LAKSHMIRAMANA BANDARU,KADAPA vs. ITO., WARD-1, KADAPA

Succinctly stated, the assessee, who is engaged in trading in pesticides and seeds under the name and style of M/s. Bhoomi Pesticides and Seeds, had filed his return of income for AY 2016–17 on 01.07.2017, declaring an income of Rs. 3,39,730/-. The return of income filed by the assessee was initially processed as such under Section 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment through CASS, for the reasons, viz. (i) higher cash in hand compared to the preceding year; and (ii) return of income filed after 07.11.2016. Notice under Section 143(2) of the Act, dated 24.09.2018, was issued to the assessee.

During the course of the assessment proceedings, the AO observed that the assessee had claimed cash in hand of 4 Lakshmiramana Bandaru Rs. 40,61,284/- as on 31.03.2016, which was substantially higher than the cash in hand shown in the preceding years. In the first round of assessment, the addition made by the A.O. u/s 68 of the Act towards the huge cash in hand was sustained by the CIT(A). The assessee thereafter filed an appeal before the Tribunal, which set aside the order to the file of the AO with a direction to provide an opportunity of being heard to the assessee.

Thereafter, in the second round of assessment, the assessee failed to furnish the requisite details to the satisfaction of the A.O. regarding the source of the cash in hand shown as on 31.03.2016. The A.O., therefore, once again made the addition in his order passed under Section 143(3) r.w. Section 254 of the Act by treating the amount as the assessee’s unexplained money under Section 69A of the Act. Aggrieved, the assessee carried the impugned order in appeal before the CIT(A). However, the CIT(A) did not find favour with the contentions advanced by the assessee and upheld the addition of Rs. 40,61,284/- that was made by the A.O. vide his order passed under Section 143(3) r.w Section 254 of the Act, and dismissed the appeal.

The assessee, being aggrieved with the order passed by the CIT(A), has carried the matter in appeal before us.

We have heard the learned authorised representatives of both parties, perused the orders of the lower authorities and the material available on record, and considered the judicial pronouncements that have been pressed into service by the ld.AR to drive home his contentions.

On a perusal of the record, we find that the A.O., in the course of the original assessment proceedings, observed that the assessee had shown cash-in-hand of Rs. 40,61,283/- on 31-03-2016. The assessee on being queried about the source of the substantial amount of cash-in-hand, submitted that he had accumulated the same based on the realization of the trade debtors during the year under consideration. Further, on being queried as to the purpose of retaining the substantial amount of cash in hand on 31-03-2016, it was the claim of the assessee that he required the said amount for meeting out the trade liabilities which were payable by him to several companies.

The A.O. observed that the assessee had filed his return of income for the subject year, i.e., AY 2016-17, on 01-07-2017, which was much beyond the “due date” i.e 17-10-2016. On a careful perusal of the record, the A.O. observed that the cash-in-hand of Rs. 40,61,283/- disclosed by the assessee on 31-03-2016 was not in conformity with that shown on 31-03-2014 (Rs. 1,33,687/-) and on 31-03-2015 (Rs. 18,788/-).

The A.O. further observed that the assessee had during the demonetization period i.e 09.11.2016 to 31.12.2016 made cash deposits of Rs. 58,15,800/-. On the basis of the facts before him, the A.O. held a firm conviction that, considering the fact that the assessee had filed his return of income much after the demonetization scheme was announced by the government, the assessee had purposively inflated the availability of cash-in-hand with him on 31-03-2016 for explaining the source from which the cash deposits were made by him during the demonetization period.

As the assessee despite specific reminders had failed to come forth with details supporting his claim that the cash-in-hand of Rs. 40.61 lacs (approx.) on 31.03.2016 was generated by him by 7 Lakshmiramana Bandaru liquidating his trade debtors, therefore, the A.O. declined to accept his explanation. Also, the A.O in the absence of the requisite details about the trade liabilities to meet out which the assessee had claimed to have retained the substantial amount of cash-in-hand with him on 31-03-2016, found no substance in his claim of being in possession of cash in hand of Rs. 40.61 lacs (supra) on 31.03.2016 and rejected the same. The A.O. , based on his aforesaid observations, rejected the assessee's explanation regarding the cash balance of Rs. 40,61,283/- on 31-03-2016 as an unexplained cash credit under Section 68 of the Act.

