DURAISAMY SUGUNA,VELLORE vs. ACIT, CIRLCE-1,, VELLORE

8. The authorities below further erred in not allowing the withdrawal of Rs.6,50,000/- drawn from the firm M/s Sesha Sai Herbals in which the appellant is a partner.

9. The appellant submits that the withdrawals are supported by the capital account in the books of the firm submitted and the assessing officer has wrongly denied credit as there was no credit in the financials when there is a debit in the capital account for Rs.14,00,000 in the firm's books.

10. The appellant therefore prays to allow credit of Rs.6,50,000 drawn from the firm as available for cash deposits made in the bank account.

11. The appellant submits that the cash deposited of Rs.50,42,676 by the appellant's husband Sri K Subramanian and his HUF was not at all taken by the assessing officer.

12. The appellant submits that she has purchased three pieces of agricultural land totally for Rs.1,00,85,352 including stamp duty and her husband and his HUF contributed Rs.50,42,676 being 50% of the sale value of the property. Page 2 of 16 ITA. No: 3137/Chny/2024 13. The appellant submits that her husband and his HUF are income tax assessees having substantial income and were capable of advancing the aforesaid sum for purchase of the property.

14. The appellant further submits that though the property was purchased in the appellant's name due to illness of her husband the same was shown in the books of the husband and his HUF as having purchased 25% of the share in the property equally and they have disclosed the same in their balance sheet filed for the assessment year 2017-18 well before the issue of notice u/s 143(2) in the appellant's case for the assessment year 2017-18.

15. The appellant submits that even if the appellant's husband and his HUF are not considered as legal owners of the property, the fact that they have contributed cash for purchase of the property is established and therefore the same should be taken as cash available for cash deposits made in the bank account.

16. The appellant submits that this is not a case of cash deposit during demonetization period but major amount was deposited before the date of demonetization and the cash deposited during demonetization period was only Rs.14,85,000/-.

17. The appellant therefore submits that she has explained the source for the cash deposits to the extent of Rs. 61,42,031/- (Rs.2,24,355+2,25,000+6,50,000+50,42,676) may be deleted against the addition of Rs.81,78,522 made by the assessing officer and render justice.

Page 4 of 16 ITA. No: 3137/Chny/2024 i.e.50,42,676/-(K.Subramanian 25% - Rs.25,21,338/- and K.Subramanian(HUF) 25% - Rs.25,21,338/-) and the balance 50% is only paid by the assessee. Therefore, the cash deposits to the tune of Rs.50,42,676/- was made by assessee’s husband and his HUF.

3. The assessee is a partner in the partnership firm M/s Sri Sesha Sai Herbals. During the year, the assessee has withdrawn a sum of Rs.14,00,000/- in which Rs.7,50,000/- was by cheque on 18/09/2016 and balance sum of Rs. 6,50,000 was drawn by cash.

4. The sundry creditors were not paid during the year to the tune of Rs.16,00,175/- and hence the cash sales were to be treated as available cash and to be considered as cash balance for having made the cash deposits to the bank account.

