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Facts
The appellant's assessment for AY 2020-21 was completed by the AO with substantial additions for unexplained cash deposits (Rs. 63.71 lakhs from alleged agricultural sales, Rs. 16 lakhs from alleged interest collection) and disallowance of Rs. 9.12 lakhs for interest expenditure paid in cash under Section 40A(3). The CIT(A) upheld these additions, leading to the appellant's appeal to the Tribunal.
Held
The Tribunal observed that the lower authorities failed to consider cash withdrawals for subsequent deposits and did not examine exceptions under Rule 6DD for the Section 40A(3) disallowance. It further noted that the absence of reported agricultural income alone cannot dismiss the claim of cash deposits from cardamom sales. Consequently, the matter was remanded to the AO for a de novo assessment to re-examine these aspects after affording the appellant a fresh opportunity of hearing.
Key Issues
Whether cash deposits could be treated as unexplained money without considering corresponding cash withdrawals or the nature of income (agricultural/interest), and whether Section 40A(3) disallowance was proper without examining Rule 6DD exceptions.
Sections Cited
143(3), 144B, 40A(3)
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Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM & SHRI SOUNDARARAJAN K., JM
O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [CIT(A)], dated 18.06.2024 for Assessment Year (AY) 2020-21.
Brief facts of the case are that the appellant is an individual deriving income under the heads “business” and “agriculture”. The return of income for AY 2020-21 was filed declaring total income of Rs. 24,95,020/-. Against the said return of income, the assessment Joy Thomas was completed by the Income Tax Officer, Ward-1, Kottayam (hereinafter called "the AO") vide order dated 23.09.2022 passed u/s. 143(3) r.w.s 144B of the Income Tax Act, 1961 (the Act) at a total income of Rs. 1,13,78,620/-. While doing so, the AO made addition of cash deposit of Rs. 63,71,381/- in bank account as unexplained money of the assessee, rejecting the explanation of the appellant that the cash deposits were out of sale proceeds of agricultural products. The AO also made addition of Rs. 16,00,219/- as unexplained money of the appellant, rejecting the explanation that the cash deposits of Rs. 16,00,219/- was made out of interest collected from three parties, viz., Dr. Cyriac Mathew, Dr. Abraham P.E. and Shri Jophy Joseph, J.J. The AO made addition of Rs. 9,12,000/- being the interest expenditure paid in cash invoking the provisions of section 40A(3) of the Act.
Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO.
Being aggrieved, the appellant is in appeal before us in the present appeal.
The learned A.R. submitted that the lower authorities have failed to consider the cash withdrawals of 29,74,000/- made during the previous year relevant for the assessment year. It is further submitted that the appellant was cultivating cardamom plantation on 142 acres of land. He further submitted that the mere fact that the Joy Thomas appellant had not shown agricultural income cannot be a reason to disbelieve the explanation of the assessee in support of cash deposit placing reliance on the decision of the Hon'ble coordinate bench in the case of Laigy George Pattanayil v. ITO [2019] 55 CCH 0093. As regards to the disallowance u/s. 40A(3) it is submitted that interest expenditure was paid to the close friend, which are covered by exceptions enumerated under rule 6DD of the I.T. Rules. Therefore, he prayed that the matter may be remanded for de novo assessment in accordance with law.
On the other hand, the learned Sr. DR has no serious object to the contentions of the assessee.
Having heard the rival submissions, we are of the considered opinion that it is a fit case to remand the matter to the AO for de novo assessment, as the AO as well as the CIT(A) failed to consider the withdrawals made from the bank account for the purpose of subsequent deposit in the same account. Further, we find that the AO failed to examine the exceptions enumerated under Rule 6DD of the I.T. Rules before invoking section 40A(3) of the Act, and also keeping in mind that merely because the appellant had failed to show agricultural income cannot be a reason to reject the explanation that the cash deposits were made out of sale proceeds of cardamom. Accordingly we remit the matter back to the file of the AO for de novo assessment in accordance with law after affording
In the result, appeal filed by the appellant stands allowed for statistical purposes.
Order pronounced in the open court on 25th February, 2025.