DEPUTY COMMISSIONER OF INCOME TAX , CHENNAI vs. SHRI RAJA EKAMBARAM, CHENNAI

The brief facts emanating from the records are that the assessee, an individual engaged in the business of wholesale marketing of onions and potatoes at the Koyambedu Wholesale Market, filed his return of income for the Assessment Year 2020-21 declaring a total income of Rs.13,80,920/-. During the relevant previous year, substantial cash deposits amounting to Rs.8,61,59,000/- were made in the assessee’s bank account. Based on the information available on record, the assessment was reopened and reassessment proceedings were initiated u/s.147 of the Act. Subsequently, the reassessment was completed by the AO u/s.147 of the Act, wherein the AO treated cash deposits amounting to Rs.8,74,04,800/- as unexplained money under section 69A of the Act. Further, the AO estimated the business income of the assessee at 8% of the total bank credits of Rs.9,98,23,355/-, which was computed at Rs.79,85,868/-.

During the course of assessment proceedings, in response to the notices issued by the Assessing Officer, the assessee submitted that the transactions undertaken were in the nature of genuine business-to-business transactions. It was further contended that the income disclosed by the assessee comprised profits derived from trading activities as well as commission income earned from consignment sale transactions. In order to verify the claim of the assessee, the AO issued notices u/s.133(6) of the Act, 1961 to the principal consigners, namely, Mahalu Appa Phise, Proprietor of Ambika Transport, Maharashtra, and Sambhaji Ambadas Ramachandra Bhosale, with whom the assessee had carried out transactions amounting to Rs.6.32 crores and Rs.2.32 crores respectively. However, only one of the consigners, namely Mahalu Appa Phise, furnished a response to the notice issued by the AO. The assessee had also furnished copies of sales invoices pertaining to the consignment transactions, evidencing that commission income had been earned from such dealings. Nevertheless, the AO was not satisfied with the explanation offered by the assessee, the documentary evidences produced, and the response received from the principal consigner. Consequently, the AO passed an order under section 147 of the Act dated 15.03.2025, making the aforesaid additions.

Aggrieved, the assessee filed an appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee submitted that the AO has made an addition of Rs.8,74,04,800/- u/s.69A of the Act as unexplained money and also estimated the business income at 8% on the entire credits of the bank account including the cash deposits which is already been added u/s.69A of the Act. Therefore, the assessee stated that the order of the AO is unfair, unjust and contrary to the nature and circumstances of the case and is gross violation of the principles of natural justice. Further, the assessee submitted that the AO has failed to appreciate that the cash deposits are in relation to the consigner transactions, which has been already considered for the return of income filed by the assessee by including the commission income earned on such transactions. The assessee also furnished the details of trading transactions as well as the consigner transactions by providing a detailed reconciliation of total credits in the bank account in co-relation with the turnover of the assessee and transactions of consigner held with the principal consigners. Therefore, the AO has failed to understand the nature of business and has made additions erroneously. Further, the assessee submitted that during the assessment proceedings, the cash book, bank book, extract from the tally along with the statement of bank accounts for the FY 2019-20 and patty sample invoices were produced. Further, the trade license obtained from Koyambedu Wholesale Market Complex Marketing Committee, which is valid up to 31.03.2027 was also furnished to the assessing authority. However, the AO could not understand the nature of transactions and doubted the existence of the business and hence concluded the assessment wrongly by making such huge unsustainable additions.

Aggrieved by the reassessment order, the assessee preferred an appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee contended that the AO had erred in making an addition of Rs.8,74,04,800/- u/s.69A of the Act as unexplained money, while simultaneously estimating the business income at 8% of the entire bank credits, including the very same cash deposits which had :-4-:

The assessee further submitted that the AO had failed to appreciate that the impugned cash deposits pertained to consignment transactions undertaken on behalf of principal consigners, in respect of which only commission income accrued to the assessee and the same had already been duly offered to tax in the return of income filed for the relevant assessment year. In support of the said contention, the assessee furnished detailed particulars of trading transactions as well as consignment transactions, along with a reconciliation statement correlating the total bank credits with the turnover disclosed by the assessee and the transactions carried out with the principal consigners. It was therefore contended that the AO had misconstrued the nature of the business activities carried on by the assessee and had consequently made the impugned additions erroneously.

The assessee also submitted that during the course of assessment proceedings, various books of account and supporting documents, including the cash book, bank book, extracts from Tally accounts, bank statements for the Financial Year 2019-20, and sample patti invoices, were duly produced before the AO. Further, the trade licence issued by the Koyambedu Wholesale Market Complex Marketing Committee, valid up to 31.03.2027, was also furnished in support of the genuineness and continuity of the business carried on by the assessee in the agricultural product market. However, according to the assessee, the AO failed to properly appreciate the nature of the transactions and unjustifiably doubted the very existence of the business, thereby resulting in the framing of the reassessment order with huge and unsustainable additions.

