ARJUN SHETTY,MANGALURU vs. INCOME TAX OFFICER, TPS, CIRCLE - 1(1), MANGALURU

3. Aggrieved from the above Order, assessee filed appeal before the learned CIT(A). During the appellate proceedings, detailed submissions were

4. Aggrieved from the above Order, assessee is in appeal before the Tribunal.

5. The learned Counsel reiterated the submissions made before the lower authorities and he has filed written synopsis which is as under:

2. The appellant is maintaining regular books of accounts and the said books are subject to audit as per the provisions of the Act. The appellant is filing his return of income regularly and is paying the applicable taxes to the government.

5. It is submitted, that the appellant for the said assessment year does not own any agricultural land individual hands and consequently does not have any agricultural income. However, the firm M/s Classic Plantations owned agricultural lands was engaged in agricultural activities, wherein the appellant is one of the partner in the said firm (Return of income, audited financial statements of M/s Classic Plantation in page 83 to 126 of the paper book).

6. It is submitted that while filing the return of income in Schedule EI: Details of Exempt Income (Income not to be included in Total Income) (Page 47 of the paper book) the appellant under point 5, i.e. under the line-item Share of profit from partnership u/s 10(2A) disclosed total of share of profit from partnership firms as Rs. 82,41,054/- (Total of share of profit of Rs. 81,07,690/- as his 25% share from the partnership firm M/s Classic Plantation and Rs. 1,33,369 as share of profit from M/s Classic Advertising.).

7. However, inadvertently and due to confusion while filing the ITR, the appellant inadvertently also mentioned under point 4i i.e. Gross agricultural receipts the share of profit from M/s Classic Plantation of Rs. 81,07,690/- by inadvertent mistake. As a result, the total exempt income claimed in the return of income amounted to Rs. 1,63,48,739/- as against the correct exempt income under section 10(2A) of the Act of Rs. 82,41,054/-. As a result of this mistake the appellant paid an additional tax of Rs. 1,27,464/-.

Particulars Amount Amount in Rs. in Rs. Returned income 1,00,38,530 Add: Unexplained cash credit 81,07,685 claimed as agricultural income Assessed income 1,81,46,220 12. The appellant being aggrieved by the order of the learned AO, filed appeal before the learned CIT(A), written submissions dated 23.07.2025 (Page 179 of the paper book) were filed, wherein the appellant submitted that addition made by the learned AO was made merely on the basis of surmises and assumptions and that the appellant is not directly engaged in agricultural activities only the firm in which he is a partner is engaged in carrying on agricultural activities and the income reported in the notes to the ITR is due to inadvertent bonafide mistake. The appellant also placed reliance on the circular no. 14(XL-35)/1955, dated 11.04.1955 issued by the Central Board of Direct Taxes wherein the Revenue authorities have been directed not take advantage of the ignorance of the assessee and to assist assesses in claiming relief under the provisions of the act.

Page 7 of 16 13. The learned CIT(A) vide order dated 13.11.2024 dismissed the appeal filed by the appellant. The learned CIT(A) without considering the facts of the case, submissions made by the appellant, wrongly upheld the double mention of agricultural income i.e. a sum of Rs. 81,07,690/- once being the share of profit being exempt and the inadvertent mistake in mentioning as agricultural income of Rs. 81,07,690/- in the income tax return as unexplained cash credit under section 68 of the Act.

