Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”, HYDERABAD
Before: SHRI G. MANJUNATHA & SHRI K. NARASIMHA CHARY
O R D E R PER G. MANJUNATHA, A.M:
The captioned two appeals are filed by the assessee against the orders of the Learned Commissioner of Income Tax (Appeals)-12, Hyderabad dated 15/10/2024 for the AYs 2019-20 and 2020-21. Since both the appeals pertain to the same assessee and the issues involved in these appeals are interconnected, these appeals are clubbed, heard together and disposed of in this consolidated order. Appeal wise adjudication is given in the following paras.
Briefly stated the facts of the case are that the assessee is an individual, deriving income from business and other sources, filed his return of income for the AY 2019-20 on 16/11/2020 declaring the total income at Rs.40,50,490/-. A cash of Rs. 50 lakhs was seized from the assessee by the Election Flying Sqad Team, Mancherial while conducting patrolling duty on 03/12/2018. Consequently, a warrant U/s. 132A of the Income Tax Act, 1961 (“the Act”) was executed and the cash was requisitioned from the Police Authorities, Macherial. In the statement recorded U/s 131 of the Act dated 4/12/2018 the assessee stated that the cash belonged to him and that the sources of the case were withdrawals made from various bank accounts for the past two months, advances from various customers received in respect of his business venture viz., Kruthika County and agricultural income etc. Subsequently, notice U/s 153A of the Act dated 3/12/2018 was issued and in response to the notice, the assessee filed the return of income on 11/02/2021 admitting a total income at Rs. 40,50,490-/-. During the course of assessment proceedings, the learned Assessing Officer called upon the assessee to explain the sources for cash found and seized on 3/12/2018 and also to file necessary evidence. In response, the assessee submitted the details of source for cash found
Page 2 of 21 & 1203/Hyd/2024 Bal Reddy Kandunuri, Hyderabad and seized during the course of election to the extent of Rs. 12,45,000/- out of his known source of income and balance amount of Rs.37,55,000/- has been admitted as his ‘business income’. The learned Assessing Officer after considering the relevant submissions of the assessee observed that the assessee could not explain the sources for cash found and seized with relevant evidence and therefore, treated the income declared by the assessee of Rs. 37,55,000/- as income assessable U/s. 69A and brought to tax U/s. 115BBE of the Act. Further, the learned Assessing Officer also made addition of Rs. 12,45,000/- towards cash found and seized of Rs. 50,00,000/- minus (-) the income admitted by the assessee of Rs. 37,55,000/- as unexplained money U/s. 69A and brought to tax U/s. 115BBE of the Act.
3. Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee has filed written submissions which is being reproduced in para 5.1 at pages 11 to 14 of the learned CIT(A)’s order. The sum and substance of the assessee’s submissions before the learned CIT(A) is that out of the total cash found and seized Rs. 50,00,000/-, the assessee has explained the source for Rs. 12,45,000/- and the balance amount of Rs. 37,55,000/- has been disclosed as income for the year under consideration out of his business activities. The assessee
Page 3 of 21 & 1203/Hyd/2024 Bal Reddy Kandunuri, Hyderabad further submitted that the learned Assessing Officer is erred in making addition towards balance amount of Rs. 12,45,000/- and also taxing the remaining amount of Rs. 37,55,000/- @ 60% as per the provisions of section 115BBE of the Act.
The learned CIT(A) after considering the submissions of the assessee and after taking into the relevant bank statements of the assessee, observed that the assessee was able to explain the source to the extent of Rs. 9,45,000/- out of Gold Loan taken from HDFC bank by his wife and withdrawn from the bank account on 3/12/2018. Therefore, learned CIT(A) directed the learned AO to delete the addition to the extent of Rs. 9,45,000/- out of the total addition of Rs. 12,45,000/-. In respect of remaining amount of Rs. 3 lakhs, although the assessee explained the sources out of cash withdrawn from bank account on previous occasions, but the learned CIT(A) observed that the said cash withdrawn claims to have made by the assessee is a cheque issued in the name of the person but not cash withdrawn and therefore, rejected the explanation of the assessee and sustained the addition to the extent of Rs. 3 lakhs.
