ASSISTANT COMMISSIONER OF INCOME TAX, MADURAI vs. ARUL RAJA, TUTICORIN

The Ld. CIT (A) erred In deleting the addition of Rs.72,26,450/- made u/s.69A, without appreciating the fact that the assessee has not furnished any ledger, details of payment made and mode of payment In respect of repayment made to the tune of Rs.58,24,100/- and also not furnished any ledger for the cash purchases shown to the tune of Rs.14,14,850/-, as stated in the reconciliation statement for sundry creditors submitted before the Assessing Officer, during the course of assessment proceedings.

For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the Order of Ld.CIT(Appeals) may be set aside and that of Assessing Officer may be restored.

The brief facts of the case are that the assessee is an individual engaged in the business of running ice plant, purchase & sale of fishes, manufacture & sale of ash bricks, hollow blocks & paver blocks. He is also the proprietor of M/s. RV Ice Plant, Messiah Ash Bricks & Messiah Export and Import and a partner in Messiah Hollow Blocks and Raver Blocks & JMJ nick. The assessee was found in possession of physical cash amounting to Rs.67,96,000/- by the Static Surveillance team on 11.02.2021 and the information was communicated to the Income tax department for necessary action. The assessee was summoned u/s.131 of the Act and in :-3-: ITA. No: 2845/Chny/2024 the sworn statement dated 11.03.2021, the assessee admitted that the cash of Rs.67,96,000/- found in his possession was the amount withdrawn from his bank account, which he had received towards the sale consideration of his 2 properties (Rs.34,00,000/- and Rs.62,00,000/. Later, the AO issued statutory notices to the assessee and accordingly the assessee filed his return of income for the A.Y. 2021-22 on 17.01.2022 by declaring a total income of Rs.9,01,640/-. On perusal of submissions and documents filed by the assessee, the AO concluded the assessment by passing an order u/s.143(3) of the Act dated 29.09.2022 by making the following additions: Cash seized u/s.132 and treated as unexplained money Rs.67,96,000/- u/s.69A r.w.s. 115BBE of the Act Income received over and above the cost of land under Rs.5,91,500/- IFOS (Rs.62,00,000/- - Rs.56,08,500/-) Overstated creditors u/s.69A r.w.s.115BBE Rs.72,26,450/- (Rs.1,55,31,440/- - Rs.83,04,990/-) (As per TB – as per details submitted during assessment) 4. While framing the assessment the AO held as under: “…27. The assessee could not prove it to the Static Surveillance Team and again he could not prove it to the Asst. Returning Officer cum Tahsildar, Tuticorin and again he could not prove it to the Income Tax Department and thereby not proving all the chain of checks, when there was a need to prove the validity of the cash. Further, at no place he has mentioned that he is maintaining rough chittas and manual lot entries, which otherwise he could have proved it at any of the places but so far upto this date he has not narrated this that there were chittas and manual lot entries with him and further, he has not produced any chittas and manual lot entries during the assessment proceedings. Hence it is only a statement given to escape the tax and in this pretext the accounts are prepared as per the requirement. The assessee himself stated in his sworn statement dated 12/03/2021 that he had not properly maintained cash book, daybook and ledger on a regular basis up to the date of sworn statement. Further, the assessee had furnished a copy of his cash book on 18-03-2021 for the period from01/04/2020 to 15/02/2021 as per which the cash balance as on 15/02/2021 is Rs 71,25 206/- Later on, by letter dated 14/06/2021, the assessee furnished a copy of his cash book for the :-4-: ITA. No: 2845/Chny/2024 period from 01/04/2020 to 31/03/2021 as per which the cash balance as on 15/02/2021 is Rs.88,30,606/- To strengthen we are enclosing herewith the cash low of Mr. Arulraj taken from the books of accounts which is duly audited. The consolidated accounts as on 07-03-2021is Rs.867655895 and he has earned Rs 67.96 000 which was seized and the debit entry shown and highlighted. The bank withdrawal mentioned is also included in this balance. The assessee was not having cash book or else, the day book, ledger and trial balance were not with him for the year during the search. The assessee could not produce any valid evidence before the authorities to prove that the cash seized were from the accounted sources. The cash was seized at the fag end of the F.Y 2020-21, i.e., on 11-03-2021 but still the assessee was not having any accounts to prove the cash seized and in this scenario how could the accounts be prepared. The up keeping of accounts is the duty of the assessee and auditing can be done only on the accounts maintained. Hence, it is observed from the earlier paragraph No.23 that the cash books have been manipulated to accommodate the entries.

