Loading judgment…
Facts
During a local election, election officials intercepted two individuals carrying Rs. 20 lakhs in cash. The cash was stated to belong to the assessee, Smt. Priyanka Tiwari, a sugar trader, and was allegedly intended for purchasing sugar. The Assessing Officer treated the cash as unexplained income and added it to the assessee's income.
Held
The Tribunal held that the Assessing Officer and the CIT(A) relied on suspicion and conjecture without sufficient tangible material. The assessee had provided explanations and evidence, including affidavits and cash book entries, which were summarily rejected. The Tribunal found that the addition was not justified.
Key Issues
Whether the cash of Rs. 20 lakhs seized from the employees was unexplained income, and if the AO and CIT(A) were justified in adding it to the assessee's income based on suspicion.
Sections Cited
131(A), 69A, 40A(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, SMC BENCH, LUCKNOW
Before: SHRI. SUDHANSHU SRIVASTAVA
O R D E R This appeal has been preferred by the Assessee against the order dated 26.06.2023, passed by the ld. Commissioner of Income Tax (Appeal), Lucknow - 3 (ld. CIT(A)) for Assessment Year 2016-17.
2.0 The brief facts of the case are that on 28.02.2016 two persons namely, Shri Babloo Rathore and Shri Vivek Mishra were intercepted by the Magistrate, Surveillance Team (Asstt. Engg., PWD, Lakhimpur-Kheri) during the Local Authority Elections. They had a cash of Rs.20,00,000/- in their possession, which was seized. The cash so seized was deposited in PD Account of the DIT(Inv.), Kanpur on 31.01.2017 by the Chief Manager, SBI, Lakhimpur-Kheri. After executing summons under section 131(A) of the Income Tax Act, 1961 (hereinafter called “the Act’), the statements on oath of Shri Babloo Rathore and Shri Vivek Mishra were recorded. During the course of recording their statements on oath, both of them stated that the cash belonged to the assessee, Smt. Priyanka Tiwari, Proprietor of M/s R.K. Agencies, Gola Gokaran Nath, Lakhimpur-Kheri. On 01.12.2016, an affidavit signed by Smt. Priyanka Tiwari alongwith copy of Cash Book & Ledger was filed, wherein, Smt. Priyanka Tiwari admitted that the seized cash belonged to her. Smt. Priyanka Tiwari was also summoned by the DDIT(Inv.), Bareilly and her statement on oath was recorded on 28.08.2017, in which she admitted that she had given Rs.20,00,000/- to her employees, Shri Babloo Rathore and Shri Vivek Mishra to purchase sugar in cash from Sitapur Mandi. Since the assessee had not produced any document with regard to her claim that she had given Rs.20,00,000/- to her employees for purchase of Sugar, the Assessing Officer (AO) treated the same as unexplained cash and added the same to the income of the assessee under section 69A of the Act and assessed the total income of the assessee at Rs.24,97,250/-.
2.1 Aggrieved, the assessee preferred an appeal before the Ld. First Appellate Authority, who dismissed the appeal of the assessee by rejecting the contentions of the assessee.
2.2 Now, the assessee has approached this Tribunal challenging the order of the Ld. First Appellate Authority by raising the following grounds of appeal:
1. Because, on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax Appeals) has erred in fact and in law in confirming an addition made by Assessing Officer Rs.20,00,000/- as- unexplained cash of the assessee, arbitrarily rejecting the explanation furnished by the assessee concerning his claim of having earned through sale of sugar which is also reflecting in the books of accounts of the assessee.
2. Because, the Assessing officer has made the said addition U/s 69A of the Income Tax Act, which does not apply in my case by the plain reading of section 69A of the Income Tax Act, whereas the Ld. Commissioner Of Income Tax (Appeals) has disallowed the addition as per the provision of Sec 40A(3) of the Income Tax Act.
Because, on the facts and in the circumstances of the case, the Impugned Assessment Order passed by the Ld. Assessing Officer, is wholly without jurisdiction and bad in law being time barred and consequently the Impugned Order of CIT(A) is liable to be set-aside and quashed.
