LOGANATHAN DHANDAPANI,CHENNAI vs. ACIT, NCC-3(1), CHENNAI

2022 passed u/s. 143(3) r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as the “Act”), pertaining to Assessment Year (A.Y.) 2021-22. 2. The solitary issue arising for consideration before us is with respect to the additions made by the AO towards alleged unexplained cash deposits of Rs.1,02,67,500/- u/s.69A of the Act, unexplained investment of Rs.73,61,700/- u/s.69 of the Act and unexplained cash withdrawals of Rs.5,96,000/- treated again as unexplained money u/s.69A of the Act.

The brief facts of the case are that the assessee an individual, had filed his return of income for A.Y 2021-22 declaring total income at Rs.23,17,740/-. The assessee's case was selected for scrutiny through CASS based on the information that the assessee had deposited large amount of cash in its bank account and assessee had purchased/sold one or more property during the year. Accordingly, notice u/s.143(2) of the Act was issued to the assessee on 28.06.2022. Subsequently, the assessee was issued several notices u/s.142(1) of the Act seeking necessary requisite documents for completion of the assessment proceedings. The assessee, in response to the statutory notices, made part submissions before the AO. During the course of assessment the AO found that the assessee had cash deposit of Rs.1,02,67,500/- in bank accounts held at ICICI and Axis banks. Further the AO also found that the assessee had purchased immovable properties and made payments towards the properties out of Rs.1,76,61,700/- purchased on 09.10.2020. However, the assessee did not explain the source for payments made during the F.Y. 2020- 21 (A.Y.2021-22) of Rs.73,61,700/-. Therefore, the assessment was completed by the AO vide order u/s.143(3) of the Act dated 28.12.2022 making following additions to the total income of the assessee: - Addition on account of unexplained money u/s.69A r.w.s. 115BBE of the Act of Rs.1,02,67,500/-

Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the ld.CIT(A). Before the ld.CIT(A) the assessee submitted the same details and filed the written submission as detailed below:

On perusal of the submissions made by the assessee, the ld.CIT(A) observed that the assessee has been deferring the hearings without any reasons and taking adjournments. The assessee has been submitting the above mentioned submissions repeatedly without providing any substantiating evidence for explaining the source for impugned additions made by the Assessing Officer. Since, the assessee has failed to satisfactorily explain the source for all the additions otherthan submitting the repeated explanations in two pages reply in all the hearing, the ld.CIT(A) confirmed the order of the AO by dismissing the grounds of appeal of the assessee and passed an order dated 29.05.2024. 6. Aggrieved by the order of the ld.CIT(A) the assessee is in appeal before us. The ld.AR for the assessee submitted that the additions made by the assessing officer vide assessment order dated 28.12.2022 are as follows:

With respect to the first addition, the ld.AR submitted that the Assessment Unit had added a sum of Rs.1,02,67,500/- as unexplained money in terms of Section 69A of the Act. In this regard, he submitted that the assessee had remitted only a sum of Rs.94,73,500/- in the 3 Bank Accounts held by the assessee and not the amount of Rs.1,02,67,500/- as claimed by the AO which figure adopted is itself disputed in the present appeal. Further, the ld.AR submitted that out of the total cash deposits made to the tune of Rs.94,73,500/- by the appellant, a sum of Rs. 28,61,376/- was cash previously withdrawn and subsequently redeposited. Consequently, the total credits in the combined bank accounts were only Rs.66,12,124/-. The assessee during the assessment proceedings had demonstrated the source for such cash deposits by placing on record relevant rental agreements and submitted that the appellant had received an advance sum as per Rental Agreement from Mr.Murugesan to the extent of Rs.20,00,000/-. Further, received a sum of Rs.3,00,000/- from Mr. Karthikeyan and a sum of Rs.15,00,000/- from Mr.Babu towards rental advance. The ld.AR further placed on record the details of other parties from whom the cash was received which parties also includes the amount received from the daughter of the appellant, a sum of Rs.7,94,000/- deposited in the account of ECR Border Porata Coin Restaurant had belonged to their daughter Ms. Divya Dhandapani.

With respect to the second addition pertaining to the source for purchase of immovable property, the ld.AR submitted that the sum of Rs.50,00,000/- was received in their bank account from Mr. Raj Tirupathi and sum received from Mr.Veejay Anand to an extent of Rs.10,00,000/- and from Mr V.Sharmilee to an extent of Rs.10,20,000/- was received as joint brokerage commission and after deducting the related expenditure incurred in relation to earning of the said brokerage, had offered the income to taxation.

The above sources demonstrated by the assessee (reply extracted in Page 9 of the assessment order) during the course of assessment proceedings which identity and the creditworthiness were not verified by the AO while mechanically making the addition warranting interference by the Tribunal.