In view of the reasons enumerated above, the cash requisitioned from Assistant Returning Officer, Tuticorin Assembly Constituency cum Tahsildar, Tuticorin on 13-2-2021 which is belonging to the assessee to the tune of Rs.67,96,000/- is treated as unexplained money for the previous year 2020-21 relevant to assessment year 2021-22u/s 69A r.w.s115BBE of the IT Act 1961….” 29.------ “…34. In view of the above, the cash received over and above (Rs.62,00,000) the documented value of Rs.56,08,500/- of Rs.5,91,500 is not settled to the original owner Shri P Stanley Samraj and hence the cash remained with Shri G Arulraja. This cash can be called as commission or by any other name, but the cash of Rs.5,91,500/-remained with Sh. G Arulraja is nothing but his income on acting as the Power of Attorney and further, no person deals is any transaction without a favour. Further, this amount of Rs.5,91,500/- even would have been concealed from the original owner, if not taken as commission or any other. Hence, this amount of Rs.5,91,500/- is treated as the income under the head income from other sources…” 35….. “…41. From the above, the following points are brought forward: (i) The assessee had categorically mentioned that he could produce the cash book on 11-03-2021 on the ground that the books of accounts are not regularly maintained and further on 12-03-2021 the assessee stated in his sworn statement that cash book, day book, ledger and trial balance are not maintained properly. It means that he could not produce the details called for :-5-: ITA. No: 2845/Chny/2024 when it was needed. The assessee had ample of lime to think on this and the accounts could have been prepared as per the requirement. (ii) From the above table given by the assessee, the repayment have been made to creditors is Rs.58,24,100.00 and in this regard the assessee had not provided any ledger to show the transactions made with the creditors, when the payments were made to them, what is source making payment and in what mode the payment has been made. (iii) Further, the assessee has not given any confirmation from the creditors for the outstanding amount and not even their PAN and address details / any other details. (v) From the above, the cash purchases were to the tune of Rs.14,14,850.00 and in this regard the assessee had not produced any ledger regarding the type of transactions and with whom it has been made. Further, it was seen in the trial balance produced during the assessment proceedings and the balance sheet submitted on 14-03-2022 for Shri Arulraja, the liabilities were showing different figures and the assessee has not given any reconciliation in this regard. (vi) The assessee had stated that the one given earlier was an unaudited one and it shows that in the absence of cash book, day book, ledger and trial balance, the assessee had accommodated the entries as per the requirement to nullify what is found in the search proceedings. Further, the search happened on13-03-2021 but the accounts were audited and return of income was filed by the assessee on 17-01-2022. Hence, the assessee had the time to make the records as per the requirement.

In view of the above, the unexplained liability towards sundry creditors to the tune of Rs.72,26,450/- is treated as undisclosed income on account of unexplained liability u/s 69A r.w.s 115 BBE of the IT Act, 1961.…”

The Ld. DR submitted that the ld. CIT(A) has erred in deleting the addition of Rs.67,96,000/- made towards unexplained money u/s.69A by holding that the statement made by the assessee that the source for the cash was withdrawals from banks as a plausible explanation in the absence of proof evidencing the transactions and wrongly observed that burden of proof shifted to the Assessing Officer. Further, the ld. DR stated that the Ld. CIT (A) wrongly held that the Assessing Officer has not brought on record that the seized cash emanates from any other source other than the withdrawals from bank, when it is a settled principle that it is the assessee to explain the source and the Assessing Officer is not under obligation to establish from which source the unaccounted cash emanated.

Further, the Ld. DR submitted that the Ld. CIT(A) has erred in deleting the addition of Rs.5,91,500/- made towards income from other sources. The CIT(A) has erred in not observing that as per the sale deed (Doc No. 1283/2020 dated 23-12-2020), the assessee was a POA for Shri P.Stanley Samraj of Chennai and executed the deed on 23-12-2020 to M/s.Stanson Rubber Products and sold the land for Rs.56,08,500/-. The :-9-: ITA. No: 2845/Chny/2024 assessee had settled Rs.50,50,000/- and Rs.5,58,500/- to P.Stanley Samraj through Tamilnadu Mercantile Bank. Hence, there was a differential amount of Rs.5,91,500/- & that the assessee is only a POA of the seller and only the purchaser Incurs the cost of the stamp duty and registration charges.

