SUBBAREDDY TIPPAYAGARI,KADAPA vs. ITO, WARD-(1), KADAPA

Succinctly stated, the AO, based on the information available on the Insight Portal of the Income-tax Department, observed that during the year under consideration the assessee had carried out substantial financial transactions/receipt of income, viz. (i) cash deposits of Rs. 1,00,45,000/- in a savings bank account maintained with Bank of Baroda; and (ii) receipt interest income of Rs. 10,529/-but not filed his return of income, initiated proceedings under Section 147 of the Act. Notice under Section 148, dated 29.03.2022, was issued by the AO.

During the course of the assessment proceedings, the AO called upon the assessee to explain the source of the cash deposits of Rs. 1,00,45,000/- stated to have been made in his savings bank account maintained with Bank of Baroda. In response, the assessee submitted that he had, in fact, during the subject year deposited in his bank accounts only Rs. 30,56,125/- (including Rs. 20,09,000/- with Bank of Baroda) and not Rs. 1,00,45,000, which, on verification by the AO, were found to be correct. As regards the source of the cash deposits aggregating to Rs. 30,56,125/-, the assessee submitted that the same had been sourced from his multifarious sources, viz. (i) amount received from Shri Keshava Reddy, son of Late T. Balamma (sister of the assessee’s paternal grandmother) – Rs. 1,80,000/-; (ii) amount received from his mother, Smt. T. Nagamma: Rs. 1,75,000/-; (iii) sale proceeds of bananas (agricultural produce): Rs. 3,54,700/-; (iv) sale consideration received on transfer of agricultural land belonging to the assessee’s HUF: Rs. 3,15,000/-; (v) maturity proceeds of a Postal Recurring Deposit (RD) – Rs. 5,00,000/-; and (vi) cash collections out of amounts advanced by Late T. Balamma (sister of the assessee’s paternal grandmother) and by the assessee: Rs. 6,44,600/-.

As is discernible from the record, the AO observed that the assessee, in support of his aforesaid claim, had failed to furnish confirmations from, viz. (i) Shri Keshava Reddy: Rs. 1,80,000/-; and (ii) Smt. T. Nagamma (assessee’s mother): Rs. 1,75,000/-and thus, declined to accept the assessee’s explanation to that extent. As regards the assessee’s claim that a sum of Rs. 3,54,700/- represented agricultural income from the sale of bananas, the AO observed that the assessee had failed to furnish any documentary evidence in support of his claim, viz., details regarding the agricultural land under cultivation, cultivation 3 expenses, purchase of seeds and fertilizers, labour and machinery employed, or documentary evidence substantiating the cultivation and sale of the agricultural produce. Thus, the AO rejected the assessee’s explanation regarding the aforesaid source. Coming to the assessee’s claim that an amount of Rs. 3,15,000/- represented sale proceeds of agricultural land belonging to his HUF, the AO observed that no documentary evidence, such as a copy of the sale deed or any other supporting document, had been furnished. The said explanation was, therefore, not accepted. The AO further observed that although the assessee had claimed that a sum of Rs. 5,00,000/- represented the maturity proceeds of a Postal Recurring Deposit (RD), it was improbable that the maturity proceeds, if any, would first be withdrawn in cash and thereafter redeposited into the assessee’s bank account instead of being transferred directly through banking channels. On the basis of the aforesaid observations, the AO rejected the assessee’s explanation that the cash deposits to the extent of Rs. 5,00,000/- were sourced from the maturity proceeds of the Postal RD. The AO further observed that the assessee had also claimed that cash amounting to Rs. 6,44,600/- represented collections out of amounts advanced by Late T. Balamma and by the assessee himself. However, the AO observed that the assessee had failed to furnish confirmations of accounts and copies of the debtors' returns of income, which could substantiate their identity and creditworthiness, as well as the genuineness of the transactions. According to the AO, in the absence of such supporting evidence, the assessee’s claim that the aforesaid amounts had been received from the debtors and were thereafter deposited in his savings bank account could not be accepted. Apart from that, the AO further observed that the assessee had furnished an explanation only in respect of cash deposits aggregating to Rs. 21,69,300/- as against the total cash deposits of Rs. 30,56,125/- made during the year in his bank account. Accordingly, the AO issued a show-cause notice calling upon the assessee to explain why the entire amount of cash deposits of Rs. 30,56,125/- may not be treated as his unexplained income and brought to tax.

