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

The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.

The Ld. CIT (A) erred in deleting the addition of Rs.67,96,000/- made towards unexplained money u/s.69A.

1 The Ld. CIT (A) erred in 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.

2 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.

The Ld.CIT(A) has erred in deleting the addition of Rs.5,91,500/- made towards income from other sources.

1 The CIT(A) 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 assessee had settled Rs.50,50,000/- and Rs.5,58,500/- to P.Stanley Samraj through Tamilnadu Mercantile Bank. Hence, there was 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.

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

While framing the assessment the AO held as under:

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….”

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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.…”

Aggrieved by the order of the AO, the assessee filed an appeal before the ld.CIT(A), Chennai – 19. With regard to the addition of unexplained money, after considering the submissions filed by the assessee, the ld.CIT(A) deleted the all the additions made by the AO by holding as under: “6.3.4 From the above it is understood that the appellant has withdrawn an amount of Rs.67,32,900/- till the date of 08,01.2021. The seized cash of Rs.67,96,000/- was effected on 11.02.2021, thus there exists a difference of Rs.63,100/-. The AO on the other hand has quantified the withdrawals to be at Rs,53,95,000/-. The AO in the assessment order has rejected the cash book by observing that the cash in hand shown in the cash books is manipulated by :-6-: ITA. No: 2845/Chny/2024

3.5 The undersigned has examined the observation of the AO made in the assessment order. At the outset, the AO has not rejected the books the accounts as per the provisions of section 145(3) of the Act. Without rejecting the books of accounts making observation that the cash book was manipulated cannot hold good.

3.6 It is significant at this juncture to rely upon the decision of the Hon'ble (SC) where in the Hon'ble Apex Court held that the burden of proving the source of the money found lies on the assessee, but once the assessee provides a plausible explanation, the burden shifts to the department to prove otherwise. In the instant case the appellant has claimed that, out of Rs. 67,96,000/-represents the cash withdrawn from bank and the balance amount can only be from the cash in hand as per the cash book. In order to sustain the addition, the AO should have proved that the seized cash emanates from any other source with cogent and corroborative evidence. Further the Hon'ble Apex Court in the case of CIT Vs. K. Chinnathamban (2007) 292 ITR 682 (SC) has held that if the assessee explains the source of the money satisfactorily, the addition under Section 69A cannot be made.

3.7 In view of the above discussion and judicial decision relied upon, the undersigned is of the considered view that there exist no case to sustain the addition made by the AO without there being any findings that the seized cash emanates from any other source other than the withdrawals from bank and cash in hand. Accordingly, all the ground raised by the appellant upon this issue are hereby treated as allowed and the AO is hereby directed to delete the addition of Rs.67,96,000/- made as unexplained money 69A of the Act.”

With regard to the addition of ₹.5,91,500/-, the ld. CIT(A) deleted the addition by holding as under: “6.4.3 The undersigned has carefully examined the issue under consideration. The AO in the assessment order treated the sum of Rs.5,91,500/- as the amount received over and above the sale consideration. The AO arrived at this conclusion based on the deposition of the appellant during the course of search. It can be seen from the assessment order passed that the AO has not made any attempt to verify the sale deed and the additional stamp duty paid (if any) or brought on record any findings to prove that the appellant has actually received the amount of Rs.62,00,000/- towards the sale consideration and thereby Rs.5,91,500/- as the said Commission. Further no enquiry was made during the course of assessment proceedings with the purchaser about the alleged payment of Rs. 62 Lakhs towards sale consideration. Without there being any cogent and corroborative evidence making the addition of Rs.5,91,500/- in the hands of the appellant as Commission income on the basis of the statement recorded during

4.4 In this regard the Hon'ble Chennai Tribunal in the case of ACIT V. Saveeta Institute of Medical and Technical Sciences [2012] 25 taxmann.com 138(Chennai -Trib) has held that addition made on the basis of the sworn statement recorded u/s 132(4) of the Act cannot be sustainable and further held that the admission made u/s 132(4) by the Special Officer of the College could not even be treated as a valid piece of evidence.

4.5 In the case of Shri. Ganesh Trading Company v. CIT [2013] 30taxmann.com170/214 Taxmann 262 (Jharkhand), the Court has held that a statement made u/s 132(4) of the Act is a piece of evidence but the same is not conclusive particularly because it is self-incriminating. Accordingly, it was concluded that no liability could be fastened solely on the basis of sworn statement. In arriving at this decision, the Court followed the judgement in the case of Kailashben Manharlal Choski v. CIT [2010] 174 Taxmann 466(Guj). Further the Apex Court in the case of Pullangode Rubber Produce Co Ltd v State of Kerala [1973] ITR 18 (SC) has held that an admission is an extremely important piece of evidence but it cannot be said that it is conclusive and further observed that it is open to the person who makes the admission to show that it is incorrect.

