KRISHNAMOORTHY VENKATESWARAN,CHENNAI vs. ITO NON CORP WARD 22(7), TAMBARAM

The assessee is an individual and employed with M/s. Varroc Engineering Pvt. Ltd. The assessee filed a return of income for AY 2017-18 on 05.08.2017 declaring total income of Rs.4,96,400/-. The A.O noticed that

Aggrieved, the assessee filed further appeal before the CIT(A). The CIT(A) upheld the additions by holding that: “4. I have carefully considered the facts of the case and the submission of the appellant. Appellant's reply is the same as was submitted during assessment proceedings. Nothing new has been brought on record. In the assessment order AO has laid great emphasis on confirmations from concerned dealers and from the employer company. But no efforts have been made by the assessee in this regard. Explanation given by assessee is not convincing. If distributors of some region face shortage then it is general business practice to direct the dealers having surplus stocks to send such surplus stocks to deficit regions. This can be done through a simple entry in the books of accounts. There is no justification for a company executive to purchase surplus of one dealer in cash and sell it to the other dealer, again in cash. Perusal of the statement of cash deposits and cash withdrawals (annexures to assessment order) also shows that there is no one to one correspondence between cash withdrawals and cash deposits. Even total cash withdrawal does not match with total cash deposits during the year. Cash deposits are much higher than cash withdrawals. Several other discrepancies can be noticed in assessee's reply. He has claimed that the said transactions have been carried out on behalf of his employer company. But his claim is not backed by any confirmation from the company. Even the dealers have not confirmed such transactions. Perusal of the amounts deposited shows that the amount involved are large, exceeding Rs.20,000/-. Why would any businessman make purchases in cash, exceeding Rs.20,000/-, when deductions for such purchases could not be allowed. There are several such issues which remain unanswered. Under the circumstances, explanation of the appellant is not found satisfactory, as these are not backed by supporting evidences. Hence, addition of Rs.55,68,643/- is confirmed.”

The ld. AR submitted that the addition of Rs.2,97,041 representing the difference between the salary receipts as per Form No.16 and the bank credits was factually incorrect. It was submitted that the A.O had erroneously adopted the salary figure as per Form No.16 and ignored exempt allowances of Rs.46,736 & Rs.2,500 of professional tax. The ld AR further submitted that the balance amount of Rs.2,50,305 represented reimbursement of expenses received from the employer and that once the source of the receipt was identified as the employer, the same could not be assessed as unexplained investment under section 69 of the Act. With regard to the addition of Rs.16,04,182 towards non-cash credits, the ld. AR submitted that the credits represented sale proceeds received from customers on sale of automobile parts. The corresponding withdrawals made immediately thereafter established that the amounts were paid to the suppliers of the goods. Therefore, the receipts constituted business transactions and could not be brought to tax under section 69. Regarding the addition of Rs.36,67,420 towards cash deposits, the ld. AR submitted that the deposits represented sale proceeds from the appellant's independent trading activity in automobile parts. The ld AR also submitted that the customers deposited cash into the appellant's bank account and the amounts were withdrawn and paid to the suppliers. It was further submitted that the deposits were made out of earlier withdrawals also and, on the basis of the peak credit statement furnished, the maximum unexplained amount worked out only to Rs.3,99,950. Without prejudice the ld AR contended that, if the deposits were treated as unaccounted business turnover, only the profit embedded therein should be brought to tax by estimating the income at 6% on non-cash receipts and 8% on cash receipts under section 44AD of the Act. The ld. AR further submitted that the A.O had subjected the additions made under section 69 to tax under

The ld DR on the other hand argued that the assessee has not discharged the onus of substantiating the claims that the source for cash deposits from sales etc and therefore the AO has rightly made the addition treating the credits as unexplained.

We heard the parties and perused the material on record. With regard to the addition made towards salary the ld AR drew our attention to the fact that the AO has adopted an incorrect figure of salary while comparing the credits reflected in the bank account. It is pointed out that an amount of Rs.46,736 represents exempt allowances received from the employer and Rs.2,500 is professional tax. It is also submitted that therefore the AO ought to have considered the gross salary of Rs.8,39,969 while comparing the salary as per Form 16 and credits from the employer. We see merit in the submission of the assessee since the gross salary received by the assessee after claiming exemptions and deductions have already been offered to tax and therefore only the excess receipts over the gross salary can be brought to tax now. Though the assessee is claiming that the difference amount of Rs. 2,50,305 represents reimbursement of expenses by the employer, during the course of hearing nothing has been brought on record to substantiate the said claim. However, the receipts admittedly emanate from the employer and, therefore, cannot be treated as unexplained investment under section 69. The AO is thus

The main contention of he assessee with regard to cash and non-cash deposits is that the same are arising out of the business activities of the assessee. It is argued that the assessee is purchasing and selling automobile parts that are not available with the employer which is the source for the credits in the bank account. The ld AR drew our attention to the banks statements to submit that both the cash and non-cash deposits are followed by withdrawals from the bank which substantiated the fact that the assessee has also made purchases and the amount withdrawn are utilised to settle the vendor payments. Thus, it is argued that the nature and source of the credits stand explained as business receipts and the same cannot be assessed in entirety as unexplained investment under section 69 of the Act. In view of the fact that the assessee has not maintained any regular books of account and supporting evidence to fully substantiate the purchases and sales, in our considered view, it would be just and fair to sustain the addition to the extend of the profit embedded in such unaccounted business receipts. Considering the facts and circumstances of the case, we deem it appropriate to estimate the income at 8% of the aggregate cash and non-cash credits of Rs.52,71,602. The A.O is directed to restrict the addition accordingly.

We further notice that the AO taxed the addition made u/s.115BBE of the Act. In this regard we notice that the Hon'ble Madras High Court in the case of S.M.I.L.E Microfinance Ltd. vs. ACIT [2025] 179 taxmann.com 65 (Madras) has held that the revenue is empowered to impose 60% rate of tax for the transactions from 01.04.2017 onwards and for transaction prior the

In result the appeal of the assessee is partly allowed. Order pronounced on 13th day of July, 2026 at Chennai.