SHUBHAPRADA CHIT FUNDS PRIVATE LIMITED,ZAHEERABAD vs. ITO., WARD-1, SANGAREDDY

The appellant craves leave to add, amend, modify, rescind, supplement or alter any or more grounds of appeal stated herein above either before or at the time of hearing of this appeal”.

We have heard the rival submission as well as the relevant material available on record. The Assessing Officer has made an addition of Rs.3,75,000/- on account of cash deposits during the demonetization period for want of supporting evidence to explain the source of the said cash in Para 3 & 4 of the assessment order as under: “3. Unexplained money credited in the bank account of the assessee, addition u/s 69A of the I.T. Act, 1961: On perusal of the information furnished, it is noticed that during the period of demonetization the assessee deposited cash in the bank account held by the assessee with Bank of Baroda, Zaheerabad Branch vide Account Bearing No.49660200000088 on several occasions. It is also noticed that the assessee deposited an amount of Rs.4,75,000/- in demonetized currency during the period 11.11.2016 to 02.12.2016. During the course of assessment proceedings the assessee has been required to furnish the details of sources of funds for the deposits made it has been stated by the assessee that the sources are out of the subscriptions received from the customers/ subscribers and the deposits have been made out of the cash balances available as on 08.11.2016. When asked to explain why the cash deposits have been made up to 02.12.2016 if the cash balances are available as on 08.11.2016, the assessee could not offer proper explanation. 4. In view of the assessee's failure in offering satisfactory explanation with regard to the sources of funds for the cash deposits made in demonetized currency during the period 11.11.2016 to 02.12.2016, during the hearing held on 21.06.2019, vide order sheet notings at Page-4, the Managing Partner and the Authorized Representative of Page 4 of 14 and 806 of 2025Shubhaprada Chit Funds P Ltd the assessee company have been required to show cause as to why the amount of Rs.4,75,000/- should not be treated as unexplained money. In response to the same it has been stated that the amounts are out of the subscriptions received prior to 08.11.2016, however, they are not in a position to substantiate the same. They further stated that the assessee company also opted for Pradhan Mantri Garib Kalyan Yojna [PMGKY] for Rs.1,00,000/- and paid the taxes there on and deposited an amount of Rs.25,000/-. In view of the assessee's failure in furnishing satisfactory explanation with regard to deposits made after 11.11.2016 to 02.12.2016 and considering the fact that the assessee company offered an amount of Rs.1,00,000/- under PMGKY, the difference amount of Rs.3,75,000 Rs.4,75,000- Rs.1,00,000 = Rs.3,75,000] is brought to tax as Unexplained Money U/s 69A of the I.T.Act,1961 which attracts tax rates as per the Provisions of Section 115BBE of the I.T Act, 1961. Addition: Rs.3,75,000/-.”

The Assessing Officer has not disputed the fact that the assessee is engaged in the business of Chit Funds and therefore, the assessee is regularly receiving the cash from the chit subscribers and also disbursing the cash. Before the learned CIT (A) the assessee filed the submissions explaining the source of cash deposits in the bank account along with the cash book as well as bank account statements in support of his claim of availability of cash as on 08/11/2016. We find from the cash book of the assessee that the assessee has shown the cash balance of Rs.23,85,139/- as on 08/11/2016. Further, the transactions are duly recorded in the books of account and also reflected in the bank account statement of the assessee. Once the assessee has brought on record this fact that as per the books of account as well as the bank account, the cash of Rs.23,85,139/- was available with the assessee as on 08/11/2016, then without rejecting the books of account, the source explained by the assessee based on the cash available in the books of account

Thus, without disputing the availability of the cash in the books of the assessee as on 08/11/2016, the learned CIT (A)

For the A.Y 2018-19, the assessee has raised the following grounds of appeal: “1. The Order of the learned Commissioner of Income Tax (A), NFAC Delhi is Correct cither on facts or in law and in both.