In response to the show cause notice, the assessee furnished confirmations, copies of certain returns of income and revenue records. However, the AO observed that although the assessee had claimed that the impugned cash deposits were sourced from multiple sources, viz., cash received from relatives and friends, agricultural income from sale of banana crops, maturity proceeds of Postal Recurring Deposits, collections from debtors, etc., but he had failed to substantiate the same by producing confirmations, copies of the income-tax returns of the relatives, friends and debtors, details evidencing encashment of the Postal Recurring Deposits, and documentary evidence in support of the agricultural income. Accordingly, the AO concluded that the assessee had failed to satisfactorily explain the source of the cash deposits aggregating to Rs. 30,56,125/- and treated the entire amount as the assessee’s unexplained money under Section 69A of the Act.

Thereafter, the AO, vide his order passed under Section 147 r.w Section 144B of the Act dated 18.01.2024, assessed the total income of the assessee at Rs. 30,56,125/- after making the aforesaid addition under Section 69A of the Act.

Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A), finding no merit in the contentions advanced by the assessee, upheld the addition made by the AO.

The assessee, being aggrieved with the order of the CIT(A), has carried the matter in further appeal before us.

Shri Abhiroop Bhargav, CA, Ld. Authorized Representative (for short, “AR”) for the assessee, at the threshold of hearing of the appeal, submitted that both the authorities below had erred in law as well as on facts in making/sustaining the addition of Rs. 30,56,125/- by treating the same as the assessee’s unexplained money under Section 69A of the Act. Elaborating on his submissions, the Ld. AR contended that, insofar as the assessee’s claim that part of the cash deposits represented collections out of amounts advanced by Late Smt. T. Balamma (sister of the assessee’s paternal grandmother) and by the assessee himself was concerned, the same stood duly substantiated by the notarised affidavit of Shri Buchakka Keshava Reddy, S/o Rama Subba Reddy, dated 20.10.2023 (copy placed on record). Referring to the contents of the said affidavit, the Ld. AR submitted that the aforesaid deponent had affirmed that Late Smt. Thota Balamma, a native of his village and the sister of the assessee’s paternal grandmother, had expired on 03.04.2017. It was further deposed that the assessee and his mother, Smt. T. Nagamma, who had been working in Kuwait since the early 2000s, used to remit money to Smt. Thota Balamma (supra), who, in the ordinary course, would advance the same as loans to villagers. The Ld. AR submitted that the deponent had categorically stated that upon the demise of Late Smt. Thota Balamma, cash amounting to Rs. 1,80,000/- remained in her possession and, on the assessee’s return from Kuwait on 03.07.2017, the said amount was handed over to him. It was further deposed that the deponent had assisted the assessee in recovering dues from various debtors in respect of loans earlier advanced by Late Smt. Thota Balamma, aggregating to Rs. 3,22,000/-.

Apart from the aforesaid, the Ld. AR invited our attention to Smt. 's bank account. T. Nagamma bearing Account No. 30845256108, which reflected a cash withdrawal of Rs. 2,00,000/- on 03.10.2017, prior to her departure for Kuwait. It was submitted that out of the aforesaid cash withdrawal, a sum of Rs. 1,75,000/- had been made available to the assessee and constituted one of the sources for the subsequent cash deposits made by him in his bank account.