Insofar as levy of tax @ 60% U/s. 115BBE of the Act, the learned CIT(A) observed that the assessee claimed to have generated income out his business activities but, failed to substantiate the claim along with relevant evidence and therefore, mere furnishing of the Return of Page 4 of 21 & 1203/Hyd/2024 Bal Reddy Kandunuri, Hyderabad Income for earlier assessment years in the form of ITRs does not prove the assessee’s claim of carrying out the business activities and therefore, the learned CIT(A) opined that there is no error in the reasons given by the learned Assessing Officer to assess the income declared by the assessee as unexplained money taxable U/s. 69A r.w.s 115BBE of the Act.
Aggrieved by the order of the learned CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds of appeal:
1. “The order passed by the Ld. CIT(A) allowing the appeal of the appellant, only in part, is incorrect and cannot be sustained in facts and in law.
2. The Ld. CIT(A) erred in sustaining the addition to the extent of Rs. 3 lakhs as unexplained money U/s. 69A of the Act.
The Ld. CIT(A) erred in sustaining the action of the AO in invoking the provisions of section 115BBE of the Act in respect of the additional income from business admitted by the appellant. 4. Any other ground that may be urged at the time of hearing.”
The learned Counsel for the assessee Sri A.V. Raghuram, referring to the HDFC Bank statement of the assessee, submitted that the assessee has withdrawn Rs. 3 lakhs on 3/12/2018 through barer cheque in the name of Jadi Rajeswar, which is a source for cash found by the Police Authorities and impounded by the Income Tax Authorities. The learned CIT(A), without considered the relevant facts, simply sustained the addition to the extent of Rs. 3 lakhs and therefore, submitted that the addition sustained by the learned CIT(A) should be deleted.
Page 5 of 21 & 1203/Hyd/2024 Bal Reddy Kandunuri, Hyderabad 8. Learned Counsel for the assessee, further referring to the provisions of section 69A and section 115BBE of the Act, submitted that as per the said provisions, where in any financial year, the assessee is found to be the owner of any money, and such money, is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of such money, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of such money may be deemed to be the income of the assessee for such financial year. In the present case, the assessee, right from the beginning, including on the date of seizure of money, explained that the cash found during the course of seizure was out of his business income and advances received from customers from his business venture viz., Kruthika County. Further, the assessee had also filed his return of income for the earlier assessment years and declared income from sale of flats. From the above, it is very clear that the source of cash found during the course of seizure was out of business income and therefore, the learned Assessing Officer is erred in treating the cash found as ‘unexplained money U/s. 69A of the Act’ and brought to tax U/s. 115BBE of the Act. In this regard, the learned Counsel for the assessee relied upon the decision of the ITAT, Chennai Bench in the case of Overseas Leathers vs. DCIT (2023) 107 ITR (Trib.) 0688 (Chennai). Page 6 of 21 & 1203/Hyd/2024 Bal Reddy Kandunuri, Hyderabad 9. The learned Departmental Representative, Dr. Sachin Kumar, on the other hand, supporting the order of the learned CIT(A), submitted that the assessee could not explain the source for cash found and seized with known source of income and corresponding evidences, although the assessee claims to have withdrawn Rs. 3 lakhs from bank account. But, the learned CIT(A) has recorded a categorical finding that the amount of Rs. 3 lakhs has been paid to some person. Further, as per the provisions of section 69A of the Act, wherein in any financial year, the assessee found to be the owner of the any money, which is not recorded in the books of account and, the assessee offers no explanation about the nature and source of such money, then, the same needs to be taxed U/s. 69A of the Act as unexplained money and thus, the learned Assessing Officer and the learned CIT(A) have rightly assessed U/s. 69A r.w.s 115BBE of the Act and therefore, the order of the learned CIT(A) should be upheld.
