ADITHYA MUSTHYALA REP. BY GPA HOLDER MUSTHYALA SRINIVASULU,WARANGAL vs. ITO, WARD-1, WARANGAL.

The brief facts of the case are that, the assessee, who is an individual, did not file return of income for the A.Y. 2017-18. On the basis of information received under “Operation Clean Money”, the A.O. noticed that, the assessee had deposited cash of Rs.11,00,000/- during demonetisation period in his bank account maintained with SBI. Accordingly, notice under Section 142(1) of the Income-tax Act, 1961, dated 09.03.2018 was issued calling upon the assessee to furnish return of income for the A.Y. 2017-18. However, the assessee failed to furnish return of income either under Section 139 of the Act, or in response to notice issued under Section 142(1) of the Act. Therefore, the A.O. initiated proceedings under Section 144 of the Act.

During the course of assessment proceedings, the father of the assessee and authorised representative submitted that, the assessee had sold agricultural land for consideration of Rs.12,25,000/- through agreement of sale-cum-GPA dated 07.04.2016 and out of sale consideration received in cash, the assessee kept part of the amount in bank locker and deposited the same in bank account during demonetisation period. However, the A.O. observed that, except furnishing copy of agreement of sale-cum-GPA, the assessee failed to substantiate the claim with documentary evidences. The A.O. further observed that, the assessee had deposited cash of Rs.11,46,000/- during demonetisation period in bank accounts, but failed to explain the source for such deposits with supporting evidences. Therefore, the A.O. treated cash deposits of Rs.11,97,504/- as unexplained money under Section 69A of the Income-tax Act, 1961 and completed assessment under Section 144 of the Act, determining total income at Rs.11,97,504/-.

Aggrieved by the assessment order, the assessee carried the matter in appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee submitted that notices issued under Section 142(1) of the Act, were not properly served since the assessee was out of country during the relevant period and the father of the assessee appeared before the A.O. only as representative. The assessee further submitted that, the cash deposits made during demonetisation period were out of sale proceeds received from sale of agricultural land and part of the amount was deposited into the educational loan account of the assessee.

The Ld. CIT(A) after considering the submissions of the assessee and also taking note of the reasons given by the A.O. to treat cash deposits as unexplained money under Section 69A of the Act, observed that, notices issued under Section 142(1) of the Act, were properly served and the father of the assessee had participated in the assessment proceedings as authorised representative by filing replies from time to time. The Ld. CIT(A) further observed that, although the assessee claimed that, the cash deposits were out of sale proceeds received from agricultural land, the assessee failed to furnish corroborative evidences to establish the source for cash deposits made during demonetisation period. The Ld. CIT(A) further observed that, the assessee has failed to discharge the burden cast upon him to substantiate the source for cash deposits with supporting evidences. Therefore, the Ld. CIT(A) rejected the explanation of the assessee and sustained the addition made by the A.O. under Section 69A of the Act.

The learned counsel for the assessee, Shri K.A. Sai Prasad, submitted that, the A.O. erred in treating cash deposits made during demonetisation period as unexplained money under Section 69A of the Act, without properly considering the explanation offered by the assessee regarding source for such deposits. The learned counsel for the assessee further submitted that, the cash deposits were out of sale proceeds received from sale of agricultural land and the assessee had furnished agreement of sale-cum-GPA in support of the claim. Therefore, he submitted that, the addition made by the A.O. and sustained by the Ld. CIT(A) should be deleted.

The learned Senior A.R. for the Revenue, Ms. Aditi Goyal, on the other hand, supporting the orders of the lower authorities submitted that, although the assessee claimed that, the cash deposits were out of sale proceeds received from sale of agricultural land, the assessee failed to furnish necessary evidences to substantiate the source for cash deposits made during demonetisation period. The learned Senior A.R. for the Revenue further submitted that, the A.O., after considering the facts available on record, has rightly treated the cash deposits as unexplained money under Section 69A of the Act, and the Ld. CIT(A), after appreciating the relevant facts, has rightly sustained the addition made by the A.O. Therefore, she submitted that, the order of the Ld. CIT(A) should be upheld.

I have heard both the parties and considered the relevant reasons given by the A.O. to make addition towards cash deposits into bank account during demonetization period for Rs. 11,97,504/- under Section 69A of the Income Tax Act, 1961. The A.O. made addition towards cash deposits on the ground that the assessee could not explain the source for cash deposit and the explanation offered by the assessee that the source for cash deposit was out of sale of agricultural land in cash of Rs. 12,25,000/- is not substantiated with relevant evidences. The assessee has explained the source for cash deposits out of cash received from sale of agricultural land on 20.04.2016. The assessee had furnished relevant agreement of sale-cum-GPA, dated 07.04.2016 and as per the sale agreement, the assessee had received Rs. 12,25,000/- for sale of agricultural land. The assessee claimed that, immediately after sale of land, he and his wife left for USA on 04.12.2016 and the cash received from sale of agricultural land was kept in the bank locker. Further, he and his wife returned from USA on 08.09.2016 and immediately after return from USA, demonetization was announced, and the cash kept in locker has been taken out and deposited into bank account. In my considered view, going by the facts of the present case and explanation of the assessee, the explanation of the assessee with regard to source for cash deposit, appears to be bona fide and acceptable, because the assessee does not have any other source except the cash received from sale of agricultural land, which is evident from the relevant reasons given in the assessment order where the assessee has not furnished any return of income declaring any income for the year under consideration. Since the assessee does not have any other income, in my considered view, the reasons given by the A.O. that cash deposited into bank account is unexplained income of the assessee, is totally incorrect and contrary to the facts available on record. Since the assessee has explained the source out of sale receipts from sale of agricultural land and the A.O. has not disputed the fact that the assessee has sold agricultural land and made addition only on the rule of preponderance of human probability, in my considered view, the addition made by the A.O. and sustained by the Ld. CIT(A) cannot be upheld. Thus, I direct the A.O. to delete the addition made towards cash deposits of Rs. 11,97,504/- under Section 69A of the Income Tax Act, 1961. 8

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

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