Page 9 of 16 f) It is further submitted that as could be seen from the financial statements of the appellant which has been filed, it is clear that the appellant has not received any agricultural income at all and to such extent there are no entries to that effect and consequently there are no credits in the books maintained by the appellant for it to be treated as unexplained cash credits under section 68 of the Act. g) The appellant submits that his mother Smt. Shanthasheela Bhaskar Shetty who is also one of the partners of M/s Classic Plantations also made the same mistake in her return of income filed by mentioning the profit from the firm as agricultural income also. Accordingly, the additional income tax has been paid for the AY 18-19 by the appellant’s mother as well. However, when the matter was selected for scrutiny in the case of mother Smt. Shanthasheela Bhaskar Shetty, the learned AO passed an order under section 143(3) of the Act, dated 26.02.2021, wherein the learned AO after considering the submissions made and also the details and explanations filed by her, accepted the explanation of the appellant’s mother and provided relief and held that, “it is found that assessee has shown agricultural income of Rs. 1,94,35,449/- which consist share of profit from M/s Classic Plantations to the tune of Rs. 81,07,685/- and balance Rs. 1,13,27,764/- from her own proprietary firm M/s Classic Tea Estates. Since the share of profit from M/s. Classic Plantation had already been exempted as per section 10(2A) of the Act in the ITR of M/s Classic Plantation, the agricultural income of the assessee is reduced to Rs. 1,13,27,764/- instead of Rs. 1,94,35,449/-. Though the assessment has been concluded by accepting the returned income i.e. Rs. 19,34,710/-.” (Page 196 to 202 of the paper book). h) The appellant submits that recording the amount twice in the schedule EI was done due to an inadvertent error and the AO and CIT(A) ought to have given relief to the appellant as per the circular no. 14(XL-35)/1955, dated 11.04.1955 issued by the Central Board of Direct Taxes, wherein the Revenue authorities have been directed not take advantage of the ignorance of the assessee and to assist assesses in claiming relief under the provisions of the act. The appellant reiterates that the objective of the department is not to maximize tax collection, but to ensure correct tax is collected.

Page 10 of 16 i) Further, appellant submits that the order is bad in law, as conditions for invoking section 68 of the Act was not fulfilled. The order is bad in law as section 68 was invoked merely because of double mention of the same amount under two heads, without there being any unexplained actual flow funds.