Coming to the assessee’s claim that a sum of Rs. 3,54,700/- represented cash sale proceeds from the sale of banana crop, the Ld. AR took us through the land passbook and the certificate issued by the Village Horticulture Assistant, Pages 158 to 161 of the Assessee’s Paper Book (APB). Referring to the said documents, it was submitted that banana crop had been cultivated on agricultural land measuring 4.82 acres (survey number-wise details furnished) and that the competent horticulture authority had certified the probable income from the sale of the banana crop at Rs. 10,000/- per acre. The Ld. AR submitted that banana is an annual crop which, in the present case, was harvested and sold during November, 2018. It was further submitted that the saplings had been purchased in the preceding year and that cattle dung along with a limited quantity of chemical fertilizers had been used as manure during the year under consideration. It was submitted that the use of pesticides during the flowering and fruit-bearing stages of the crop is minimal, as spraying at such stages is generally avoided. The Ld. AR fairly conceded that the bills relating to the purchase of saplings and other agricultural inputs had not been preserved. The Ld. AR further submitted that the principal agricultural operation during the flowering stage of the banana crop is the removal of unwanted weed growth. It was submitted that since the assessee himself was engaged as a driver, no hired labor was employed for spraying pesticides, which was carried out using locally available tractors fitted with community sprayers. It was submitted that family members carried out the weeding operations and, therefore, no labor charges were incurred. However, the Ld. AR submitted that the assessee had incurred expenditure towards watering and other incidental agricultural operations. The Ld. AR, to buttress his aforesaid contentions, had drawn our attention to the certificate issued by the Village Horticulture Assistant, Page 160 of APB, wherein the competent authority had certified the existence of the banana crop on the assessee’s agricultural land as well as the probable income that could be realized from its sale. According to the Ld. AR, the aforesaid documentary evidence duly substantiated the assessee’s claim that the cash deposits to the extent of Rs. 3,54,700/- were sourced from the sale proceeds of the banana crop. Apart from that, the Ld. AR to further fortify the assessee’s claim that he had earned agricultural income from the sale of banana crop, the Ld. AR invited our attention to the confirmations of two purchasers, viz. (i) Shri K. Ramachandraya, who, vide confirmation dated 09.12.2023, confirmed having purchased 14.365 tonnes of banana crop from the assessee at the rate of Rs. 11.50 per kilogram and having paid a sum of Rs. 1,65,200/- on 27.11.2018; and (ii) Shri Gondi Suresh, who confirmed having purchased 15.992 tonnes of banana crop from the assessee at the rate of Rs. 12/- per kilogram and having paid a sum of Rs. 1,89,500/- on 16.11.2018, Pages 162 and 163 of the APB. The Ld. AR submitted that the confirmations furnished by the aforesaid purchasers clearly established that the assessee had received aggregate sale proceeds of Rs. 3,54,700/- from the sale of banana crop during the year under consideration.

Coming to the assessee’s claim that a sum of Rs. 3,15,000/- represented his share of the sale proceeds of agricultural land belonging to the HUF, the Ld. AR took us through the copy of the registered sale deed bearing Document No. 4246/2018 executed before the Joint Sub-Registrar, Rajampet, Andhra Pradesh, for a total sale consideration of Rs. 9,15,000/-. Elaborating on his aforesaid contention, the Ld. AR submitted that although the entire sale consideration had 9 been credited to the bank account of Shri T. V. Subba Reddy, one of the co-sharers of the HUF, the assessee’s share of the sale consideration was subsequently paid to him in cash by Shri T. V. Subba Reddy and his son, viz. Shri T. Sunil Kumar Reddy, who had paid sums of Rs. 1,75,000/- and Rs. 1,40,000/-, respectively. In support of his aforesaid contention, the Ld. AR submitted that confirmations of the aforesaid persons were furnished during the course of the assessment proceedings by uploading the same on the Income-tax portal. The Ld. AR also drew our attention to the copies of the registered sale deed (in vernacular) and the aforesaid confirmations placed at Pages 164 to 168 and Pages 171 to 186 of the APB.

Apropos the assessee’s claim that a sum of Rs. 5,00,000/- represented withdrawals out of the maturity proceeds of Postal Recurring Deposits, the Ld. AR took us through the Post Office Savings Bank Account of the assessee, which reflected the credit of the maturity proceeds of the Recurring Deposits (RDs) and the corresponding cash withdrawals made therefrom aggregating to Rs. 5,00,000/- . Our attention was specifically invited to Page 80 of the APB in support of the said contention.

As regards the assessee’s claim that cash collections aggregating to Rs. 6,44,600/- represented recoveries from persons to whom monies had earlier been advanced by Late Smt. T. Balamma (supra), the Ld. AR took us through the details of the persons from whom such amounts were recovered. It was submitted that cash collections aggregating to Rs. 3,21,900/- were supported by confirmations of the respective debtors (in vernacular), placed at Pages 190 to 209 of the APB. Also, it was submitted by the Ld. AR that the balance collections aggregating to Rs. 3,22,700/- were supported by confirmations of the concerned debtors (in vernacular), copies whereof were placed in the APB.

The Ld. AR referring to the aforesaid documentary evidence, submitted that the assessee had duly discharged the onus cast upon him of explaining the nature and source of each component of the cash deposits made in his bank account and that the authorities below had erred in discarding the same on mere presumptions and surmises without bringing any material on record to dislodge the evidence furnished by the assessee.