We have heard both the parties, perused the material available on record and gone through the orders of the Authorities below. There is no dispute with regard to the fact that the Department has seized cash of Rs. 50,00,000/- from Police Authorities by issuing warrant U/s 132A of the Act. It is also an admitted fact that in a statement recorded U/s. 131 of the Act, the assessee explained the source for cash found in his possession out of business income and advances
Page 7 of 21 & 1203/Hyd/2024 Bal Reddy Kandunuri, Hyderabad received from his customers of his business venture viz., Kruthika County. In fact, the assessee has admitted income of Rs. 37,55,000/- for the Financial Year 2018-19 relevant to the Assessment Year 2019- 20 under the head ‘income from business’ and this fact has not been disputed by the learned Assessing Officer. Further, as per the Financial Statements filed by the assessee, along with the return of income, the assessee has admitted the income from sale of flats. From the details field by the assessee including the ITRs filed for the earlier Assessment Years, it is undisputedly clear that the assessee is having only source of income ie., ‘income from business and profession’ for many years and therefore, in our considered opinion, the explanation offered by the assessee towards source for cash seized by the Department from the Police Authorities appears to be bona fide and acceptable. Therefore, we are of the considered view that once the nature and source of money is explained by the assessee to the satisfaction of the Assessing Officer, then, the said money cannot be treated as unexplained money within the provisions of section 69A of the Act. In the present case, the assessee, right from the beginning, including on the date of seizure of cash, has explained the nature and source out of his business income. Therefore, in our considered view, the learned Assessing Officer is erred in assessing the income declared by the assessee under head ‘income from business’ as ‘unexplained money’ U/s. 69A of the Act and further taxed U/s. 115BBE of the Act. Page 8 of 21 & 1203/Hyd/2024 Bal Reddy Kandunuri, Hyderabad In this regard, the assessee relied upon the decision of the ITAT, Chennai Bench in the case of Overseas Leathers vs. DCIT (2023) 107 ITR (Trib.) 0688 (Chennai) (supra) wherein, the Tribunal, under identical set of facts, has decided the issue as under:
“10. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The fact with regard to the impugned dispute are that a survey operation u/s. 133A of the Act was conducted on 14.03.2018 and during the course of survey, inventory of physical stock was taken which resulted in detection of excess physical stock of Rs. 5.08 crores. A statement u/s. 131 of the Act was recorded from the managing partner of the assessee Mr. M. Srinivasa Reddy, where he had, in response to a specific question admitted that excess stock found during the course of survey is acquired out of unaccounted income generated from the business for the current financial year. The assessee had admitted a sum of Rs. 5.08 crores towards excess stock found during the course of survey under the head profits and gains from business and profession and also paid taxes. These are undisputed facts. The only dispute is with regard to head of income under which additional income offered towards excess stock to be assessed, whether it is under the head profits and gains of business or profession or unexplained investment as per section 69B of the Act.
The provisions of section 69B of the Act deals with, where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article and the Assessing Officer finds that the amount expended on making such investments exceeds amount recorded in this behalf in the books of accounts maintained by the assessee for any source of income, and the assessee offers no explanation or the explanation offered by the assessee is not in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee in such financial year. In order to assess any investment or other bullion, jewellery or any other valuable asset, two things must be satisfied. Firstly, the assessee must expended amount towards investment or in acquiring some asset and is not recorded in the books of accounts maintained for that financial year and further, the assessee offers no explanation or explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory. In this case, the assessee has offered explanation towards excess stock found during the course of survey, in response to a specific question and stated that such excess stock is generated out of the business income of the current financial year, which will be offered to tax as an additional income of the firm for the assessment year 2018-19. From the above, it is very clear that it is not a case of the AO that the assessee has not offered any explanation towards excess stock found during the course of survey, but it is a case of explanation offered by the assessee is not satisfactory with the opinion of the Assessing Officer. Therefore, it is necessary to examine the issue in light of explanation offered by the assessee towards excess stock found during the course of survey to ascertain whether source for such excess stock is generated out of business income or income from undisclosed source.
