SHYAMPRASAD REDDY GADDAM,HYDERABAD vs. DCIT., CENTRAL CIRCLE-3(3), HYDERABAD

The Ld. CIT(A) erred in holding that the AO rightfully made the additions based on incriminating material and other material on record without appreciating the fact that the so- called incriminating material consists of dumb, unauthenticated documents and that the additions made are based on surmises, assumptions and on estimate basis.

Succinctly stated, the assessee, who is engaged in the real estate business, had not filed his return of income for the Asst. Year 2014-15.

Search and seizure proceedings were conducted on the assessee under Section 132 of the Act on 20/09/2017. Thereafter, the assessee, in compliance to the notice issued under Section 153A of the Act, dated 03/04/2018, e-filed his return of income for the subject year, i.e., AY 2014-15 on 13/11/2018, wherein he had failed to disclose the income that was admitted by him in his statement recorded under Section 132(4) of the Act, dated 20/09/2017, 25/09/2017 and 17/11/2017, and also in the affidavit dated 26/10/2017.

The AO, vide his order passed under Section 144 r.w.s 153A of the Act, dated 12/12/2019, determined the income of the assessee at Rs. 36,14,47,165/-, i.e., after making three additions viz., (i) unexplained investment U/s. 69 of the Act (as admitted in the course of the search proceedings): Rs. 35,16,93,754/-; (ii) unexplained investment towards stamp duty and other charges: Rs. 15,00,000/-; and (iii) unexplained cash credits U/s. 68 of the Act in his three bank accounts: Rs. 80,53,411/-.

Aggrieved, the assessee carried the matter in appeal before the CIT(A).

Apropos, the addition of Rs. 80,53,411/- that was made by the AO under Section 68 of the Act, though the same was confirmed by the CIT(A), but he had recharacterized the same as an addition under Section 69A of the Act. For the sake of clarity, the observation of the CIT(A) on the subject issue is culled out as under:

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

We have heard the Learned Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial precedents that have been pressed into service by the Ld. AR to drive home his contentions.

Per contra, the Learned Sr. Departmental Representative (for short “Ld. DR”) submitted that as the CIT(A) has retained the addition and not carried out any enhancement, thus, it is incorrect on the part of the assessee’s Counsel to claim that the assessee had been divested of an opportunity to put forth his case before him regarding the issue in hand. Elaborating on his contention, the Ld. DR submitted that as no infirmity emerges from the orders of the lower authorities, therefore, the appeal filed by the assessee, being devoid and bereft of any substance, is liable to be dismissed.

We have thoughtfully considered the contentions advanced by the Learned Authorized Representatives of both parties in the backdrop of the orders of the lower authorities. Admittedly, it is a matter of fact discernible from the record that the AO had held the amounts credited in the three bank accounts of the assessee aggregating to Rs. 80,53,411/-, viz., (i) State Bank of India Account No. 32778736470: Rs. 20,51,411/-; (ii) Axis Bank Account No. 912020015362601: Rs.53,77,000/-; and (iii) Neelakrishna Co-operative Urban Bank Ltd Account No. 100040070000555: Rs. 6,25,000/- as unexplained cash credits under Section 68 of the Act.

Thereafter, it transpires that the CIT(A) vide his order dated 02/02/2024, had observed that the assessee on being queried about the cash deposit for Rs. 80,53,411/- (supra) in his aforesaid bank accounts, had claimed that the same were partially sourced from his gross business receipts of Rs. 20 lacs on which he had returned income @ 8% i.e., Rs. 1,60,000/-. However, the CIT(A) observed that the assessee had failed to substantiate his claim of having carried out any business activity and, thus, the fact that the amount of Rs. 20 lacs (supra) was sourced from his business turnover for the subject year did not merit acceptance. Accordingly, the CIT(A) rejected the assessee’s claim that the amount of Rs. 20 lacs (supra) was his business turnover.

Apart from that, we find that the CIT(A) had observed that the assessee had failed to place on record any cogent evidence to substantiate the source of the cash deposits made in his bank accounts. Apropos the assessee’s claim that the cash withdrawals made from his bank accounts were thereafter utilized to redeposit the amount in the bank accounts, the CIT(A), holding a conviction that the assessee had failed to substantiate his said claim based on any supporting material, thus, rejected the same.

Ostensibly, the CIT(A) had further observed that as per the assessment order (Para 13 of the order) the assessee had disclosed only one bank account, while for the credits in the other two bank accounts of Rs. 80,53,411/- had surfaced only in the assessment order.

The CIT(A) further observed that the transactions in the two bank accounts that were not disclosed by the assessee in his return of income, and also the bank account that was disclosed by him, did not reveal any business transactions. Accordingly, the CIT(A) was of the view that all the credits in the respective three bank accounts remained unexplained.