Apropos the balance cash deposits aggregating to Rs. 8,86,825/- (Rs. 30,56,125/- less Rs. 21,69,300/-), the Ld. AR submitted that the same were sourced from cash withdrawals made by the assessee from gold loan proceeds and recurring deposit accounts, which were subsequently redeposited into his bank accounts. It was submitted that out of the gold loan proceeds of Rs. 4,92,000/-, an amount of Rs. 3,95,000/- was withdrawn in cash and was thereafter redeposited in the assessee’s bank accounts. The Ld. AR in support of his aforesaid contention took us through the relevant bank accounts, viz. (i) Account No. 65010201000572 maintained with Union Bank of India (Page 88 of the APB); (ii) Savings Bank Account No. 5821010003111 maintained with Bank of Baroda (Page 123 of the APB); and (iii) Savings Bank Account No. 00091105586044 maintained with Andhra Pragathi Grameena Bank (Page 110 of the APB).

Based on the aforesaid submissions, the Ld. AR contended that the assessee had duly substantiated the source of the entire cash deposits of Rs. 30,56,125/- by placing on record cogent documentary evidence, which clearly established the availability of sufficient cash with him from multiple identifiable sources. It was, therefore, submitted that there was no justification on the part of the authorities below in summarily rejecting the assessee’s explanation and treating the entire amount of cash deposits as his unexplained money under Section 69A of the Act. The Ld. AR submitted that the impugned addition made by the AO and sustained by the CIT(A) be deleted.

Per contra, Shri B Laxmi Kanth, the Ld. Senior Departmental Representative (for short, “DR”) submitted that as the assessee had failed to substantiate the source of the impugned cash deposits by producing satisfactory and irrefutable documentary evidence during the course of the assessment proceedings as well as before the CIT(A), therefore, both the authorities below had rightly treated the cash deposits as the assessee’s unexplained money under Section 69A of the Act.

We have heard the Ld. Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record, as well as considered the documentary evidence to which our attention was specifically drawn by the Ld. AR during the course of hearing.

We find substantial force in the contention of the Ld. AR that, in support of the explanation regarding the source of the cash deposits aggregating to Rs. 30,56,125/-, the assessee had furnished various documentary evidence demonstrating the availability of cash from multiple sources. In our view, prima facie, the material placed before us appears to indicate that the assessee had sought to explain each component of the cash deposits by correlating the same with identifiable sources supported by documentary evidence. However, we find that the AO, while framing the assessment, observed that the assessee had furnished no documentary evidence in support of his explanation. Considering the material placed before us, it transpires that various documents, including confirmations, affidavits, revenue records, sale deeds, bank statements, Post Office account statements, certificates issued by the Village Horticulture Assistant and other supporting documents, which are stated to have been furnished before the authorities below, had not been looked into by either of them. We say so, for the reason that neither the assessment order nor the appellate order reflects any proper examination or verification of the aforesaid documentary evidence. In the backdrop of the aforesaid facts, we are of the considered view that, in all fairness and in the interest of justice, the matter requires to be restored to the file of the AO for fresh adjudication. The AO shall, in the course of the set aside proceedings, examine the assessee’s explanation regarding the availability of cash 13 in hand aggregating to Rs. 30,58,700/-, which is claimed to have constituted the source of the cash deposits made in the assessee’s various bank accounts during the year under consideration. The AO is directed to duly consider all the documentary evidence produced by the assessee, including the evidence stated to have been furnished during the assessment proceedings as well as the material brought to our notice during the course of hearing of the appeal. The AO shall independently verify each of the sources claimed by the assessee and record specific findings regarding the availability of cash under each of the respective heads after carrying out such inquiries and verifications as may be considered necessary. In the event the assessee’s explanation regarding any of the claimed sources is found to be genuine and duly supported by the documentary evidence, the corresponding addition made under Section 69A of the Act shall stand deleted to that extent. Needless to say, the AO shall afford a reasonable opportunity of being heard to the assessee during the course of the set-aside proceedings. The assessee shall also be at liberty to furnish such further documentary evidence, if any, as may be considered necessary in support of his claim regarding the aforesaid sources of the cash deposits.

In the result, the appeal filed by the assessee is allowed for statistical purposes in terms of the aforesaid observations.