While completing the assessment, a sum of Rs.5,96,000/- was also brought to tax as unexplained money in terms of Section 69A of the Act which are withdrawals made by the assessee during the assessment year under consideration. The above action of the AO in making the said addition of withdrawals fortifies the stand of the assessee that the additions were made and confirmed by the lower authorities without any application of mind on their part. Further, the ld.AR submitted that the treatment of withdrawals made to the tune of Rs.5,96,000/- as unexplained money is logically flawed and legally unsustainable. The action of the AO in adding back the withdrawals after already taxing the deposits would amount to double taxation and the above action of the AO clearly demonstrated the lack of application of mind warranting interference in the present appeal proceedings.

Hence, in view of the above factual errors in the quantum of additions & nature of additions coupled with the non-application of mind by the AO and in view of the violation of natural justice and principles of fairness in taxation, the ld.AR pleaded for remanding the matter back to the file of the AO for fresh adjudication of the issues on merits in the interest of justice.

Per contra, the ld.DR supported the orders of the authorities and submitted that both the AO and also ld.CIT(A) had given sufficient opportunity to the assessee to substantiate the sources of the investments. Hence, the ld.DR prayed for confirming the order of the ld.CIT(A) as there is no error in the order.

We have heard the rival submissions and perused the material available on record including the assessment order, impugned appellate order and the paper book filed by the assessee. The solitary issue arising for consideration

At the outset, we find that the assessment in the present case was completed by making the following additions: (i) Addition towards unexplained cash deposits u/s.69A of the Act amounting to Rs.1,02,67,500/-; (ii) Addition towards unexplained investment in immovable property u/s.69 of the Act amounting to Rs.73,61,700/-; and (iii) Addition towards alleged unexplained cash withdrawals u/s.69A of the Act amounting to Rs.5,96,000/-.

From the records placed before us, it is evident that though the assessee had made certain submissions before the AO as well as before the ld.CIT(A), the lower authorities have proceeded to confirm the additions mainly on the ground that the assessee had not furnished complete supporting evidences to substantiate the explanations offered. However, at the same time, we also notice from the assessment order itself that the assessee had furnished explanations regarding the source of cash deposits, redeposit of earlier withdrawals, rental advances received from various parties, brokerage receipts and advances received towards proposed sale of land. The assessee had also specifically disputed the very quantum of cash deposits adopted by the AO.

The contention of the assessee before us is that the actual cash deposits were only Rs.94,73,500/- as against Rs.1,02,67,500/- considered by the AO and that out of the said deposits, a sum of Rs.28,61,376/- represented redeposit of earlier withdrawals. It is further the contention of the assessee that the balance deposits were sourced out of rental advances, brokerage receipts and :-8-:

On careful consideration of the facts, we find considerable force in the submissions of the ld.AR. Prima facie, the addition made towards cash withdrawals appears to be unsustainable because once the source bank account itself belongs to the assessee and the withdrawals are duly reflected in the bank statements, the same cannot independently partake the character of unexplained money. In fact, taxing both the deposits and withdrawals without proper correlation may result in duplication of additions. This aspect, in our considered opinion, has not been properly examined either by the AO or by the ld.CIT(A).

Further, we notice that the assessee had placed certain explanations regarding receipt of rental advances from Mr.Murugesan, Mr.Karthikeyan and Mr.Babu, receipt of brokerage commission from Mr.Veejay Anand and Mr.V.Sharmilee and advance received from Mr.Raj Tirupathi towards sale of land. The AO, however, has not carried out any meaningful verification with regard to the identity of the parties, genuineness of the transactions and creditworthiness of the persons stated to have advanced the monies. Instead, the additions came to be made primarily on account of non-furnishing of complete details by the assessee.

At the same time, we cannot completely ignore the fact that the assessee also failed to place comprehensive supporting evidences before the lower authorities despite being afforded multiple opportunities. Therefore, there exists

Be that as it may, the principles of natural justice require that a reasonable opportunity be granted to the assessee to substantiate the explanations with proper evidences, especially when the additions are substantial in nature and involve disputed factual aspects requiring verification. Taxation proceedings should be directed towards determination of real income based on proper verification of facts and not merely on technical lapses or incomplete enquiry.

We further find that the ld.CIT(A), while confirming the additions, has mainly proceeded on the basis that the assessee had repeatedly sought adjournments and failed to furnish substantiating evidences. However, the impugned appellate order does not reflect any independent verification or adjudication on the explanations furnished by the assessee. The appellate authority being a quasi-judicial authority is expected to examine the evidences and adjudicate the issues on merits instead of merely affirming the assessment order.

Considering the totality of the facts and circumstances of the case, in the interest of substantial justice, we deem it appropriate to set aside the impugned order of the ld.CIT(A) and remit the entire issues relating to additions of Rs.1,02,67,500/-, Rs.73,61,700/- and Rs.5,96,000/- back to the file of the Assessing Officer for de novo adjudication. The assessee is also directed to fully cooperate in the set aside proceedings and furnish all supporting evidences, confirmations, bank statements, agreements and other relevant documents necessary for proper adjudication of the issues. Needless to state, the AO shall afford adequate opportunity of being heard to the assessee and decide the issues in accordance with law by passing a speaking order. Accordingly, the grounds raised by the assessee are allowed for statistical purposes.

In the result, the appeal of the assessee is allowed for statistical purposes.