The CIT(A), based on his aforesaid deliberations, concluded that as none of the three subject bank accounts were disclosed in the book of account of the assessee, therefore, the cash deposited in the said bank accounts would fall within the meaning of unexplained money under Section 69A of the Act. Also, it was observed by him that though the assessee had claimed that a sum of Rs. 20 lacs was sourced from his business turnover but he had failed to come forth with any explanation regarding the balance amount of Rs. 60,53,411/-. The CIT(A), considering the facts, viz. (i). that the assessee had failed to substantiate his claim of having carried out any business; and (ii). that there was no disclosure of the two bank accounts (out of the three bank accounts), held a conviction that the entire amount of cash deposits of Rs. 80,53,411/- was the assessee’s unexplained money under Section 69A of the Act and could not have been assessed as his unexplained cash credits under Section 68 of the Act i.e., as was done by the AO. The CIT(A) taking cognizance of the fact that he had powers co-terminus with that of the AO, and observing, that he was well within his jurisdiction to make an addition under a completely different head of income, i.e. even under a head of income which is not taxed in the assessment order, thus, he remained well within his jurisdiction to change the section under which the aforesaid addition was made by the AO with no consequential change of rate of tax, i.e., from section 68 (as made by the AO) to section 69A of the Act (as was substituted by him). Accordingly, the CIT(A), based on his aforesaid observations, concluded that the sum of Rs. 80,53,411/- was the assessee’s unexplained money U/s. 69A of the Act. At the same time, the CIT(A) came up with a rider to his aforesaid observation, i.e., if the assessee was able to substantiate later on that the sum of Rs. 20 lacs (supra) formed part of his books of accounts, then, the same would be assessed in his hands as an unexplained cash credit under Section 68 of the Act, while for the balance amount of Rs. 60,53,411/- would be assessed as his unexplained money under Section 69A of the Act.

We find that the assessee in the backdrop of the aforesaid observation of the CIT(A), has assailed his order primarily on the ground that by interchanging the head of the addition, i.e., from section 68 (as made by the AO) to section 69A of the Act (as held by him), the CIT(A), had without putting the assessee to notice about the said substitution of the head of addition had grossly erred in traversing beyond the scope of his jurisdiction and sustaining the addition made by the AO in an absolutely different manner, without affording any opportunity to the assessee to put-forth an explanation on the said aspect. To sum up, it is the assessee’s claim before us that as the assessee had not only suffered sustaining of the impugned addition, but also had been caught by surprise wherein the said addition had been sustained on an entirely different head without affording him any opportunity to put forth an explanation on the said aspect.

We have thoughtfully considered the contentions of the Ld. AR, and though are unable to concur with him that the sustaining of the addition made by the CIT(A) has resulted to an enhancement in the hands of the assessee, but find substance in his contention that there was no justification for the CIT(A) to have substituted the head of addition made by the AO, i.e., under section 68 of the Act by recharacterizing the same as an addition under Section 69A of the Act, without validly putting the assessee to notice on his said purported course of action during the appellate proceedings.

We are of a firm conviction that though, the CIT(A), as per section 251(1)(a) of the Act is vested with the jurisdiction to confirm, reduce, enhance or annul the assessment, but in a case where he seeks to confirm the addition but under a different head, as has been done in the present case before us, then, he is statutorily obligated to put the assessee to the notice on his proposed course of action. We say so, for the reason that in case the CIT(A) dispenses with putting the assessee to notice about his said proposed course of action, then, the same would result to divesting the assessee of his statutory right to put forth an explanation before the appellate authority in support of his claim that no such substitution of the head of income was called for in his case. In fact, we find it incomprehensible that the CIT(A) substituted the head under which the addition was made by the AO without putting the assessee/appellant to notice and calling for his explanation on the said aspect. Our aforesaid view is fortified by the order of the ITAT, SMC Bench, Chennai in the case of Smt. Sekhar Jayalakshmi vs. ITO in dated 21/12/2022. In the said case, the AO, while framing the assessment, had made an addition of Rs. 6 lacs under Section 68 of the Act. On appeal, the CIT(A) recharacterized the impugned addition as an addition of unexplained money under Section 69A of the Act. On further appeal, the Tribunal had, inter alia, observed that though the CIT(A) as per section 251(1)(a) of the Act, in appeal against the order of assessment, may confirm, reduce, enhance or annul the assessment, but there was no such power provided under the law as per which he could change the provision of law qua the item for which the assessment was made. Therefore, the Tribunal, in the absence of any such powers vested with the CIT(A) to treat the addition made by the AO under Section 68 of the Act as an addition under Section 69A of the Act, deleted the addition so confirmed by him by recharacterizing the head of addition.

Also, we find that the ITAT, SMC Bench, Delhi, in M/s. Toffee Agricultural Farms Pvt Ltd vs. ITO, dated 18/04/2022, involving identical facts, had observed that the CIT(A) did not have any jurisdiction to treat the addition made by the AO under Section 69C as an addition under Section 69B of the Act. We find that the Tribunal, while so concluding, had relied upon the judgment of the Hon’ble High Court of Delhi in the case of CIT vs. Aar Pee Apartments (P) Ltd, 319 ITR 276 (Del). Apart from that, we find that a similar view had been taken by the ITAT, Ahmedabad Bench, in the case of Pooja Dipen Joshi vs. ITO, dated 15/05/2025. In the said case, the AO had made an addition under Section 50C r.w.s 56(2)(vii)(b) of the Act, which, thereafter, on appeal, was sustained by the CIT(A) under Section 69C of the Act. On appeal, the Tribunal had observed that as the CIT(A) had not issued any show cause notice to the assessee for making the addition under Section 69C of the Act, therefore, the order passed by him could not be sustained.

We, thus, in terms of our aforesaid deliberations, are of the firm conviction that, as in the present case before us, the CIT(A), had, without validly putting the assessee to notice about the recharacterizing of the addition of Rs. 80,53,411/- (supra) made by the AO as an unexplained cash credit under Section 68 of the Act as an addition towards unexplained money under Section 69A of the Act, therefore, the same cannot be sustained and is liable to be vacated.

As we have vacated the addition sustained by the CIT(A) in terms of our aforesaid deliberations, therefore, we refrain from dealing with the other aspects based on which the impugned addition has been assailed before us, which, thus, are left open.

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