b) It is also relevant to point out that the appellant is maintaining regular books of accounts and the same are subjected to audit. It is submitted that the appellant in his books has not recorded any receipts as agricultural income and there are no entries to this effect in the books maintained by the appellant. c) The appellant submits that, without there being physical transfer of money, the provisions of section 68 of the Act cannot be invoked. The appellant submits that without there being any actual receipt of money, a mere double mention in the schedule Exempt Income could not be construed to be an unexplained cash credit. The wrong mention in the schedule of the income tax return without any real credit of cash to the cash book cannot give rise to inclusion of the amount of the entry increasing bank balance as unexplained cash credit. d) Without prejudice, the appellant further submits that, as per the provisions of section 68 of the Act, it is not just an entry of cash credit in the books of accounts that would create liability of explanation from the appellant, but there should be an actual flow of funds. Only once the flow of funds are established, then, the question of explanation from the appellant actually arises. e) The appellant places reliance of the decision of the Madras High Court in VR Global Energy Pvt Ltd v. Income Tax Officer in (2018) 96 taxmann.com 647(Madras), wherein it was held “The cash credits towards share capital were admittedly only by way of book adjustment and not actual receipts which could not be substantiated as receipts towards share subscription money. The Page 12 of 16 appeal is, thus, allowed and the judgment and order of the Tribunal is set aside, for the reasons discussed above. Additions under section 68 are also set aside.” On appeal the apex court upheld the decision of the Madras High court in [2020] 113 taxmann.com 31 (SC). f) Also, the appellant places reliance on the decision of the ITAT Delhi Bench in Acres Buildwell Pvt. Ltd. v. ITO, Ward 1(3) in before Shri GS Pannu, hon’ble Vice President and Shri. Anubhav Sharma, Judicial Member, wherein it was held that, ”7. We are of the considered view that for the purpose of section 68 of the Act, the conclusion drawn by the CIT(A) was erroneous because on the one hand, without there being any actual receipt of money, a mere journal entry was passed during the year in regard to entries of borrowed funds standing as unsecured loan and amount receivable from two different set of parties. On the other hand, the CIT(A) has doubted the identity of two lenders on the basis that companies are deregistered and their whereabouts are not known. However, the addition is made on the basis that source of credit shown as unsecured loan received from M/s Vrinda Developers Pvt. Ltd., remains unexplained. The journal entry only shows cessation of liability towards the two companies – SNB Realtors Pvt. Ltd. and M/s Amaya Overseas Private Ltd. on the basis that these liabilities are taken over by M/s Vrinda Developers Pvt. Ltd. Thus, the conclusion of failure to explain the source of funds credited during the year in the name of M/s Vrinda Developers Pvt. Ltd. is an erroneous finding. 7.1 The journal entry had the debit effect on the bank account with the increase in the bank balance and credit effect on the loan account. The assessee has explained that no entry in this regard was effected in the P&L Account as a credit effect on the unsecured loan account was reflected in the balance sheet only. As for the purpose of section 69 of the Act, it is imperative for the Revenue that there was cash involved in the transaction. The present journal entry is merely adjustment of accounts by way of set-off entries. We are of the considered view that the opening balances on account of unsecured loans of the two parties and certain amount receivable from M/s Vrinda Developers Pvt. Ltd., being in the background of journal entry, then for the purpose of section 68 of the Act, it cannot be said to be an unexplained cash credit. The fictitious cash entry in the bank account without any real credit of cash to the cash book Page 13 of 16 cannot give rise to inclusion of the amount of the entry increasing bank balance as unexplained cash credit. 7.2 The judgment to which the ld. AR has relied for the proposition of law that without there being physical transfer of money, the provisions of section 68 cannot be invoked are applicable to the issue before us. In fact, in ACIT vs. Shri Suren Goel (supra) the Revenue has challenged before the Tribunal the deletion made by the CIT(A). In that case, the balance sheet of the assessee as on 31.03.2007 has revealed that liability increased by Rs.25 lakhs towards Pritam Goel. The assessee has explained that to maintain credit returns enjoyed by the partnership firm, a journal entry was passed in the books of account of the partnership firm M/s Lyra Industrials wherein assessee’s capital account was credited and father Shri Pritam Goel’s capital account was debited by an equal amount. The fact of journal entry passed in the books of the firm was duly incorporated in the books of the assessee. The AO had made addition of Rs.20 lakhs which was deleted by CIT(A) by observing that: “In the case of book entries/adjustments, there is no question of mode of payment or actual receipt of money from one party to another. Book entry transfer lets transfer only through the respective accounts in the books of the concerns.” Accordingly, the deletion was made which was sustained by the Tribunal further observing that since there was no physical transfer of money from the account of Shri Pritam Goel and only a journal entry was passed, the findings of the AO that transaction was sham is baseless. 7.3 A coordinate Bench at Delhi in the case of DCIT vs. M/s Glass Tech India Ltd., (supra) on which one of us (Judicial Member) was a party, while dealing with the provisions of section 68, has held that it is not just an entry of cash credit in the books of account that would create liability of explanation from the assessee, but, there should be an actual flow of funds. Once the flow of funds is established, then, the question of explanation from the assessee actually arises. Thus, we are inclined to allow these grounds of the assessee.” g) Further, the appellant places reliance on the following decisions: a. Jatia investment co. v. CIT in [1994] 206 ITR 718 (Cal.) b. Anil Mithas v. DCIT in ITA 7542/Del/2017 c. ITO v. Bhagwat Marcom Pvt. Ltd. in ITA 2236/Kol/2017 d. ACIT v. Suren Goel in ITA 1767/Del/2011 Page 14 of 16 e. ITO v. Hindustan Breweries and bottling Ltd. in ITA 1673/Pun/2019 f. ITO v. Pansu Commercial Pvt. Ltd. in ITA 1859/Kol/2017 g. DCIT v. Glass Tech India in ITA 6241/Del/2017 h) Wherefore, the appellant humbly prays and submit that the addition made by the learned assessing officer and confirmed by the learned CIT[A] amounting to Rs. 81,07,685/- as unexplained credits under section 68 of the Act, requires to be deleted. It is prayed accordingly.

Pass such orders as this Hon’ble Tribunal may deem fit on the facts and circumstances of the case.