During the course of the set-aside proceedings, the assessee had filed before the A.O. three sets of cash books, viz. (i). M/s. Bhoomi Pesticides and Seeds, Kadapa; (ii). M/s. Sri Bhoomi Pesticides, Kadapa; and (iii). Personal set of cash books. However, the A.O. , after deliberating upon the submissions of the assessee, held a firm conviction that he had failed to substantiate the source of the cash balance of Rs 40,61,283/- on 31-03-2016, observing as under:

Aggrieved, the assessee carried the matter in appeal before the CIT (Appeals), but without success.

During the course of the proceedings, the CIT (Appeals) called for a “remand report” from the A.O. The A.O in his “remand report”, observed that the assessee had reported a consolidated cash balance of Rs. 40,61,282.17, which, however, was found to be not genuine. The A.O. observed that the assessee, who was running a business under the proprietorship concern viz. M/s. Bhoomi Pesticides and Seeds, had subsequently introduced another proprietary concern under the name M/s. Sri Bhoomi Pesticides and Seeds, and had also claimed to have maintained a personal set of books. The A.O. further noted that all three accounts appeared to be artificial and created for the purpose of explaining the cash balance. In addition, the A.O observed that though the assessee claimed that the cash available as on 31.03.2016 was realized from liquidating the debtors of his proprietorship concern, but a perusal of the records revealed that the entire list of debtors actually pertained to another sister concern, viz M/s. Bhoomi Agricare. Based on his analysis, the AO concluded that the assessee had devised an afterthought explanation in his attempt to justify the cash balance of Rs. 40,61,282.17, specifically to account for the cash deposits made by him during the demonetization period. For 13 Lakshmiramana Bandaru the sake of clarity, the observations of the A.O recorded in his “remand report” (supra) are culled out as under (relevant extract):

The CIT (Appeals), after thoughtful consideration of the facts on record, concluded that the “books of accounts” maintained by the assessee did not reflect a true and correct picture of his financial affairs, and therefore, rejected the same under Section 145(3) of the Act. Accordingly, the CIT (Appeals), based on his findings, concluded that the assessee had failed to substantiate the source of cash in hand on 31.03.2016 of Rs. 40,61,284/- (supra) that it had claimed to have generated during the subject year from cash sales and recovery from debtors, as he could not satisfactorily establish the same even during the second round of assessment proceedings and during the remand proceedings. Thus, the CIT(A) was of the view that the A.O had rightly treated the cash balance on 31.03.2016 of Rs. 40,61,284/- available with the assessee as 14 Lakshmiramana Bandaru having been sourced from his unexplained money under Section 69A of the Income-tax Act. For the sake of clarity, the observations of the CIT(A) are culled out as under:

The assessee, being aggrieved by the order passed by the CIT(A) dated 14.02.2025, wherein the addition of Rs. 40,61,284/- made by the A.O in the course of the set-aside assessment framed under Section 143(3) r.w.s. 254 of the Income-tax Act, 1961, dated 30.04.2021, was sustained, carried the matter in appeal before us.

We have heard the learned authorised representatives of both parties, perused the orders of the lower authorities and the material available on record, and considered the judicial pronouncements relied upon by the respective parties in support of their respective contentions.