Upon consideration of the submissions and evidences placed on record by the assessee, ld.CIT(A), placing reliance on the judgment of the Hon’ble

1 One of the essential conditions in Section 69A of the Act is that the assessee should be the "owner of the money" and it should not be recorded in his books of accounts. In this case the appellant has recorded cash receipts in his books of accounts and offered explanation that the receipts are from his business. Supreme Court in the case of Laxmichand Baijnath vs CIT in 35 ITR 416 held that, amount credited in business books can normally be presumed as related to business. Payments received from various customers cannot be doubted until contrary material is brought on record. To treat a receipt as unexplained income the AO needs to be in possession of some material indicating that the assessee has received certain amounts which have not been reflected in the books of account. Receipts recorded in the books of accounts were already part of the income which was already credited in P&L account. So, these cash deposits do not warrant addition under section 69A as the source is clear as per books. In the case of Aurobindo Sanitary Stores v. CTC (2005) Reported in 276 ITR 549 Orissa High Court held that, for applying Section 69, the Assessing Officer must first come to a finding that the assessee made investments which are not recorded in the books of account and thereafter call for an explanation from the assessee about the nature and source of the investments and if he

2 The Assessing Officer stated that all payments are in cash which raises suspicion regarding the genuineness of purchase parties who are liable for deduction under section 40A(3). The verification report states that the appellant deals in Onion and Potato. In this regard, Rule 6DD of Income Tax Rules states that, no disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession where the payment is made for the purchase of i. agricultural or forest produce; or ii. the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or iii. fish or fish products; or iv. the products of horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products; Clearly, disallowance u/s 40A(3) is not applicable in this case where the appellant is dealing with only agricultural produce. Hence it is held that cash sales which is shown as turnover of business and is duly entered in the regular books of accounts cannot be taxed under section 69A.”

Similarly, the ld.CIT(A), while adjudicating the issue relating to estimation of business income at 8% of the total bank credits, placed reliance on the judgments of the Hon’ble Supreme Court in the cases of Dhakeshwari Cotton Mills Ltd. v. CIT, CIT v. J.J. Enterprises, Brij Bhushan Lal Parduman Kumar v. CIT and State of Kerala v. C. Velukutty, and held that the estimation made by the AO at 8% on the entire bank credits was arbitrary and devoid of any reasonable basis. Accordingly, the ld.CIT(A) deleted the said estimated addition by observing as under:- “5.3 After adding the entire cash turnover as unexplained money u/s.69A, the Assessing Officer proceeded to make an estimated addition of 8% on the total turnover. This amounted to double addition of the same business proceeds. The appellant reported commission income of Rs.38,50,007/- for the year ended 31/03/2020. The commission was calculated at the rate of 3.8% on the total consideration for which the agricultural goods were sold. The appellant has also made direct sales of vegetables to customers to the extent of Rs. 19,75,420/-. The appellant explained the business practices in Koyambedu vegetable Market, provided detailed charts of consignments and sample bills to establish that commission received by consignment agents was at the rate of 3.8%. Assessing Officer rejected these explanations without any incriminating evidence showing otherwise. In the case of Dhakeshwari Cotton Mills -vs.- CIT (1954) 26 ITR 775 (SC) Hon'ble Apex Court held that AO cannot make any addition on the account of his guess work without having any material evidence on record. The relevant extracts of the said judgement is reproduced as under: "....that in making the assessment under sub-section 3 of section 23 of the Income Tax Act, 1922 [corresponding to the section 143(3) of the Income tax Act, 1961], the Income Tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to :-7-:

Aggrieved by the deletion of additions by the ld.CIT(A), the Revenue is in appeal before us by raising the following grounds of appeal:-

The ld.DR appearing for the Revenue vehemently supported the reassessment order passed by the Assessing Officer and reiterated the grounds of appeal raised by the Revenue. The ld.DR submitted that the ld.CIT(A) erred in deleting the additions made u/s.69A of the Act as well as the estimated business income without properly appreciating the factual findings recorded by the AO during the course of reassessment proceedings.

The ld.DR contended that the AO had identified total credits of Rs.18,72,28,155/- in the assessee’s bank accounts, comprising cash deposits of Rs.8,74,04,800/- and other credits amounting to Rs.9,98,23,355/-. However, despite being afforded sufficient opportunity, the assessee failed to furnish complete books of account, corroborative evidences, confirmations from all principal consigners, and other supporting materials necessary to establish that the entire bank credits represented genuine business transactions. It was further submitted that only one of the consigners had responded to the notice issued u/s.133(6) of the Act and the remaining transactions remained unsubstantiated.