During the course of survey, excess stock of leather and allied products has been found and such excess stock was noticed when physical inventory of stock in trade of the assessee was taken up. Further, said stock is mixed with regular stock in trade of Page 9 of 21 & 1203/Hyd/2024 Bal Reddy Kandunuri, Hyderabad the assessee. The assessee has explained before the Assessing Officer that it could not immediately reconcile difference in stock and thus, to buy peace from Department, additional income has been offered under the head income from business, equivalent to the amount of excess stock found during the course of survey. The explanation offered by the assessee either during the course of survey or during the assessment proceedings is not negated with any other evidences to disprove the claim of the assessee that source for acquisition of stock in trade is other than business income of the assessee. Moreover, the assessee derives only one source of income from manufacturing and trading in leather and allied products, which is evident from income declared for the impugned assessment year and earlier assessment years. Further, when the assessee has explained source for excess stock found during the course of survey, is out of income earned from current year business, the AO did not go further to disprove the claim of the assessee that said source is not from income from business. Moreover, it is a general practice in trade that income generated is either ploughed back into the business in the form of stock in trade or receivables or spent for other purpose like acquisition of asset outside the business. In this case, during the course of survey except stock difference, no other investment with any other asset was found. Therefore, from the above it is very clear that explanation offered by the assessee that source for excess stock is out of income generated from business activity of the current year appears to be plausible explanation. Therefore, we are of the considered view that when the assessee has explained the source for acquisition of stock out of business income, the AO ought to have accepted explanation of the assessee and assessed the income under the head profits and gains of business or profession, but not under the head unexplained investment u/s. 69B of the Act. This is because, excess stock found during the course of survey does not have any independent identity as the asset is a mixed part of overall stock found in the business premises of the assessee, which in our considered view represents business income.
13. Coming back to the case laws relied upon by the AO and the Ld. Counsel for the assessee. The AO has relied upon the decision of Hon'ble High Court of Madras in the case of SVS SVS Oils Mills vs ACIT (Supra). We find that in the said case, although excess stock was found during the course of survey u/s. 133A of the Act, which the assessee did not accounted in his books of accounts and also not brought to tax in the relevant assessment years. The AO has made additions towards excess stock as unexplained investment u/s. 69B of the Act in absence of necessary explanation with regard to source for said excess stock. Under those facts, the Hon'ble Madras High Court came to the conclusion that excess stock found during the course of survey should be assessed u/s. 69B of the Act. In this case, facts are entirely different. The excess stock found during the course of survey was mixed with regular stock in trade of the assessee in its business. The survey team was also not identified excess stock separately, but was valued because the assessee could not reconcile the difference in stock in trade when compared to book stock. Further, the assessee has explained the source for excess stock and argued that it is out of current year income generated from the business. The explanation of the assessee was not disproved. Therefore, we are of the considered view that the facts of the present case are not applicable to the case laws relied upon to the Assessing Officer.
