ITO, WARD-1, MAHABUBNAGAR vs. CHENNARAPU ASHOK KUMAR, MAHABUBNAGAR

The grounds raised by the Revenue read as under :

The brief facts of the case are that, the assessee did not file return of income for the assessment year 2017-18 under section 139 of the Income-tax Act, 1961. In this case, the assessment has been reopened under section 147 of the Act, and the notice under section 148 of the Act, dated 27.03.2021 was issued and served on the assessee. The assessee did not file return of income in response to notice under section 148 of the Act. Therefore, notice under section 142(1) of the Income-tax Act, 1961 was issued on various dates and requested the assessee to explain the cash deposits into his current account and cash withdrawals from current account and insurance commission received. Once again, there was no response from the assessee. Therefore, one more notice under section 142(1) of the Act, was issued and served on the assessee on 14.01.2022. In response, the assessee filed return of income declaring total income of Rs. 10,77,510/-. The A.O., on the basis of the return filed by the assessee observed that, the assessee has made cash deposits of Rs. 8,87,67,000/- in the current account maintained with Andhra Bank and withdrawn Rs. 1,10,00,000/- from the same account. Therefore, issued notice under section 142(1) of the Act, and called upon the assessee to file relevant details. The assessee did not respond to the notice issued by the A.O. and also failed to explain the source for cash deposits. Therefore, the A.O. made addition of Rs. 8,87,67,000/- under section 69A r.w.s. 115BBE of the Income-tax Act, 1961 on the ground that the assessee had failed to explain the source for cash deposits. The A.O. had also made addition towards insurance commission on the ground that the assessee has not furnished any details to explain the nature of income.

Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A).

Before the Ld. CIT(A), the assessee has challenged the addition made by the A.O. towards cash deposits into bank account under section 69A of the Income-tax Act, 1961, and claimed that, the source for cash deposit is out of business receipts and the same has been accounted in the books of accounts maintained for the year under consideration. The assessee further submitted that, he is into the business of agency commission for paddy and claimed that, the source for cash deposit was out of sale proceeds received from sale of paddy. Therefore, the addition made by the A.O. under section 69A of the Income-tax Act cannot be sustained.

The Ld. CIT(A), after considering the relevant submissions of the assessee and also taking note of the return of income filed by the assessee, along with the financial statements, including the audit report, observed that, the A.O.'s action of adding the entire cash deposits under section 69A of the Act, is a clear case of misapplication of section 69A of the Act, which is applicable to unrecorded money. Since the cash deposits were part of the money recorded in the books of accounts, as substantiated by the tax audit report, the entire cash deposits, therefore, cannot be classified as unexplained money under section 69A of the Act, as it forms part of the gross receipts already accounted for in the books of accounts. Therefore, by following certain judicial precedents, including the decision of ITAT, Delhi Bench in the case of ACIT Vs. Raj Bajwa in ITA No. 4830/Del/2024, wherein the ITAT, Delhi Bench held that once the source for cash deposit was out of business turnover, then no addition could be made towards such cash deposits under section 69A of the Act. Thus, the Ld. CIT(A) deleted the addition made by the A.O. towards cash deposit of Rs. 8,87,67,000/-. The relevant findings of the Ld. CIT(A) are as under :

Aggrieved by the order of the Ld. CIT(A), the Revenue is now in appeal before the Tribunal.

The Ld. CIT-DR, Dr. Narendra Kumar Naik, submitted that, the Ld. CIT(A) erred in deleting the addition of Rs. 8,87,67,000/- under section 69A of the Act, despite the assessee's complete failure to explain the source of huge cash deposits or substantiate any business activity. The Ld. CIT-DR further submitted that, the Ld. CIT(A) erred in admitting additional evidence like audit reports and financial statements without recording the findings for admission of additional evidence and the reasons thereof in the appellate order as required under Rule 46A(2) of the Income-tax Rules, 1962. Further, the Ld. CIT(A) has violated the principles of natural justice by not affording any opportunity to the A.O. to comment on additional evidence submitted by the assessee. Although the assessee had failed to explain the source of cash deposits and also failed to substantiate the business activity, but the Ld. CIT(A) only on the basis of submissions of the assessee, presumed that, the source for cash deposits was out of business receipts and the same cannot be added under section 69A of the Income-tax Act, 1961. Therefore, he submitted that, the addition made by the A.O. should be upheld and, in the alternative, the matter may be remitted back to the A.O. to examine the nature and source of cash deposits into bank account in light of the claim of the assessee that it is out of business receipts.