The ld.DR further argued that the assessee had failed to discharge the primary onus cast upon him under the provisions of the Act to satisfactorily explain the nature and source of the cash deposits found credited in the bank accounts. In the absence of complete and verifiable evidences, the AO was justified in invoking the provisions of section 69A of the Act and treating the unexplained cash deposits as income of the assessee. According to the Revenue, the ld.CIT(A) had granted relief merely on the basis of general submissions and partial documentation without properly rebutting the specific discrepancies and deficiencies pointed out by the AO in the reassessment order.

With regard to the deletion of the estimated addition of Rs.79,85,868/-, being 8% of the other bank credits amounting to Rs.9,98,23,355/-, the ld.DR submitted that the AO had independently examined the non-cash credits reflected in the bank accounts and, upon noticing discrepancies in the explanations furnished by the assessee, had reasonably estimated the business income. It was contended that the AO had treated the cash deposits and other bank credits separately and, therefore, the finding of the ld.CIT(A) that the addition resulted in double taxation of the same receipts was factually incorrect.

The ld.DR therefore submitted that the ld.CIT(A) erred in interfering with the well-reasoned findings of the AO without appreciating the inadequacy of the evidences furnished by the assessee. Accordingly, it was prayed that the order passed by the ld.CIT(A) be set aside and the reassessment order passed by the AO be restored in full.

Per contra, the ld.AR appearing for the assessee strongly supported the order passed by the ld.CIT(A) and submitted that the assessee had duly furnished complete particulars relating to all transactions carried out during the impugned assessment year before the lower authorities. It was contended that the assessee had successfully demonstrated that the transactions reflected in the bank accounts pertained to genuine business activities comprising both direct trading transactions as well as consignment transactions undertaken on behalf of principal consigners in the onion and potato trade.

The ld.AR further submitted that the assessee had filed the return of income after duly accounting for the entire business transactions undertaken during the relevant previous year, including the profits derived from trading activities and the commission income earned from consignment sales of onions and potatoes. It was argued that the Assessing Officer (“AO”) failed to properly appreciate the peculiar nature of the wholesale agricultural produce business

The ld.AR also drew attention to the paper book filed before the Tribunal consisting of 215 pages containing, inter alia, audited financial statements, detailed replies furnished before the AO, copies of bank statements, sales invoices, cash book, ledger extracts of bank accounts, and other supporting materials submitted in response to notices issued u/s.133(6) of the Act. It was submitted that the documentary evidences placed on record clearly established the genuineness of the business transactions as well as the nexus between the cash deposits reflected in the bank accounts and the turnover disclosed by the assessee in the return of income.

The ld.AR further contended that the assessee had furnished a detailed reconciliation statement correlating the total credits appearing in the bank accounts with the turnover arising from trading and consignment transactions. Therefore, according to the ld.AR, the burden cast upon the assessee to explain the nature and source of the cash deposits stood fully discharged. It was argued that the AO, without properly appreciating the evidences placed on record, proceeded to make additions merely on surmises and conjectures.

The ld.AR therefore submitted that the ld.CIT(A), after appreciating the facts, evidences, and judicial precedents relied upon by the assessee, had rightly deleted the additions made u/s.69A of the Act as well as the estimated addition towards business income. Accordingly, it was prayed that the appeal filed by the Revenue be dismissed and the order passed by the ld.CIT(A) be upheld.

We have heard the rival submissions made by the ld.DR and the ld.AR and perused the materials available on record, including the reassessment order, the impugned order passed by the ld.CIT(A), the paper book filed by the assessee, and the judicial precedents relied upon by both the parties.

The solitary issue arising for consideration before us is whether the ld.CIT(A) was justified in deleting (i) the addition of Rs.8,74,04,800/- made by the AO u/s.69A of the Act, treating the cash deposits in the bank account as unexplained money, and (ii) the estimated addition of Rs.79,85,868/- being 8% of the other bank credits amounting to Rs.9,98,23,355/-.

On a careful perusal of the reassessment order, we find that the AO proceeded primarily on the basis that substantial cash deposits were found in the bank accounts maintained by the assessee during the relevant previous year and that complete confirmations were not received from all the consigners to whom notices u/s.133(6) of the Act were issued. However, the material available on record clearly demonstrates that the assessee is carrying on wholesale business in onions and potatoes in the Koyambedu Wholesale Market Complex Marketing Committee and the very reopening itself was triggered on the basis of the Preliminary Verification Report acknowledging that the assessee was engaged in such business activities. The AO himself has recorded in the assessment order that the transactions carried out by the assessee were in the nature of “business to business” transactions.