14. At this stage, it is relevant to discuss the decision of Hon'ble Rajasthan High Court in the case of Bajargan Traders vs PCIT (supra). The Hon'ble High Court considered an identical issue and held that when excess stock found during the Page 10 of 21 & 1203/Hyd/2024 Bal Reddy Kandunuri, Hyderabad course of survey is related to stock in trade dealt by the assessee, then investment in procurement of such stock is clearly identifiable and related to regular business stock of the assessee and thus, said investment in excess stock has to be brought to the tax under the head business income and not under the head unexplained investment. The relevant findings of the Hon'ble High Court are as under: "3. The Tribunal while considering the matter has observed as under:- "2.7. It is further submitted that the real issue in this case is whether the excess stock surrendered should be made as a part of business income or not and if so, assessee can claim deduction on account of payment of remuneration to partners on account u/s 40b(v). In this regard, our reference was drawn to the decision of Co- ordinate Bench in case of Shri Ramnarayan Birla (in dted 30.09.2016). In that case, the question before the Coordinate Bench was "whether the CIT(A)-2, Udaipur has erred in directing the AO to assess the unexplained investment surrendered by the assessee under the head "income from Business" ignoring the decision of the Hon'ble Gujarat High Court in the case of Fakir Mohd. Hazi Hasan 247 ITR 290 that unaccounted income ought to be categorized under the residuary head of 'Income from other sources'. In respect to the said issue, the findings of the Coordinate Bench are as follows: "We have heard the rival contentions and perused the material available on record. Undisputed facts emerged from the record that at the time of survey excess stock was found. It is also not disputed that assessee is engaged in the business of jewellery. During the course of survey excess stock valuing Rs. 77,66,887/- was found in respect of gold and jewellery. The Coordinate Bench in the case of Choksi Hiralal Mangnlal vs. DCIT 131, TTJ (Ahd.) 1 has held that in a cases where source of investment/expenditure is clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment/expenditure then first what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed u/s 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. Therefore, the first attempt of the assessing authority should be to find out link of undeclared investment/expenditure with the known head, give opportunity to the assessee to establish nexus and if it is satisfactorily established then first such investment should be considered as undeclared receipt under that particular head. It is observed that there is no conflict with the decision of Hon'ble Gujarat High Court in the case of Fakir Mohd. Jajihasan (supra) where investment in an asset or expenditure is not identifiable and no nexus was established then with any head of income and thus was not available for set off against any loss under any other head. Therefore, the Hon'ble Coordinate Bench held that where asset in which undeclared investment is sought to be taxed is not clearly identifiable or does not have independent identity but is integral and inseparable (mixed) part of declared asset falling under a particular head, then the difference should be treated as undeclared business income explaining the investment. In the present case the excess stock was part of the stock. The revenue has not pointed out that the excess stock has any nexus with any other receipts. Therefore, we do not find any fault with the decision of the ld. CIT(A) directing the AO to treat the surrendered amount as excess stock qua the excess stock found." 2.10. We have heard the rival contentions and perused the material available on record. During the course of survey, the assessee has surrendered an amount of Rs.
Page 11 of 21 & 1203/Hyd/2024 Bal Reddy Kandunuri, Hyderabad 70,04,814/- towards investment in stock of rice which had not been recorded in the books of accounts. Subsequently, in the books of accounts, the assessee has incorporated this transaction by debiting the purchase account and crediting the income from undisclosed sources. In the annual accounts, the purchases of Rs. 70,04,814/- were finally reflected as part of total purchases amounting to Rs. 33,47,19,658/- in the profit and loss account and the same also found included as part of the closing stock amount to Rs.1,94,42,569/- in the profit/loss account since the said stock of rice was not sold out. In addition to the purchase and the closing stock, the amount of RS. 70,04,814/- also found credited in the profit and loss account as income from undisclosed sources. The net effect of this double entry accounting treatment is that firstly the unrecorded stock of rice has been brought on the books and now forms part of the recorded stock which can be subsequently sold out and the profit/loss therefrom would be subject to tax as any other normal business transaction. Secondly, the unreco4rded investment which has gone in purchase of such unrecorded stock of rice has been recorded in the books of accounts and offered to tax by crediting the said amount in the profit and loss account. Had this investment been made out of known source, there was no necessity for assessee to credit the profit/loss account and offer the same to tax. Accordingly, we do not see any infirmity in assessee's bringing such transaction in its books of accounts and the accounting treatment thereof so as to regularise its books of accounts. In fact, the same provides a credible base for Revenue to bring to tax subsequent profit/loss on sale of such stock of rice in future. 