“5.3. I have gone through the grounds of appeal

, statement of facts, assessment order and the submissions of the appellant. Remand report of the AO has also been perused. It is submitted in the remand report that since the assessee is not maintaining any books of accounts for her business, the revised cash flow statement submitted is also not Page 5 of 16. ITA. No: 3137/Chny/2024 acceptable, since the same was prepared without any supporting document. In the scenario the payments due to sundry creditor are not acceptable. Further, the assessee claims that she received rental advance from tenant. But no rental agreement has been produced and the details of the tenant and payment vouchers are not submitted. New evidence filed by the assessee are after thought and no supporting documents. 5.3.1During the course of assessment proceedings, it is submitted that cash deposits are from business of herbal medicines. During the course of appellate proceedings, it is submitted 2.76 acres of land was purchased on 25.01.2017 along with her husband and the payments of land has been made in June 2016 itself and the 50% share of her husband Rs 59,20,000/- was deposited in her account. But the appellant had not furnished any documentary evidence towards the sources of the such huge cash of her husband. It is also mentioned that she had received cash of Rs.16,00,000/- for late payment to trade creditors. No evidence was filed in this regard also. The main reason for selection was cash deposit. 5.3.2 In the appellate proceedings, burden of proof lies on the assessee to prove that facts and findings of the AO are incorrect. If the assessee fails to prove or rebut with cogent evidence against such facts and findings, no interference is required with assessment order. In the instant case, the cash has been deposited in his bank account and he is the owner of the cash deposited and he is having the possession of this cash. The burden of onus is on the assessee to prove the sources for the cash deposits. If it is withdrawn and re-deposited in the bank account, the appellant needs to reconcile the figures. However, the appellant has not availed several opportunities provided during appellate proceedings to submit evidences establishing nexus between the withdrawals made from his account, cash deposited in his account, payments made in support of his claim, which entails conclusion that he had no evidence or say or explanation against the order of the AO. 5.3.3 Hon’ble ITAT Mumbai in M H Raney 34 taxmann.com

5. (ITAT Mumbai dealing with cash deposits held as under. “The assessee’s explanation is vague and unsubstantiated; rather, being limited to the working of the quantum of the unexplained funds involved, contending recycling, so as to impact the addition to income exigible on account of the unexplained nature and source of the investment. The peak credit theory is based on recycling of funds, implying systematic activity, while neither the nature of the deposits nor their utilization, stands explained, so that the plea is not maintainable at the threshold. Scrutiny (of the bank account statement) reveals it to be inconsistent with not only the explanati8on of the amounts being possibly used for charitable purposes, but also with the fact of the same being, apart from withdrawn in cash, also by cheques for ostensibly personal purposes, on a regular basis and in no insignificant sums. Further, the pattern of withdrawal reveals the account to be employed for transfer of funds in the main, i.e., deposit of cash at one place and its withdrawal at other; the funds Page 6 of 16. ITA. No: 3137/Chny/2024 being withdrawal almost in toto, and soon after their deposit. The assessee has been wholly unable to discharge the onus of a satisfactory explanation qua cash deposits, including the quantum of funds involved and, accordingly, its appeal fails.” 5.3.4 In view of the above discussion and the case laws relied, it is held that the AO correctly held that the assessee failed to discharge the onus vested on him. Relied on the remand report submitted by the AO, the addition of Rs.81,78,522/- made by the AO is confirmed as the source of which remain unexplained and unsubstantiated. All the grounds raised in this appeal are dismissed. 6.0 Lastly, the “appellant crave leave to add, alter, amend the grounds of appeal”. However, no such option has been exercised by the appellant during appeal proceedings. Hence, this ground is dismissed as infructuous.