We further find from the records that the assessee had consistently contended before the lower authorities that the impugned cash deposits represented business receipts arising from direct trading activities and consignment transactions undertaken on behalf of principal consigners. In support thereof, the assessee had produced copies of invoices, bank statements, cash book, ledger extracts, Tally accounts, reconciliation statements, and sample patti invoices. The assessee had also furnished a valid trade licence issued by the Koyambedu Wholesale Market Complex Marketing Committee evidencing the continuity and genuineness of the business operations carried on during the relevant assessment year. Further, one of the principal consigners had also responded to the notice issued u/s.133(6) of the Act confirming the transactions entered into with the assessee.

In our considered view, merely because one of the consigners failed to respond to the notice issued u/s.133(6) of the Act, the entire business receipts reflected in the bank accounts cannot automatically be treated as unexplained money u/s.69A of the Act, particularly when the assessee had produced books of account and supporting evidences explaining the nature and source of such deposits. The provisions of section 69A can be invoked only where the assessee is found to be the owner of money not recorded in the books of account and the explanation offered regarding the nature and source thereof is either absent or found to be unsatisfactory. In the present case, the cash deposits admittedly stand recorded in the regular books of account maintained by the assessee and have been correlated with the business turnover and consignment transactions carried on during the relevant previous year.

We also find substantial force in the findings recorded by the ld.CIT(A) that the AO failed to bring on record any cogent material to establish that the impugned cash deposits represented income from undisclosed sources independent of the regular business activities of the assessee. Suspicion, however strong, cannot take the place of evidence. Once the assessee had discharged the initial burden by furnishing books of account, reconciliation statements, invoices, and other supporting materials, the burden shifted upon the Revenue to disprove the same with positive evidence. No such contrary material has been brought on record by the AO except making general observations regarding cash transactions and non-receipt of confirmation from one of the consigners.

We further note that the assessee is engaged in the wholesale trade of agricultural produce such as onions and potatoes where cash transactions are prevalent owing to the peculiar nature of the trade carried on in wholesale vegetable markets. The ld.CIT(A) has rightly observed that the provisions of Rule 6DD of the Income-tax Rules recognize exceptions in respect of transactions relating to agricultural produce. Therefore, the mere existence of substantial cash transactions, in the absence of any material indicating

Coming to the second limb of the addition, we find that the AO, after treating the cash deposits as unexplained money u/s.69A of the Act, again proceeded to estimate business income at 8% of the remaining bank credits amounting to Rs.9,98,23,355/-. The reassessment order does not reveal any rational basis, comparative case analysis, defects in books of account, or incriminating material justifying such adhoc estimation. The AO has neither rejected the books of account u/s.145(3) of the Act nor established that the income disclosed by the assessee was incorrect or incomplete. In the absence of rejection of books and supporting material demonstrating suppression of income, adhoc estimation of income on pure surmises and conjectures cannot be sustained.

The Hon’ble Supreme Court in Dhakeshwari Cotton Mills Ltd. v. CIT has categorically held that though an element of estimation is permissible in assessment proceedings, the same cannot be based on pure guesswork without reference to any material or evidence. Similar principles were reiterated in Brij Bhushan Lal Parduman Kumar v. CIT and State of Kerala v. C. Velukutty, wherein it was held that even in best judgment assessments there must exist a reasonable nexus between the estimation made and the material available on record. In the present case, we find that the AO has failed to demonstrate any such nexus while estimating the income at 8% of the bank credits.

We also find merit in the contention of the assessee that the approach adopted by the AO effectively resulted in taxing the same stream of business receipts twice, once by treating the cash deposits as unexplained money u/s.69A and again by estimating profit on the very same business transactions reflected in the bank accounts. The ld.CIT(A), after appreciating the nature of business carried on by the assessee and examining the reconciliation statements and supporting documents, rightly concluded that such additions

In view of the foregoing discussions, considering the totality of the facts and circumstances of the case, the evidences produced by the assessee, and the judicial precedents relied upon by the ld.CIT(A), we are of the considered opinion that the Revenue has failed to bring on record any material warranting interference with the order of the ld.CIT(A). Accordingly, we uphold the order passed by the ld.CIT(A) deleting the addition made u/s.69A of the Act as well as the estimated addition towards business income. Consequently, all the grounds raised by the Revenue are dismissed.

In the result, the appeal filed by the Revenue stands dismissed.