Because on the facts and in the circumstance of the case, the order of Assessment has been passed in absolute violation of the principles of Natural Justice, without providing adequate opportunity of being heard and therefore deserves to be declared a nullity.
The appellant craves for leave to add, modify, amend or delete any other and further grounds of appeal with permission.
3.0 The Ld. Authorized Representative for the assessee (Ld. A.R.) submitted that the assessee was doing business of trading in Sugar in the name and style of M/s R. K. Agencies and regular books of account were being maintained. It was further submitted that the books along with Stock Registers were duly produced before the AO during the course of assessment proceedings and the same were not rejected by the AO. It was submitted that the the assessee had handed over an amount of Rs.20 lakhs to her employees, Shri Babloo Rathore and Shri Vivek Mishra for the purposes of purchasing Sugar and while they were on the way to Sitapur Mandi, the Local authority Election, Magistrate Surveillance Team, on 28.02.2016, had intercepted the vehicle in which the employees were travelling along with cash of Rs.20 lakhs and the amount of cash was seized and subsequently the assessee was required to explain the source and the purpose of cash being carried in the vehicle. The Ld. A.R. submitted that both the employees had stated under oath that the cash belonged to the assessee and subsequently, the assessee also had submitted an Affidavit along with copy of Cash Book and Ledger, admitting and demonstrating that the seized cash belonged to her. It was further submitted that although the assessee regularly purchased Sugar from Gola Sugar Factory through banking channels, however, during that period Gola Sugar Factory was not supplying Sugar to its vendors and, therefore, to keep the business running, the assessee had given cash of Rs.20 lakhs out of cash-in-hand available in the Cash Book to her employees to purchase Sugar from Sitapur Mandi. It was also submitted by the Ld. A.R. that at that time Sugar Mills were not selling Sugar to traders, but giving the same to farmers in lieu of payments due for purchase of Sugar Cane. The Ld. A.R. submitted that, however, the AO did not accept this contention of the assessee by stating that the employees of the assessee did not have any document at the time of being intercepted which would establish that they were carrying the cash for the purpose of purchasing Sugar. The AO also observed that on the date of interception, it was a Sunday and, therefore, Sitapur Mandi would have been closed that day and, therefore, the version of the assessee regarding cash being carried for the purchase of Sugar was not to be believed. The Ld. A.R. submitted that based on such surmises and suspicion, the AO had proceeded to add an amount of Rs.20 lakhs under section 69A of the Act to the income of the assessee.
3.1 It was submitted that the AO had completely ignored the fact that the employees of the assessee had stated on oath that they were going to Sitapur Mandi for purchase of Sugar and that the cash belonged to the assessee. It was also submitted that the assessee had duly produced the books of account before the AO wherein cash-in-hand of Rs.20 lakhs was available as on the date of interception. It was submitted that in view of these facts, the AO could not have proceeded to add the impugned amount to the income of the assessee by holding that the books had been altered by the assessee subsequent to interception.
3.2 The Ld. A.R. further submitted that even the ld. CIT(A) had not given any relief to the assessee simply on the ground that since usually the assessee purchased sugar through normal banking channels, therefore, it was not probable that cash was being carried for the purpose of purchasing sugar. The Ld. A.R. reiterated that stock registers and books of account were not rejected by the AO and it was also submitted that provisions of section 40A(3) of the Act, as referred to by the AO, would not apply in the assessee’s case, as section 40A(3) was not applicable to the business of Khandsari. It was prayed that the impugned addition be deleted and relief be allowed to the assessee.
4.0 Per contra, the Ld. Sr. D.R. placed reliance on the observations and findings of both the lower authorities and submitted that the contention of the assessee was full of gaps, as the assessee could not suitably explain as to why cash was being carried to purchase sugar when in usual course of business, assessee used to purchase sugar through normal banking channels. It was further submitted by the Ld. Sr. D.R. that even the statements of two employees of the assessee were contradictory and none of them could even state the name of the dealer from whom they were intending to purchase sugar in Sitapur Mandi. The Ld. Sr. D.R. further submitted that the ld. CIT(A) has observed in paragraph 7.6 of the impugned order that between the period 22.01.2016 and 31.03.2016, no payment has been found to be reflected in the Cash Book, whereas, cash-in- hand had been constantly increasing from 01.02.2016 to 28.02.2016, reaching a maximum of Rs.32,39,719/- out of which Rs.20 lakhs have been claimed as seized. It was submitted that it is quite unusual that no payment would have been made for such a long duration although payment was due for 333 quintals of sugar purchased on 09.02.2016.