Further, the ld. DR advanced his argument that the Ld. CIT (A) has also erred in deleting the addition of Rs.72,26,450/- made u/s.69A, without appreciating the fact that the assessee has not furnished any ledger, details of payment made and mode of payment in respect of repayment made to the tune of Rs.58,24,100/- and also not furnished any ledger for the cash purchases shown to the tune of Rs.14,14,850/-, as stated in the reconciliation statement for sundry creditors submitted before the Assessing Officer, during the course of assessment proceedings.

In view of the above, the ld. DR prayed for setting aside the order of the ld.CIT(A) and confirm the additions made by the AO.

Per contra, the ld.AR for the assessee submitted the following written submissions in support of the ld.CIT(A) order. ”Unexplained money u/s 69A- Rs. 67,96,000/- 1.1. It is undisputed fact that cash of such magnitude in excess of the value of cash seized was withdrawn from the bank accounts held by the Appellant. 1.2. The addition to total income is made only on the assumption that the cash withdrawn in December 2020 would have been utilized elsewhere and will not be available to explain the cash found in the month of March 2021.

The ld.AR prayed for confirming the order the CIT(A) and allow the appeal of the assessee.

We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The undisputed fact is that the cash has been found in possession of assessee amounting to Rs.67,96,000/- by the Static Surveillance team on 11.02.2021 and the information was communicated to the Income tax department for necessary action, subsequently the Income Tax department had taken sworn statement from the assessee dated 11.03.2021, wherein the assessee had stated that the source for cash was amount withdrawn from his bank accounts, which was received from the sale consideration of his 2 properties.

The AO concluded the assessment u/s.143(3) of the Act based on the details submitted by the assessee with the following three additions:

The next ground raised by the revenue is Ld.CIT(A) has erred in deleting the addition of Rs.5,91,500/- as income received over and above the sale consideration of the property sold. Admittedly, in the sworn statement given by the assessee before the assessing authority stated that the cash of Rs.67,96,000/- found in his possession was the amount withdrawn from his bank account, which he had received towards the sale consideration of his 2 properties (Rs.34,00,000/- and Rs.62,00,000/-). However, during the assessment proceedings, it is observed that the sale consideration of the property as per the sale deed (Doc No. 1283/2020 dated 23-12-2020), the assessee was a POA for Shri P.Stanley Samraj of Chennai and executed the deed on 23-12-2020 to M/s.Stanson Rubber Products and sold the land for Rs.56,08,500/-. The assessee had settled

The next issue before us to decide is deletion of Rs.72,26,450/- addition by the ld.CIT(A), made u/s.69A of sundry creditors. The addition was made by the AO, solely based on a trial balance which was obtained from the draft books of accounts. The draft trial balance was subject to alterations based on actual transactions which were recorded/completed when the accounts were subject to audit. On perusal of records and orders we find that the assessee subsequently furnished the detailed list of sundry

Further, we also note that the provision of Section 69A is applicable to unexplained money, bullion, jewellery or other valuable articles found in the possession of the assessee. However, the AO had made addition of difference in sundry creditors as unexplained money. The AO did not undertake sufficient inquiries to verify the actual balances of sundry creditors and there is no evidence that the assessee has accommodated the entries as per their requirements. At the same time, the AO has not brought out any discrepancy in the financials submitted during the assessment proceedings. Therefore, the addition made section 69A of the Act to the tune of Rs.72,26,450/- on account of sundry creditors is unsustainable as the provision applies to unexplained money, bullion, jewellery or other valuable articles found in the possession of the assessee. We agree with the ld.CIT(A) observation that the adjustments made during the audit process and the reliance on manual records maintained by commission agents appear plausible.

In the present facts of the case, we are of the considered view that the deletion made by the ld. CIT(A) to the tune of Rs.72,26,450/- is justified and hence we direct the AO to delete the same. Accordingly, the grounds raised upon this issue by the revenue are hereby dismissed.

In the result the appeal filed by the Revenue is dismissed. Order pronounced in the court on 03rd April, 2025 at Chennai.