2.11. Having said that, the next issue that arises for consideration is whether the amount surrendered by way of investment in the unrecorded stock of rice has to be brought to tax under the head "business income" or "income from other sources". In the present case, the assessee is dealing in sale of foodgrains, rice and oil seeds, and the excess stock which has been found during the course of survey is stock of rice. Therefore, the investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. The decision of the Co-ordinate Bench in case of Shri Ramnarayan Birla (supra) supports the case of the assessee in this regard. Therefore, the investment in the excess stock has to be brought to tax under the head "business income" and not under the head income from other sources". In the result, ground No. 1 of the assessee is allowed. 3.2. The ld. AR of the assessee submitted that at the outset, it may be noted that the AO has made addition on account of notional interest of Rs. 1,39,366/-. There cannot be any addition on account of notional income as held by the Hon'ble Supreme Court in case of E.D. Sassoon & Co. & Ors. vs. CIT (1954) 26 ITR 27 and Godhra Electricity Co. Ltd. vs. CIT (1997) 225 ITR 746 where it was held that only real income can be taxed, hypothetical income cannot be taxed nor income can be taxed in vacuum. Therefore, the addition made by the AO is not as per law and the same be deleted. The ld. CIT(A) has confirmed the addition by stating that it is the disallowance of interest. It is submitted that the lower authorities have not disputed about the commercial expediency about the advance given to Smt. Rita Gupta. In fact, the advance was given to Smt. Rita Gupta in earlier years for construction of godown and the same was given on rent by the assessee. Therefore once commercial expediency for giving the advance is established, no part of the interest expenditure can be disallowed in view of the decision of Hon'ble Supreme Court in case of S.A. Builders 288 ITR 1 and Hero Cycles Pvt. Ltd. vs. CIT 379 ITR 347 where it was held that the Revenue cannot justifiably claim to put itself in the arm- chair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. If further held that no businessman can be compelled to maximize his profit and that the income tax authorities must put themselves in the shoes of the assessee
Page 12 of 21 & 1203/Hyd/2024 Bal Reddy Kandunuri, Hyderabad and see how a prudent businessman would act. The authorities must not look at the matter from their own viewpoint but that of a prudent businessman. Further, in past, no such disallowance/addition was made. Therefore, neither the addition of notional interest made by the AO or disallowance of interest as held by the ld. CIT(A) is Rs. 1,96,73,637/-. Partners are paid interest @ 12% the balance in the partners account is much more than the amount advanced to Smt. Rita Gupta who is a wife of one of the partner. Therefore, even the disallowance made @ 4% is not justified and the same should be restricted @ 2% only. Reliance is also placed on the following cases. .CIT vs. Ram Kishan Verma (2016) 132 DTR 107/132 Taxman 107 (Raj.)(HC) . CIT vs. Vijay Solvex Ltd. (2015) 113 DTR 382 (Raj.) (HC) 4. We are in complete agreement with the view taken by the Tribunal. No substantial question of law arises."
A similar view has been taken by the Coordinate bench of ITAT, Jaipur in the case of ACIT vs Sanjay Bairathi Gems Ltd in Ahmedabad Bench of ITAT in the case of Chokshi Hiralal Maganlal vs DCIT in ITA NO. 486/AHD/2008.”
11. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that the learned Assessing Officer has erred in treating the income admitted by the assessee under head ‘income from business’ towards cash seized by the Police Authorities and impounded by the Department on 03/12/2018 U/s. 69A of the Act, and brought to tax U/s. 115BBE of the Act. The learned CIT(A) without considering the relevant facts, simply sustained the reasons given by the learned Assessing Officer to assess the income U/s. 69A r.w.s 115BBE of the Act. Thus, we set- aside the order of the learned CIT(A) and direct the learned Assessing Officer to assess the income declared by the assessee under head ‘income from business or profession’ and levy tax at normal rate of taxes.