7. In the result, the appeal is ‘dismissed’.”

8. Aggrieved by the order of the ld.CIT(A) the assessee challenged the same before us.

“The above appeal was filed against the addition of Rs.81,78,522/- representing cash deposited in the bank account treated as unexplained money under section 69A of the Act. The appellant however seeks relief to the extent of Rs. 61,42,031/-. The appellant submits that the assessing officer has arrived at the unexplained cash deposit by drawing a cash flow statement on his own which is extracted in the assessment order itself. (a) The Assessing officer while arriving at the deficit cash available for cash deposit at Rs.81,78,572/- has committed a mistake in that the deficit balance of Rs.2,24,355/- as on 30/11/2016 was taken twice as deficit balance as on 30/11/2016 and also while arriving at deficit balance as on 31/12/2016. The assessing officer while arriving at the balance for the month of December, 2016, the assessing officer has Page 7 of 16 ITA. No: 3137/Chny/2024 taken again the opening balance at (-) Rs.2,24,355/- and arrived at the net deficit at Rs.11,80,976/- The actual deficit balance in December, 2016 if the amount of Rs.2,24,355/- is considered the deficit balance as on 31st Dec.2016 would only be Rs.9,56,221/- and the total deficit would be Rs.79,54,217/- only and therefore the addition of Rs.2,24,355/- is liable to be deleted. The appellant submits that the assessing officer has not considered the following receipts while drawing the cash flow statement. i) Rental advance - Rs.2,25,000/- ii) Drawings from firm – Rs.6,50,000/- iii) Contribution by relatives for – Rs.50,42,676/- Purchase of property (i) Rental Advance - Rs.2,25,000/- The Assessing officer denied the source of rental advance of Rs.2,25,000/-. In the remand report, the assessing officer has observed that rental advance was not supported by rental agreement and details of the tenant and payment vouchers are not submitted. The appellant submitted before the first appellate authority that she has received rental advance of Rs.2,25,000/- from tenant Dr.Arockiaraj Sundarraj. In the Balance sheet filed as at 31 March, 2016 and 31 March, 2017 the appellant had shown rental advance of Rs.75,000/- and Rs.3,00,000/- respectively which clearly show that a sum of Rs.2,25,000/- was received as rental advance during the year. The Balance sheet for the two years are attached in support of the above submission. The assessing officer has denied the credit as there was no rental agreement produced. The fact that the appellant had admitted rental receipts and disclosed the rental advance in the Balance sheet would clearly prove beyond doubt that the appellant had received rental advance. It is common knowledge that all the owners of the property used to get rental advance when the properties are let out. The appellant therefore pray that credit for the rental advances of Rs.2,25,000/- may be given as available for cash deposited in the bank account. (ii) Drawings from firm -Rs.6,50,000/- The appellant is a partner in the partnership firm M/s.Sri Sesha Sai Herbals. During the year, the appellant has withdrawn a sum of Rs.14,00,000/- in which Rs.7,50,000/- was by cheque on 18/09/2016 and balance sum of Rs.6,50,000/- was drawn by cash. The appellant herein attaches the capital account of the appellant in the books of the firm as evidence with withdrawals from the firm. The cash withdrawal of Rs.6,50,000/- was available for cash deposited in the bank account. The assessing officer observed that detailed capital account of the appellant in firm was not submitted and only abstract was submitted Page 8 of 16 ITA. No: 3137/Chny/2024 and that the capital account filed there was no such credit shown. The appellant submits that withdrawals from the firm, only the partner's account would be debited and there cannot be any credit as presumed by the assessing officer. Since the cash withdrawn of Rs.6,50,000/- from the firm is available for cash deposit, the assessing officer may be directed to allow credit for the said sum of Rs.6,50,000/-. (iii) Amount provided by relatives- Rs.50,42,676/- The appellant submits that during the year she has purchased agricultural lands of 2.81 acres for Rs. 1,00,85,352/- and the finance for the property was made by the appellant as well as her husband and the HUF of the husband. They have paid a sum of Rs.50,42,676/- towards their half share in the property in June, 2016 and the same was deposited in cash. The property was however registered in January, 2017. Due to illness of the appellant's husband he could not join for the execution of the sale deed in January, 2017 and therefore the property has to be compulsorily registered in the name of the appellant. However, for the share of contribution made by the appellant's husband and the HUF, 50% of the share in the property was allotted to them and the appellant had only accounted for her 50% share in the property in the Balance sheet filed by her for the assessment year 2017-18 on 28/10/2017. The appellant's husband and his HUF have also filed the return of income for the assessment year 2017-18 on 28/10/2017 showing 25/% share in the property in each of their Balance sheet. These returns were filed very much before the assessment of the appellant for the assessment year 2017-18 is taken up for scrutiny. The notice u/s 143(2) selecting the case of the appellant for scrutiny was issued only on 11/08/2018. The appellant therefore submits that the division of the property between the appellant and her husband and HUF was not an afterthought but as per the original agreement with them. The appellant further submits that her husband and the HUF are income-tax assesses. The appellant's husband had an income of Rs.76,86,730/- in the assessment year 2017-18 and the HUF had an income of Rs.12.55 lakhs including agricultural income of Rs.1 lakh. The appellant therefore submits that they had sufficient sources for making the advances for purchase of the land. The only mistake committed by the appellant was that the property was registered in her name instead of in the name of the three persons. This has happened due to unforeseen circumstances in that the date for registration was already fixed and allotted by the SRO and on that date unfortunately the appellant's husband could not come due to his illness and therefore the property has to be registered in the name of the appellant herself. The appellant submits that the circumstantial evidence available clearly proves that 50% of the property purchased belonged to the appellant's husband and the HUF for which they have contributed the amounts which were deposited in the bank account.