4.6 In view of the above judicial precedence(s) the undersigned is not inclined to sustain the addition made by the AO as commission income. Accordingly, the grounds raised upon this issue is hereby treated as allowed and the AO is directed to delete the addition of Rs, 5,91,500/- for the AY 2021-22.”

With regard to the addition of ₹.72,26,450/- made towards unexplained income, the ld. CIT(A) deleted the addition by holding as under: “6.5.7 At the outset the AO's approach in treating the difference in the sundry creditors' balances as unexplained income is legally unsound and factually in correct. Therefore, the addition of Rs.72,26,450/- under Section 69A of the Act is unsustainable as the said provision applies to unexplained money, bullion, jewellery, or other valuable articles found in the possession of the assessee. The AO's treatment of the discrepancy as unexplained income under this section is legally flawed and not supported by the facts on record. The appellant's explanation regarding the adjustments made during the audit process and the reliance on manual records maintained by commission agents appears plausible. The AO has not provided any concrete evidence to disprove the assessee's contentions made during the course of assessment proceedings.

5.8 In view of the above findings, the undersigned is of the considered view the addition of Rs.72,26,450/- made by the AO as unexplained income under :-8-: ITA. No: 2845/Chny/2024

Aggrieved by the order of the ld. CIT(A), the Revenue preferred an appeal before us.

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

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. 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.

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. :-10-: ITA. No: 2845/Chny/2024

3. Bengaluru ITAT in the case of Col. Ranjan Sharma Vs ITO in ITA No. 101/Bang/2022 for A.Y.2017-18 dated 01.06.2022 was pleased to grant relief to the Appellant on a clear finding that cash withdrawals from the bank account made earlier would clearly explain the source of cash deposited subsequently, more particularly when the department has not brought any other material to show that the cash withdrawn earlier had been spent away.

4. The CIT(A) placed reliance in the case of Roshan Di Hatti Vs CIT (107 ITR 938) (SC) wherein the Hon'ble Apex Court held that the burden of proving the source of the money found lies on the assessee, but once the assessee provides a plausible explanation, the burden shifts to the department to prove otherwise.

5. Manish Kumar Dubey Vs ITO (ITA No.2484/Del/2023) (ITAT Delhi) held that where assessing officer has not brought any adverse material suggesting the cash withdrawn by the assessee was in fact been utilized for any other purpose, addition u/s 69A is not justified.

1. The AO has not made any attempt to verify the sale deed and the additional stamp duty paid (if any) or brought on record any findings to prove that the appellant has actually received the amount of Rs.62,00,000/- towards sale consideration.

2. The CIT(A) has placed reliance in the cases of a) Hon'ble Chennai Tribunal's decision in ACIT Vs. Saveeta Institute of Medical and Technical Sciences (25 Taxmann.com 138) wherein it was held that the addition made on the basis of the sworn statement recorded u/s.132(4) of the Act cannot be sustainable and further held that the admission made u/s 132(4) by the Special Officer of the college could not even be treated as a valid piece of evidence.

1. The addition was made solely based on a trial balance which was in draft stage and subject to alterations based on real transactions which were corrected when the accounts were subject to audit.

2.The AO's addition of discrepancy found as unexplained income u/s 69A is legally flawed.

3. Section 69A of the Act is unsustainable as the said provision applies to unexplained money, bullion, jewellery or other valuable articles found in the possession of the assessee.

4. The AO did not undertake sufficient inquiries to verify the actual balances of sundry creditors and there is no evidence that the assesee has accommodated the entries as per their requirements.”

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:

On appeal by the assessee all the three additions (supra) have been deleted by the Ld.CIT(A). Admittedly, the cash of Rs.67,96,000/- found in possession of the assessee on 11.02.2021 by the Static Surveillance Team and the information was communicated to Income Tax department for necessary action. The assessee has explained the source of cash found in his sworn statement given on 11.03.2021 stating that the same was drawn from his bank accounts earlier out of the amounts received as sale consideration of two properties sold to the tune of Rs.34.00 lakhs and Rs.62.00 lakhs. We note that during the assessment proceedings, the assessee had furnished the cash book and as per the order of AO the cash balance on 15.02.2021 was Rs.88.30 Lakhs. The AO also found that the cash had been withdrawn in earlier months to arrive at this cash balance as stated by the assessee in his sworn statement. Therefore, the AO has neither disproved cash balance held by the assessee nor could prove that the cash balance held has already been used for some other investment. Hence, the action of the ld.CIT(A) in deleting the addition of Rs.67,96,000/- as unexplained money u/s.69A cannot be interfered. It is also observed that the ld.CIT(A) has clearly recorded in his order that the cash withdrawals

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.

अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3.आयकर आयुƅ/CIT 4. िवभागीय Ůितिनिध/DR 5. गाडŊ फाईल/GF