Page 13 of 21 & 1203/Hyd/2024 Bal Reddy Kandunuri, Hyderabad 12. Insofar as, the addition sustained by the learned CIT(A) to the extent of Rs. 3 lakhs, we find that although the assessee claimed to have withdrawn a sum of Rs. 3 lakhs from HDFC Bank but, on a perusal of the said bank statement, on 3/12/2018 the appellant issued a cheque in the name of Jadi Rajeswar but not a self-chque withdrawn from the bank. Therefore, we are of the considered view that the assessee could not explain the source to the extent of Rs. 3 lakhs as confirmed by the learned CIT(A), even before us. Therefore, we are inclined to uphold the reasons given by the learned CIT(A) to sustain the additions made by the learned Assessing Officer to the extent of Rs. 3 lakhs found and seized on 03/12/2018. Further, in respect of taxability of the same amount, since we have already taken a view that the assessee is into the business and deriving income from business regularly and even for earlier assessment years, the additions made by the learned Assessing Officer and sustained by the learned CIT(A) should be treated as ‘income from business and profession’. Accordingly, we direct the learned Assessing Officer to assess the addition made for Rs. 3 lakhs under the head ‘income from business and profession’ and levy tax at normal rate of taxes.
In the result, appeal filed by the assessee for the AY 2019-20 is partly allowed.
Page 14 of 21 & 1203/Hyd/2024 Bal Reddy Kandunuri, Hyderabad (AY: 2020-21)
Brief facts of the case are that the assessee is an individual, deriving income from business and profession and other sources, filed his return of income for the AY 2020-21 on 11/02/2021 declaring a total income of Rs. 6,50,290/-. A cash of Rs. 50 lakhs was seized from the assessee by the Election Flying Sqad Team, Mancherial while conducting patrolling duty on 03/12/2018. Consequently, a warrant U/s. 132A of the Income Tax Act, 1961 (“the Act”) was executed and the cash was requisitioned from the Police Authorities, Macherial. Subsequently, the case was selected for complete scrutiny and accordingly the statutory notices U/s. 143(2) and 142(1) of the Act were issued on various dates and called for certain details from the assessee. In response, the assessee furnished the information from time to time as called for by the Ld. Assessing Officer. On verification of the details / information /submissions furnished by the assessee, the learned Assessing Officer observed that during the assessment year under consideration, the assessee made cash deposits aggregating to Rs. 38,50,000/- in various banks’ accounts of the assessee and the assessee was asked to submit the sources for such cash deposits. In reply, the assessee submitted that the cash deposits were made out of his savings and business receipts. However, the Page 15 of 21 & 1203/Hyd/2024 Bal Reddy Kandunuri, Hyderabad assessee could not substantiate his claim by furnishing the supporting evidence for the source of the cash deposits. In the absence of any cogent documentary evidence, the learned Assessing Officer treated the total cash deposits amounting to Rs. 38,50,000/- as unexplained money as per the provisions of section 69A of the Act and added the same to the total income of the assessee. Thus, the learned Assessing Officer determined the total income of the assessee at Rs. 45,00,000/- and passed the assessment order U/s. 143(3) of the Act, dated 25/09/2021.
15. Being aggrieved by the order of the learned Assessing Officer, the assessee preferred an appeal before the learned CIT(A). On appeal, after considering the submissions of the assessee, the learned CIT(A) dismissed the appeal of the assessee by holding that there is no cogent evidence to substantiate the sources of cash deposits amounting to Rs. 38,50,000/- and the explanation offered by the assessee is vague and unsupported by the documentary evidence. Thus, the learned CIT(A) dismissed the appeal of the assessee and sustained the addition made by the learned Assessing Officer U/s. 69A of the Act. Aggrieved by the order of the learned CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds of appeal:
“1. The order of the Ld CIT(A) is incorrect and cannot be sustained on facts and in law.
Page 16 of 21 & 1203/Hyd/2024 Bal Reddy Kandunuri, Hyderabad 2. The Ld. CIT(A) erred in sustaining the addition to the extent of Rs. 38,50,000/-. 3. Any other ground that may be urged at the time of hearing.”