Shri K.K. Gupta, Chartered Accountant, the learned authorised representative (for short, “AR”) for the assessee, at the threshold of the hearing, submitted that the A.O had grossly erred 17 Lakshmiramana Bandaru both in law and on facts in making the impugned addition of Rs. 40,61,284/- by invoking the provisions of Section 69A of the Act. Elaborating on his submission, the learned AR contended that as the cash balance of Rs. 40,61,284/- as on 31.03.2016 was duly accounted for in the audited books of account of the assessee, therefore, the provisions of Section 69A, which apply to a case where the assessee is, inter alia, found to be the owner of unexplained money not recorded in the books of accounts, could not have been invoked for making the impugned addition for the subject cash balance on 31.03.2016 that was recorded in the books of account of the assessee. The Ld. AR to buttress this contention, took us through the provisions of Section 69A and emphasized that the said section is not applicable in a case where the assessee is found to be the owner of any money that is duly recorded in his regular books of account. It was, thus, contended by the Ld. AR that the action of the AO in making the addition under Section 69A was devoid of legal sanctity and liable to be struck down on the said ground alone. The Ld. AR further submitted that even during the original assessment proceedings, the A.O. had wrongly invoked the provisions of Section 68 of the Act and made the addition in the 18 Lakshmiramana Bandaru hands of the assessee. The Ld. AR submitted that now, with the change in the section being invoked (from Section 68 to 69A), and given that neither provision was applicable in the present facts, there remains no justification for sustaining the impugned addition.

The Ld. AR confined his submissions solely to the legal validity of the addition made by the A.O under Section 69A and, in response to a specific query from the bench qua the merits of the addition, submitted that he is confining his contention only to the aspect of the validity of the addition made by the A.O under Section 69A of the Act. It was reiterated by him that the impugned addition of Rs. 40,61,284/- made by the A.O under Section 69A was legally unsustainable due to the lack of proper jurisdictional foundation, and therefore, the same ought to be quashed.

Per contra, the learned Departmental Representative (Ld. DR) submitted that as the assessee, neither in the course of the original assessment proceedings nor in the course of the set-aside assessment proceedings or even in the course of the remand proceedings, was able to substantiate, based on supporting documentary evidence, the source of the cash balance of Rs. 19 Lakshmiramana Bandaru 40,61,284/- as on 31-03-2016, therefore, the A.O. had rightly held the same as having been sourced out of the assessee's unexplained money under Section 69A of the Act. Elaborating further on his contention, the learned DR submitted that a perusal of the record revealed that, although it had been the claim of the assessee since inception that the cash balance of Rs. 40,61,284/- was sourced from the cash sales and the liquidation of trade debtors during the relevant year, but, the assessee, despite specific directions by the A.O., had failed to place on record the complete details of the debtors that were liquidated and which purportedly contributed to the accumulated cash balance of Rs. 40,61,284/- as on 31-03- 2016. The learned DR further submitted that the cash balance available with the assessee in the immediately two preceding years, as compared to the substantial amount of Rs. 40,61,284/- on 31- 03-2016, clearly revealed that the cash balance had been manipulated deliberately with the intent to justify the source of the cash deposits made by the assessee during the demonetization period. The Ld. D.R to fortify his contention, had further drawn our attention to the fact that the assessee had filed his return of income for the relevant assessment year only after a substantial delay i.e., 20 Lakshmiramana Bandaru much after the demonetization scheme was announced by the Government on 08-11-2016. The Ld. DR submitted that as no contrary inference could be drawn from the order of the CIT (Appeals), who, after calling for a “remand report” and deliberating at length on the issue, had rightly sustained the addition made by the AO under Section 69A of the Act, therefore, the appeal filed by the assessee, being devoid of merit and bereft of any substance, was liable to be dismissed.

As the assessee has assailed the validity of the impugned addition of Rs. 40,61,284/- made by the A.O on the ground that, as the cash balance on 31-03-2016 was recorded in his books of accounts, therefore, the impugned addition could not have been made in his case under Section 69A of the Act, we deem it fit and apposite to refer to the provisions of Section 69A of the Act, which read as under:

Thus, in light of the clear mandate of Section 69A of the Act, we principally concur with the assessee that it is only in a case where the assessee is found to be the owner of such money which is not recorded in the books of accounts, and where no satisfactory explanation is offered regarding the nature and source of such 22 Lakshmiramana Bandaru money, that the provisions of Section 69A can be triggered for treating the same as income from unexplained sources.

This leads us to the issue that now when the cash balance of Rs. 40,61,284/- as on 31-03-2016 was, in fact, recorded in the books of accounts maintained by the assessee; then, whether the impugned addition could have justifiably been made/sustained by the authorities below by triggering the provisions of Section 69A of the Act?

