SAI ENTERPRISES,HYDERABAD. vs. INCOME TAX OFFICER, WARD - 11(3) , HYDERABAD.

Succinctly stated, the assessee firm for the first time had filed its return of income for A.Y. 2017-18 on 25.04.2017, declaring an income of Rs. 9,300/-. Subsequently, the case of the assessee firm was selected for scrutiny assessment for verifying 3 Sai Enterprises, Hyderabad.

During the course of assessment proceedings, the A.O. observed that the assessee firm during the subject year had credits aggregating to Rs. 9,01,03,569/- in its bank account. Also, the A.O. observed that the assessee firm during the demonetization period, i.e., 09.11.2016 to 30.12.2016, had made cash deposits in its bank account aggregating to Rs. 86,37,018/-. On being queried, the assessee firm claimed that it was a distributor of Idea Mobile Commerce Services Limited; Hermes I Tickets Private Limited and others to make payments to billing companies and merchant entities for the purchase of products/services, against which it received a marginal rate of commission on the total collections that were deposited in its bank account. The A.O. observed that the assessee firm had disclosed gross sales of Rs. 5,58,480/-, which represented the commission earned on the aforesaid transactions as per its “Form 26AS”, against which it had disclosed a net profit of Rs. 9,300/-. The A.O. reduced from the total credits of Rs. 9,01,03,569/- (supra), viz. (i) the cash deposits made by the assessee firm during 4 Sai Enterprises, Hyderabad. the demonetization period: Rs. 86,37,018/-; and (ii). gross receipts that were disclosed in its Profit & Loss account: Rs. 5,58,480/-, and held the balance amount of Rs. 8,09,08,071/- as the undisclosed business turnover of the assessee firm. Thereafter, the A.O. computed the income element in the aforesaid business turnover of Rs. 8,09,08,071/- (supra) @ 2%, and determined the same at Rs. 16,18,161/-. Apart from that, the A.O., in the absence of any explanation forthcoming from the assessee firm regarding the source of the cash deposits made in its bank account during the demonetization period, held the entire amount of Rs. 86,37,018/- (supra) as having been sourced out of its unexplained money under Section 69A of the Act. Accordingly, the A.O. vide his order passed under Section 143(3) of the Act, dated 22.12.2019, determined the income of the assessee firm at Rs. 1,02,64,479/-.

Aggrieved, the assessee firm carried the matter in appeal before the CIT(A), but without success. For the sake of clarity, the observations of the CIT(A) are culled out as under:

We have heard the learned Authorized Representatives of both parties, perused the orders of the lower authorities, and the material available on record.

Shri K.A. Sai Prasad, C.A. the learned Authorized Representative (for short “Ld.AR”) for the assessee firm, at the threshold of hearing of the appeal, submitted that the authorities below had grossly erred in treating the cash deposits of Rs. 86.37 lacs (approx.) made during the demonetization period in the bank account of the assessee firm as having been sourced out of its unexplained money under Section 69A of the Act. Elaborating on his contention, the Ld. AR submitted that the subject cash deposits were the collections made by the assessee firm in the normal course of its business as that of a distributor of Idea Mobile Commerce Services Limited, Hermes I Tickets Private Limited and others, which amounts after being deposited in its bank account were transferred to the said respective principal parties. The Ld. AR to buttress his aforesaid claim had taken us through the transactions in the bank accounts of the assessee firm during the demonetization period, viz., (i). Bank A/c No.00000035536068802 with SBI, Branch: Kukatpally Branch; and (ii). Bank A/c No.916020059871828 with Axis Bank. The Ld. AR submitted that the cash deposits made in the respective bank accounts were immediately transferred to the aforementioned 7 Sai Enterprises, Hyderabad. principal parties. It was thus, the Ld. AR's claim that as the subject cash deposits were, like those of the remainder year, part of the collections of the assessee firm as a distributor/agent of the aforementioned principal parties, therefore, there was no justification for the A.O. to have held the same as having been sourced out of its unexplained money under Section 69A of the Act.

Per contra, Shri Posu Babu Alli, learned Senior Departmental Representative (for short “Ld. DR”) relied upon the orders of lower authorities. It was submitted by the Ld. DR that as the assessee firm has failed to discharge the onus that was cast upon it to explain the source of the subject cash deposits made in its bank account during the demonetization period, therefore, both the authorities below had in the absence of any plausible explanation, held the same as having been sourced out of the assessee firm's unexplained money under Section 69A of the Act.

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.

We find on a perusal of the record that it is the claim of the assessee firm that it is a distributor/agent of Idea Mobile Commerce Services Limited, Hermes I Tickets Private Limited and others, and had rendered its services to facilitate customers to make payments to billing companies and merchant entities for the purchase of products/services. It was claimed by the assessee firm that for the services rendered, it received a marginal percentage of commission on the collections that were deposited in its bank accounts and transferred to the aforementioned principal parties. Although it is the claim of the assessee firm, that the cash deposits of Rs. 86.37 lacs (supra) made in its bank accounts during the demonetization period were the business collections (like the remainder year), that were immediately transferred to the principal parties, viz. Idea Mobile Commerce Services Limited, Hermes I Tickets Private Limited and others, but, we are afraid that the same, in the absence of supporting documentary evidence, cannot be summarily accepted. We, though, are of a firm conviction that a conjoint perusal of debit/credit entries in the respective bank accounts of the assessee firm during the demonetization period, which have a 9 Sai Enterprises, Hyderabad. same trend as those for the remainder year, prima facie, inspires confidence in the claim of the assessee that the same were also its business collections/receipts on which it had received commission income, but once again, the said claim of the assessee firm requires to be supported by documentary evidence/material.

We thus, based on our aforesaid observations, are of the considered view that the matter in all fairness requires to be restored to the file of the A.O., who is directed to verify the claim of the assessee that the cash deposits of Rs. 86.37 lacs (supra) formed part of its business collections/receipts. Needless to say, the A.O. shall, in the course of the set-aside proceedings, afford a reasonable opportunity of being heard to the assessee firm, which shall remain at liberty to substantiate its claim based on fresh documentary evidence, if any.

Resultantly, the appeal filed by the assessee firm is allowed for statistical purposes.