The learned Counsel for the assessee, Sri A.V. Raghuram, 16. referring to the financial statements filed along with the return of income, submitted that the total cash deposits into the bank account were treated by the learned Assessing Officer was Rs. 38,50,000/-. As against this, the assessee has declared total sales of Rs. 92,62,000/- for the Financial Year 2019-20 relevant to the Assessment Year 2020- 21. Even after considering the total business turnover of the assessee, the cash deposits from business, ie., from sales, is almost three times of cash deposits. The assessee has explained the cash deposited into bank account out of business receipts. The learned CIT(A) without considering the relevant facts, simply sustained the additions made by the learned Assessing Officer towards cash deposits as unexplained money and taxed the same U/s. 115BBE of the Act. Therefore, he submitted that the additions made by the learned Assessing Officer and sustained by the learned CIT(A) should be deleted.
Learned Departmental Representative (“Ld. DR”), Dr. Sachin Kumar, on the other hand, supporting the order of the learned CIT(A) submitted that the assessee has declared total income of Rs. 6,50,290/- for the year under consideration, whereas the total cash
Page 17 of 21 & 1203/Hyd/2024 Bal Reddy Kandunuri, Hyderabad deposits was at Rs. 38,50,000/-. There is a mismatch between the known source of income including the income declared for the year and the cash deposits. From the above, it is undisputedly clear that the assessee could not explain the cash deposits into the bank account and therefore, the learned Assessing Officer and the learned CIT(A), after considering the relevant facts, have rightly made the addition towards cash deposits as unexplained money U/s. 69A of the Act and brought to tax U/s. 115BBE of the Act and therefore, their orders should be upheld.
We have heard both the parties, perused the material available on record and gone through the orders of the Authorities below. The learned Assessing Officer made addition of Rs. 38,50,000/- U/s. 69A as unexplained money on the ground that the assessee could not explain the source for cash deposits into bank account. According to the learned Assessing Officer, although the assessee claims that the source for cash deposits is out of his business, but, no supporting evidence were furnished. It was the argument of the assessee before the learned Assessing Officer that cash deposited into bank account is out of business receipts which is evident from the sales declared for the year under consideration which is almost three times of cash deposits into bank account. We find that the assessee has made cash deposits into bank account on various dates and claimed that the Page 18 of 21 & 1203/Hyd/2024 Bal Reddy Kandunuri, Hyderabad source for the said cash deposits is out of sales declared for the year under consideration. We further noted that the assessee has declared total sales of Rs. 92,62,000/- for the Financial Year 2019-20 relevant to the Assessment Year under consideration and if, we consider the amount of sales declared by the assessee which is almost three times higher than the cash deposited into the bank account. Since the assessee is able to explain the cash deposited out of the sales declared for the year under consideration, in our considered view, the learned Assessing Officer is erred in treating the cash deposits as unexplained money U/s. 69A of the Act, only on the basis of income declared for the year under consideration in the return of income filed by the assessee. Further, it is not the case of the learned Assessing Officer that the entire cash deposited into the bank account is kept as bank balance or deposits for the year ending to allege that income declared by the assessee is insufficient to explain the amount of cash deposits. In the present case, the assessee has deposited cash into bank accounts and made various payments which is evident from closing balance of bank account as on 31/3/2020 which is less than the amount of cash deposits made by the assessee. From the above, it is very clear that the explanation of the assessee with regard to the source of cash deposited it is out of sales declared for the year under consideration appears to be bona fide and genuine. Therefore, we are of the considered view that the learned Assessing Officer is erred in Page 19 of 21 & 1203/Hyd/2024 Bal Reddy Kandunuri, Hyderabad making addition towards cash deposits U/s. 69A of the Act as unexplained money and brought to tax U/s. 115BBE of the Act. The learned CIT(A), without appreciating the relevant facts, simply sustained the additions made by the learned AO. Therefore, we hereby set-aside the order of the learned CIT(A) and direct the learned AO to delete the addition made towards cash deposits U/s. 69A r.w.s 115BBE of the Act.
In the result, appeal of the assessee is allowed.
Ex-consequenti, assessee’s appeal for the AY 2019-20 is partly allowed and appeal for the AY 2020-21 is allowed.
Order pronounced in the Open Court on 28th January, 2025.