4.1 The Ld. Sr. D.R. submitted that, thus, the version of the assessee was hard to believe and the AO had made the addition correctly and the same had rightly been sustained by the ld. CIT(A). It was prayed that the order of the ld. CIT(A) be upheld.
5.0 I have heard the rival contentions and have also gone through the case record as well as through the impugned order carefully. The facts are not in dispute. During the course of Local Authority Elections, Magistrate Surveillance Team, on 28.02.2016, had intercepted Shri Babloo Rathore and Shri Vivek Mishra, both the employees of the assessee, carrying cash of Rs.20 lakhs. When the statements on oath of both the employees were recorded, both the employees stated that the cash belonged to the assessee and that they were on their way to Sitapur Mandi to purchase sugar. Subsequently, the assessee also submitted an Affidavit stating that the cash belonged to her and also produced copy of Cash Book and Ledger account to establish that the cash was from her books of account. However, the AO did not accept the contentions of the assessee and proceeded to add back the amount of Rs.20 lakhs as unexplained income under section 69A of the Act by holding that the cash was outside the books of account. However, the books of account were not rejected by the AO and nor were the Stock Registers rejected.
5.1 It is seen that the AO himself has noted in paragraph 2.3 of the assessment order that the assessee made sales in cash throughout the year under consideration as well as in the previous assessment year as well and during the year under consideration, the gross sales amounted to Rs.5.30 crores. Thus, it is not the case of the Department that cash has been generated in the books of account from a source other than sale of sugar. It is also seen that the reason for disbelieving the contention of the assessee has primarily been that although the assessee usually purchased sugar through normal banking channels, at the time of interception, it was being claimed that the cash was being carried to purchase sugar in cash. In this regard, the assessee did explain before the lower authorities that cash purchases were necessary to keep the business running, because at that point of time, Gola sugar Factory was not selling sugar to traders. However, the lower authorities did not accept this contention of the assessee without assigning any reason. If the AO was finding this contention of the assessee hard to believe, he could have made enquiries at his end from Gola sugar Factory to get the correct version of facts in this regard. However, he simply rejected the assessee’s contention in this regard.
5.2 It is also seen that the ld. CIT(A) has observed in paragraph 7.6 of the impugned order that as on 28.02.2016, the assessee had cash-in-hand of Rs.32,39,719/- out of which Rs.20 lakhs was being claimed as having been seized, but, in his view, the cash book had been modified because, in his opinion, since payment was outstanding for purchase of 333 quintals of sugar, on 09.02.2016, it was not possible that the assessee would not have made payment for the same. The ld. CIT(A) has also observed that the assessee had not made any cash payment during the period from 01.02.2016 to 28.02.2016 which implied that the assessee was modifying/altering his books of account to justify availability of cash in her books of account as on the date of interception. In my considered view, the approach of both the AO as well as the ld. CIT(A) is entirely based on suspicion, surmises and conjectures. Although the ld. CIT(A) has himself accepted that there was sufficient cash-in-hand in the books of account, he has rejected the assertion of the assessee only for the reason that the payment for 333 quintals of sugar was still outstanding. In my considered view, the ld. CIT(A), having co- terminus powers, could have directed the assessee to furnish the details and the date of payment of 333 quintals sugar and also cross checked it with the books of account/Balance Sheet of the assessee, but he did not do so and simply proceeded on the assumption that the books of account had been modified.
5.3 It is seen that no tangible material was brought on record by the AO to justify the impugned addition and the explanations and evidences offered by the assessee were summarily rejected without any logic or reason. Therefore, in view of the above cited facts, I am of the considered view that the impugned addition could not have been made and, accordingly, I set aside the order of the ld. CIT(A) and direct deletion of the addition.