On the other hand, the learned counsel for the assessee, Shri R. Mohan Kumar, Advocate, supporting the order of the Ld. CIT(A), submitted that, it is not a case of ex parte assessment as claimed by the Ld. CIT-DR, because the assessee has filed the return of income, although belatedly, in response to notice under section 148 of the Act, on 15.02.2022 and the A.O. has taken into account the above return of income and issued notice under section 143(2) of the Act, on 18.02.2022. Therefore, it cannot be said that it is an ex parte assessment order before the A.O. Further, the assessee has not furnished any additional evidence as claimed by the Ld. CIT-DR, because the assessee has furnished relevant return of income along with the financial statements which clearly show the sales and purchases of the assessee. The Ld. CIT(A), after considering the relevant financial statements and audit report, has reached to the conclusion that the source for cash deposits was out of business receipts and therefore, once the source was out of business receipts, then the same cannot be treated as unexplained money under section 69A of the Act. Therefore, he submitted that, there is no violation of Rule 46A of the Income-tax Rules, 1962 as claimed by the Revenue and that the appeal filed by the Revenue should be dismissed.

We have heard both parties, perused the material available on record, and had gone through the order passed by the authorities below. It is an admitted fact that, the assessee did not file a return of income on or before the due date provided under section 139(1) of the Income-tax Act, 1961. Further, the assessee has also not furnished any return of income initially in response to notice issued under section 148 of the Act. However, at the fag end of the assessment proceedings i.e., on 15.02.2022, the assessee has furnished a return of income declaring a total income of Rs. 10,77,500/-. The A.O., taking cognizance of return of income filed by the assessee, issued notice under section 143(2) of the Act, along with notice under section 142(1), and called for various details, including the description of business activity carried on by the assessee, financial statements for the year under consideration, the details of purchases and sales made during the year, and corresponding supporting evidence. However, the assessee neither furnished any details nor explained the source for cash deposits. Therefore, it is necessary for us to examine the reasons given by the Ld. CIT(A) to delete the addition made towards cash deposits in light of the above facts.

The Ld. CIT(A) deleted the addition made by the A.O. for Rs. 8,87,67,000/- under section 69A of the Act, on the ground that the source of the above cash deposits was out of business receipts and the assessee had explained the nature of the business activity and source for cash deposits by filing the relevant financial statements and audit report. The Ld. CIT(A) further noted that, the assessee is into the business of commission agency in paddy and the source for cash deposits was out of sale proceeds received in cash. Admittedly, the assessee has not furnished any details except filing belated return of income on 15.02.2022. The assessee has neither explained the nature of business nor furnished any evidence to explain the source for cash deposits. Even before the Ld. CIT(A), except filing return of income, financial statements and audit report in Form 3CD, the assessee has not furnished any books of accounts and supporting evidence to prove the nature of business activity and the details of purchases and sales of paddy, etc. The Ld. CIT(A), only on the basis of submissions of the assessee along with the financial statements and Form 3CD, came to the conclusion that the assessee was into the business of commission agent in paddy and the source was out of business receipts. However, going by the evidences filed by the assessee before the Ld. CIT(A), which are available in the paper book filed by the assessee, we find that, the assessee has furnished the financial statements, including the profit and loss account as on 31.03.2022. Upon perusal of the relevant details, we find that, the assessee prepared profit and loss account with purchases and sales without any description as to nature of goods and claimed that he has achieved sales of Rs. 10.18 crore. No details as to the nature of products dealt in by the assessee have been furnished. Further, in the audit report issued by the tax auditor, the tax auditor has issued a blank report, stating that many columns are not applicable or no records are available and the tax auditor has neither examined the records nor reported the relevant particulars of books examined by the assessee along with details of business activity. The tax audit report has also not shown the nature of business of the assessee. Therefore, from the above, it is very clear that, the assessee has neither proved nor furnished any evidence to substantiate the business activity along with evidence. Even though the assessee has failed to file any supporting evidence to prove the same, such as relevant registered from concerned authorities or any GST registration obtained from the GST authorities. The assessee had not furnished any books of accounts, sales bills, purchases bills and stock registers to prove trading activities. In the absence of any evidence to substantiate the claim of the assessee that he has carried out commission business in paddy, in our considered view, the conclusion drawn by the Ld. CIT(A) on the basis of the submissions of the assessee to explain the source of cash deposits as business receipts cannot be accepted. Therefore, to this extent, we cannot agree with the findings of the Ld. CIT(A).

Having said so, let us come back, whether the assessee has actually proved his case by filing relevant evidences. The assessee has filed belated return of income along with audit report on 15.02.2022, which is much beyond the due date provided for filing return of income under section 139(1) of the Income-tax Act, 1961. Therefore, only on the basis of financial statements and audit report, the explanation of the assessee cannot be accepted. However, the fact remains that when the assessee claims to have carried on business as commission agent and the source is out of business receipts, in our considered view, this fact needs to be verified from the side of the A.O., because the assessee had not furnished any evidence before the A.O. Therefore, in our considered view, the issue needs to be set aside to the file of the A.O. for further verification to examine the nature of business and the source for the cash deposits into bank account. Thus, we set aside the order of the Ld. CIT(A) and restore the issue to the file of the A.O., and the A.O. is directed to verify the claim of the assessee in light of any evidence that may be filed to explain the source for cash deposits into bank account.

In the result, the appeal filed by the Revenue is allowed for statistical purposes.

The Principal Commissioner of Income Tax, Hyderabad. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file