Apropos the learned AR's contention that where, in any financial year, the assessee is found to be the owner of any money, and such money is duly recorded in the books of accounts, there can be no justification in making an addition of the same under Section 69A, we principally concur with the said proposition. We, say so, for the reason that once the subject money is found recorded in the “books of accounts” maintained by the assessee, then, the sine qua non for invoking the provisions of Section 69A of the Act would not be satisfied.

However, in the present case, although the ld. AR has contended that the cash balance of Rs. 40,61,284/- as on 23 Lakshmiramana Bandaru 31.03.2016 was recorded in the “books of accounts” of the assessee, and therefore Section 69A could not be invoked, we are unable to accept the same. It is a matter of record that the CIT(A), in the appellate proceedings, had rejected the “books of accounts” of the assessee under Section 145(3) of the Act. The CIT(A) observed that the assessee, despite specific directions, had failed to substantiate the source of the cash balance of Rs. 40,61,284/- as on 31.03.2016. Although, it was the assessee’s claim that the cash balance of Rs. 40,61,284/- on 31.03.2016 was generated through the realization of trade debtors, but he had despite specific direction of the A.O failed to furnish the requisite details to support his said explanation. Further, though the assessee claimed that he had retained the substantial cash to discharge his trade liabilities due towards various creditors, but, he had failed to produce the complete details of such creditors despite having been directed by the A.O. Additionally, the CIT(A) noted a discrepancy between the cash balance of Rs. 40,61,284/- claimed by the assessee in the “books of accounts” as on 31.03.2016, as against the same reflected by him in his cash book/submissions filed in the course of the 24 Lakshmiramana Bandaru “remand proceedings” which revealed the balance on the said date at Rs. 22,77,020.49.

Considering the totality of the facts and the failure of the “books of accounts” to reflect the true and correct state of affairs, the CIT(A) had rejected the books under Section 145(3) of the Act. We are of the firm conviction that in the backdrop of the rejection of the “books of accounts” of the assessee under Section 145(3) of the Act, the assessee cannot thereafter take shelter under those very books to claim that the cash balance of Rs. 40,61,284/- was recorded and, therefore, immune from the applicability of Section 69A of the Act. We say so, specifically because the inability of the assessee to substantiate the source of the said cash balance was in itself the primary ground on which his “books of account” were rejected under Section 145(3) of the Act. Accordingly, we are unable to concur with the learned AR's submission that the AO had erred in invoking Section 69A of the Act for making the impugned addition.

Although the learned AR had confined his challenge to the jurisdictional validity of the addition under Section 69A of the Act, 25 Lakshmiramana Bandaru but for the sake of completeness, we consider it appropriate to briefly examine the merits of the addition upheld by the CIT(A).

As observed hereinabove, the assessee had failed to substantiate his claim that the cash in hand of Rs. 40,61,284/- as on 31.03.2016 was sourced from the liquidation of his trade receivables. Apart from that, he had also failed to furnish the details of the trade creditors to whom he allegedly owed the outstanding liabilities and had retained the substantial amount of cash balance for discharging the same. Moreover, the authorities below rightly observed that the cash balance claimed as on 31.03.2016 was significantly higher than the balances disclosed in the immediately preceding two years, and appeared to be strategically built up to explain the subsequent cash deposits made by him during the demonetization period i.e. 09.11.2016 to 31.12.2016. Rather, the authorities below had fortified their aforesaid conviction based on the fact that the assessee had filed his return of income for the subject year on 01.07.2017 i.e. much after the “due date” of 30.09.2016, after the demonetization was announced by the government on 08.11.2016. We, thus, find no infirmity in the view taken by the CIT(A), who after rejecting the books of account of the 26 Lakshmiramana Bandaru assessee under Section 145(3) of the Act, had rightly sustained the addition of Rs. 40,61,284/- made in the hands of the assessee under Section 69A of the Act, uphold the same.

Resultantly, the appeal filed by the assessee being devoid and bereft of any substance is dismissed.