Page 9 of 16 ITA. No: 3137/Chny/2024 The appellant submits that even if it is felt that the property belongs to the appellant alone even then the amount advanced for purchased of the property by the appellant's husband and the HUF cannot be denied. In fact they have given confirmation letters to the assessing in the remand proceedings - vide page 9 of the CIT(A) order. Thus the source for the cash deposited as received from the appellant's husband and the HUF has been established and therefore the same cannot be considered as unexplained cash deposit in the bank for making the addition u/s 69A. The appellant therefore prays that a sum of Rs.50,42,676/- may be considered as explained cash deposit and the addition made may be deleted. The appellant therefore prays that addition to the extent of Rs.61,49,031/- (Rs.2,24,355+2,25,000+6,50,000+50,42,676) may be deleted as explained cash deposited and render justice.”

In support of the above submissions, the ld.AR submitted a 10. Paper Book of 23 Pages consisting of cash flow statement, bank statement, income tax return filed by the assessee’s husband K.Subramanian and his HUF for the A.Y.2017-18 and the financials of partnership firm M/s.Sesha Sai Herbals as on 31.03.2017. Further, the AR also submitted the copy of reply filed before the ld.CIT(A) along with the documents in support of the property purchase with her husband and HUF to demonstrate that the 50% of the sale consideration for purchase of property was contributed by her husband and his HUF to the tune of Rs.50,42,676/- and also confirmation from them for the same.