Ground No.2 is regarding the addition made by the Assessing Officer on account of disallowance of Rs.6,74,550/- claimed as Director’s remuneration. During the scrutiny assessment, the Assessing Officer noted that the assessee has claimed deduction of Rs.6,74,550/- under the head remuneration paid to the Directors. On verification, the Assessing Officer noted from the bank account statement that the amount was actually paid to Trawell View Holidays and Wall Street Finance Ltd and not to the Directors. The assessee explained before the Assessing Officer that the total salary payable to 2 Directors amounting to Rs.6,74,550/-. However, instead of directly paying/transferring the amount to the Bank Account, the company has cleared the outstanding payable by the Directors to the 3rd party i.e. Trawell View Holidays and Wall Street Finance Ltd. The Assessing Officer did not accept this explanation of the assessee for want of the documentary evidence to establish the nexus between the Directors and the above 2 parties to whom the assessee has paid Rs.6,74,550/-. The Assessing Officer has pointed out that the assessee has not submitted the financials of these directors reflecting the above 2 parties, as outstanding payable nor had the assessee filed any bills or invoice in the name of the Directors which could support the contention of the assessee. Accordingly,

On appeal, the learned CIT (A) has confirmed the addition made by the Assessing Officer.

Before the Tribunal, the learned Counsel for the assessee has submitted that the assessee has produced the acknowledgement of the return of income of the Directors wherein the remuneration was admitted as income as well as the 3rd party confirmation whereby these travel companies have confirmed the receipt of the amounts from the assessee towards the tour arrangements expenses in respect of the Directors of the assessee company. The learned Counsel for the assessee has also referred to the bank account statement and submitted that the payments were made through banking channels. Thus, he has submitted that the assessee has not claimed any other deduction on account of Directors remuneration except this amount of Rs.6,74,550/-. Thus, merely because the payment was made for clearing the outstanding bills of the Directors towards tour and travel expenses cannot be a reason for disallowance of claim of the assessee. He has further submitted that the additional evidence filed before the learned CIT (A) were rejected on the ground that the assessee has not filed the petition under Rule 46A of the I.T. Rules, 1962. In support of his contention, he has relied upon the decision of the Chennai Bench of the Tribunal in dated 30/04/2025 in case of Munireddy Prakashreddy vs. Income Tax Officer.

I have considered the rival submission as well as the relevant material available on record. There is no dispute that the assessee has claimed deduction of Rs.6,74,550/- as remuneration paid to the Directors of the assessee company. The Assessing Officer has disallowed the said claim when it was found from the record that the payment was not made to the Directors but to the companies namely Trawell View Holidays and Wall Street Finance Ltd. Thereafter, the assessee explained that these payments were made to these companies instead of directly paying to the Directors as the assessee company has cleared the outstanding payable by the Directors to the 3rd party. The Assessing Officer has not accepted this explanation of the assessee and disallowed the claim of the assessee in para 12 as under :

On appeal, the assessee filed the supporting evidence in the shape of acknowledgement of the return of income filed by the Directors and 3rd party confirmation to whom the payment was made. However, the learned CIT (A) has declined to admit these supporting evidences in para 8.3 and 8.3.2 as under: “8.3 Having considered the factual matrix of the case, I find that during the assessment proceedings, the assessee did not submit necessary documents before the AO proving that the remuneration had been paid to the third party on behalf of directors. Confirmations of the directors and their I.T returns showing the salary in their returns were not filed before the AO. 8.3.1 Further, I find that the assessee had not submitted any documents before the AO and thus tried to escape scrutiny by the AO. 8.3.2 The appellant has filed written submissions during the course of appellate proceedings along with certain documents as mentioned above which is essentially an additional evidence not submitted before the A0. In form No.35, row no.12, against " whether any documentary evidence other than the evidence produced during the course of proceedings before Income-tax Authority has been filed in terms of Rule 46A" the assessee has mentioned "No. The additional evidence filed is incomplete and haphazard. The assessee has filed additional evidence during the course of appellate proceedings which does not explain the case of the assessee. However, no petition has been filed by the assessee for admission of additional evidence justifying and explaining as to under which Clause of Rule 46A(1), the Page 11 of 14 and 806 of 2025Shubhaprada Chit Funds P Ltd assessee's case is covered and as to why the additional evidence should be admitted. Therefore, I am of the considered view that the additional evidence filed by the assessee is not admissible. Accordingly, the same is not admitted. Moreover, the additional evidence filed is incomplete and does not in way buttress the grounds of appeal

Thus, in the facts and circumstances of the case and in the interest of justice, we are of the considered view that the learned CIT (A) would have given an opportunity to the assessee

Ground No.3 is regarding the disallowance made u/s 40A(3) of the Act. At the time of hearing, the learned Counsel for the assessee has stated at Bar that the assessee does not press this ground. The learned DR has raised no objection if Ground No.3 of the assessee is dismissed as not pressed. Thus, ground No.3 is dismissed as not pressed.

In the result, appeal of the assessee for the A.Y 2017- 18 is allowed and the appeal of the assessee for the A.Y 2018-19 is partly allowed for statistical purposes.