessee. iii. The assessee shall be afforded one final opportunity to substantiate the expenditure through bank statements, credit card statements, identifiable payees and reconciliation of cash withdrawals with monthly expense sheets or any other documentary evidence. iv. Insofar as cash withdrawals are concerned, where the assessee is unable to produce vouchers or party-wise details, the AO shall not make an addition of the entire amount as unexplained money but shall estimate a Salil Sadanand Phadte reasonable disallowance having regard to the totality of circumstances and the business exigencies. v. The AO shall confine himself strictly to the verifications stated above and shall not reopen or re-examine issues already decided or not forming part of the present dispute.
Subject to the above directions, the matter is restored to the file of the Assessing Officer for limited verification and fresh adjudication in accordance with law after granting adequate opportunity of being heard to the assessee.
In the result, appeal of the assessee is treated as allowed for statistical purposes. Order pronounced in the open court on 10.12.2025.