SUBIRAMANIYADEVAR JANARDHANAN,ANTHIYUR vs. THE COMMISSIONER OF INCOME-TAX (APPEALS) , COIMBATORE

The brief facts of the case emanating from the records are that the assessee is an individual, filed his return of income admitting Rs.4,72,480/- as

Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A). The assessee submitted that the AO has erred in making an addition of Rs.8 lakhs as unexplained money u/s.69A of the Act though the assessee filed the complete set of books of account duly audited in accordance with sec.44AB of the Act along with VAT returns filed substantiating the sales made by the assessee. The assessee has demonstrated from the purchase books, sales books, cash books supported with relevant invoices that the

Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us. The ld.AR for the assessee assailing the action of the ld.CIT(A), submitted that the ld.CIT(A) has confirmed the addition, which is contrary to law, facts and circumstances of the case and is liable for set aside. The ld.AR further submitted that the ld.CIT(A) failed to appreciate that section 69A applies only where money is not recorded in the books of account, whereas in the appellant's case the entire cash in hand and cash deposits, including SBNs, stood recorded in regularly maintained and audited books, supported by VAT returns, cash book, sales register and bank statements; therefore, the provisions of section 69A could not have been invoked at all.

Further, the ld.AR argued that the ld.CIT(A) has erred in law and on facts in sustaining the addition by ignoring material evidence such as audited financial statements u/s.44AB of the Act, cash book, cash-flow statement, VAT returns, Form 3C, trial balance and bank statements which clearly establish that the assessee is an FMCG / provisions dealer supplying essential commodities to more than 300-450 identifiable petty shopkeepers including in remote/tribal areas, the sales were largely on cash basis and consistently deposited in bank; and no discrepancy in quantitative / VAT records or bank reconciliation was found by any authority. The ld.AR also contended that ld.AR has erred in law and on facts in upholding the addition made u/s.69A of the Act on a mere

The ld.AR submitted that the ld.CIT(A) has erred in law and on facts in wrongly concluding that there was "excess" cash of Rs.8,00,000/- in the form of SBNs over and above the cash balance of Rs.10,03,298/- as on 08.11.2016. The said finding has been recorded without properly reconciling or appreciating the timing and source of cash inflows during the month of November, including duly recorded business sales, realization from trade debtors, opening cash balance, agricultural income and other accounted receipts. The ld.CIT(A) failed to consider the detailed cash flow statement placed on record, evidencing total cash inflows aggregating to Rs.33,68,169/-, and has mechanically presumed the existence of excess cash without any factual reconciliation. The impugned findings are thus based on erroneous assumptions and non-application of mind and are liable to be set aside.

Per contra, the ld.DR supported the orders of the authorities and prayed for confirming the same.

We have heard the rival submissions, perused the orders of the lower authorities and carefully examined the material available on record. The sole issue arising for our consideration is whether the addition of Rs.8,00,000/- made by the AO u/s.69A of the Act and sustained by the ld.CIT(A) is justified on the facts and circumstances of the case. The undisputed facts reveal that the assessee is engaged in the business of wholesale and retail trading of essential commodities such as rice, sugar, salt, wheat, rava, edible oil and other provisions. The assessee caters to a large number of petty shopkeepers, many

The AO made the impugned addition primarily on the premise that while the assessee had a cash balance of Rs.10,03,298/- as on 08.11.2016, he had deposited SBNs aggregating to Rs.18,04,500/- during the demonetisation period and, therefore, a sum of Rs.8,00,000/- represented unexplained money liable to be taxed u/s.69A of the Act. The ld.CIT(A) confirmed the addition by holding that the source of the SBN deposits made after 09.11.2016 had not been satisfactorily explained. Upon careful consideration of the material on record, we find that the authorities below have failed to appreciate the true scope and applicability of section 69A of the Act. The provisions of section 69A can be invoked only where the assessee is found to be the owner of money, bullion, jewellery or other valuable articles which are not recorded in the books of account and for which no satisfactory explanation regarding the nature and source is offered. In the present case, the cash deposited in the bank account was duly recorded in the regular books of account maintained by the assessee. The cash book, sales register, VAT returns and bank statements were produced before the authorities and no defect whatsoever has been pointed out therein. Once the cash deposits are duly reflected in the books of account, the very foundation for invoking section 69A ceases to exist.

We further find merit in the contention of the assessee that the authorities below have proceeded merely on the basis of a mathematical comparison between the cash balance available as on 08.11.2016 and the SBN deposits made thereafter, without examining the cash inflows generated during the relevant period. The assessee had specifically placed on record details of business sales, realization from trade debtors and other receipts during

We also note that the AO has accepted the books of account and has not rejected the same u/s.145(3) of the Act. Once the books are accepted and the cash deposits are duly recorded therein, the source of the deposits cannot be treated as unexplained merely on suspicion or surmise. It is settled law that suspicion, however strong, cannot take the place of evidence. The addition u/s.69A of the Act must be supported by cogent material demonstrating that the money represented undisclosed income of the assessee. No such material has been brought on record in the present case.

In our considered opinion, the authorities below erred in drawing an adverse inference without appreciating the complete cash flow and the business realities of the assessee’s trade. The explanation offered by the assessee regarding the source of cash deposits is supported by contemporaneous books of account, VAT records and audited financial statements. The Revenue has failed to rebut the same with any contrary

In the result, the appeal of the assessee is allowed.