Page 10 of 16 ITA. No: 3137/Chny/2024 12. We have heard both the parties, perused materials available on record and gone through orders of the authorities along with the Paper Book filed by the assessee. The assessee has filed her return of income by declaring the income of Rs.30,94,490/- for the A.Y.2017-18. Further, during the impugned assessment year the assessee has purchased immovable property of 2.76 acres of agriculture land at Sembedu village and deposited cash into her bank account during the demonetization period. On scrutiny, the AO had redrafted the cash flow statement of the assessee for the A.Y.2017- 18 and arrived a deficit cash balance of Rs.81,78,522/- and brought to tax u/s.69A r.w.s.115BBE of the Act. During the appellate proceedings the assessee furnished the entire details of cash flow statement by defending the deficit cash balance arrived by the AO and prayed for deleting the same. However, the CIT(A) has confirmed the AO’s order stating that the assessee has failed to prove or rebut with cogent evidence against such findings. On perusal of the submissions made by the ld. AR along with the paper book it is noted that the AO has erred while recomputing the cash flow statement by considering Rs.2,24,355/- as negative opening balance in the month of December 2016 instead of computing with the zero- opening balance. This error has not been rectified by the ld.CIT(A) also in the appellate proceedings. We note that this an arithmetical error occurred in redrafted cashflow statement made by the AO. Page 11 of 16 ITA. No: 3137/Chny/2024 Therefore, the error in recomputing the cash flow statement needs to be rectified and hence we direct the AO to rectify the error to the tune of Rs.2,24,355/- and delete the additions made accordingly. 12.1. Further, the assessee has claimed the rental advance of Rs.2,25,000/- has been received in cash during the impugned assessment year from the tenant, which is shown in the Balance sheet. The rental income received from the tenant in cash every month has been offered as income in the return of income filed. However, the assessee has failed to submit any evidence like rent agreement in support of the advance received from the tenant before any of the authorities. Therefore, the claim of the assessee to consider the rental advance as source for cash deposit to the tune of Rs.2,25,000/- cannot be considered and hence, we are inclined to reject the same by upholding the view taken by the AO and that of the ld. CIT(A). 12.2 The assessee has stated that she is a partner in the firm M/s.Sesha Sai Herbals and has drawn Rs.14,00,000/- during the financial year 2016-17, of which Rs.6,50,000/- has been drawn in cash. We note that the assessee has filed balance sheet and schedule of capital accounts as on 31.03.2017 of the said firm, wherein the assessee has withdrawn Rs.14,00,000/- from her capital account during the year, out of which only Rs.7,50,000/- has been drawn through bank account (on 18.05.2016 – Canara Bank A/c Page 12 of 16 ITA. No: 3137/Chny/2024 No.8446201000156) and the balance Rs.6,50,000/- has been drawn by cash. Therefore, we are convinced that the assessee has drawn Rs.6,50,000/- by cash from the firm’s capital account during the impugned assessment year and the same is available as source for cash deposit made. Thus, we direct the AO to consider Rs.6,50,000/- as explained source of cash and delete the addition made u/s.69A of the Act to that extent. 12.3. Lastly, the assessee has purchased the agriculture land of 2.76 acres at Sembedu village during the year. The assessee has stated that the land has been purchased in her name alone, due to illness of her husband who was aged around 73 years could not go to the sub-registrar office at that time. However, the agriculture land was purchased for the family and the sale consideration was contributed by her husband to the tune of 25% and his HUF to the tune of another 25% by depositing cash to assessee’s bank account of Rs.50,42,676/-(Rs.25,21,338/- - 25% each) during the impugned year and the balance 50% was borne by the assessee. One perusal of documents, we note that the assessee in her financials (Paper Book Page No.9 to 13) in fixed assets schedule shown only 50% of the asset value i.e.Rs.50,42,676/- as cost of agriculture land purchased. Hence the explanation given by the assessee explaining the source of cash deposit by way of 50% contribution of sale consideration by assessee’s husband and his HUF cannot be termed as afterthought. Page 13 of 16 ITA. No: 3137/Chny/2024 In support of the above explanation, we also note that the assessee has obtained confirmation from her husband and his HUF for having purchased the said land collectively and corresponding investment have also been shown in their respective financials as on 31.03.2017 (Paper Book Page No.14 to 22), while filing their returns of income. On perusal of the financials of the assessee’s husband and his HUF, they have filed the return of income with a total income of Rs.76,96,726/- and Rs.11,55,660/- respectively for the A.Y.2017-18 and also reflected the 25% share of investment each in said agriculture land purchased. The books of accounts of Shri. K.Subramanian for the A.Y.2017-18 has been audited u/s.44AB of the Act and return of income has been filed as per the due date u/s.139(1) of the Act.

12.4. In view of the above discussion, the agriculture land was purchased by the family of the assessee during the A.Y.2017-18 by contributing 50% by the assessee, 25% by her husband Shri. K.Subramanian and the balance 25% by his HUF by recording the same in their respective return of income filed by contributing the proportionate sale consideration. Therefore, the action of the assessee cannot be called as afterthought for explaining the source for cash deposited into her account. Hence, in the present facts and circumstances of the case we are of the considered of the view that Page 14 of 16 ITA. No: 3137/Chny/2024 the assessee has cogently explained the source of the cash to the tune of Rs.50,42,676/- contributed by assessee’s husband and his HUF by depositing into her bank account towards their share for purchase of agriculture land of 2.76 acres at Sembedu Village. Thus, we are inclined to set aside the order of the ld.CIT(A) on this issue and direct the AO to consider Rs.50,42,676/- as explained source of cash deposit and delete the additions accordingly.

12.5 As discussed above, the following amounts are deleted from the additions made u/s.69A of the Act : i) Rs. 2,24,355/- : Clerical error ii) Rs. 6,50,000/- : Withdrawn from firm iii) Rs.50,42,676/- : Contribution of property by husband and his HUF The balance amount of Rs.22,61,491/- (Rs.81,78,522-Rs.59,17,031) addition as unexplained money u/s.69A of the Act is sustained.

Order pronounced in the court on 11th , March, 2025 at Chennai.