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Facts
The assessee, M/s. Sardar Projects Pvt Ltd., filed original and revised returns for A.Y. 2021-22. Following a search and seizure operation, the AO made additions for undisclosed cash receipts (Rs. 41,90,694/-), short admission of sales (Rs. 3,00,000/-), notional interest on advances (Rs. 4,41,082/-), and unexplained expenditure (Rs. 46,79,914/-). The assessee appealed to the CIT(A), who deleted all these additions, leading the revenue to file an appeal before the ITAT.
Held
The ITAT upheld the CIT(A)'s decision to treat the undisclosed cash receipts and short admission of sales as business receipts, not unexplained money under Section 69A, as their nature and source were accepted. The ITAT also confirmed the deletion of notional interest, finding that the advance was made from interest-free funds. Additionally, the ITAT allowed the telescopic benefit for the unexplained expenditure against unaccounted receipts, dismissing the revenue's appeal on all grounds.
Key Issues
Whether undisclosed cash receipts and short admission of sales should be treated as business income or unexplained money under Section 69A; whether notional interest on advances made from interest-free funds is taxable; and whether telescopic benefit can be applied for unexplained expenditure against unaccounted receipts.
Sections Cited
143(3), 132, 143(2), 142(1), 69A, 115BBE, 36(1)(iii), 69C, 69
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Income Tax Appellate Tribunal, VISAKHAPATNAM “DIVISION” BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
आदेश /O R D E R PER SHRI S BALAKRISHNAN, ACCOUNTANT MEMBER:
This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (Appeals), Visakhapatnam -3, [hereinafter in short “Ld.CIT(A)”] vide DIN & Order No. ITBA/APL/S/250/2024- 25/1075147289(1) dated 27.03.2025 for the A.Y.2021-22 arising out of the
Brief facts of the case are that, assessee Company filed its return of income on 07.03.2022 admitting a total income of Rs.1,15,59,390/-. Subsequently, the assessee also revised return of income admitted Rs.1,56,22,390/- in the revised return of income filed on 31.03.2022. Consequent to search and seizure operation under section 132 of the Act conducted in the Sardar Group of cases on 10.11.2021. M/s. Sardar Projects Private Limited (the assessee) and its business premises located at Gajuwaka, Visakhapatnam was searched. During the course of the search proceedings certain material documents were seized in the business premises of the assessee Company. Subsequently, warrant of authorization under section 132 of the Act dated 29.12.201 to operate a prohibitor order placed in the assessee business premises. During the course of search operation on 29.12.2021 certain material / documents were seized and marked as A/SPPL/OFF/PO/01 and 02. The case was converted into scrutiny with the prior approval of Pr.CIT, Visakhapatnam. Subsequently, notices under section 143(2) and 142(1) of the Act were issued on the assessee requesting to furnish information. Since the assessee failed to respond, further notices under section 142(1) dated 28.09.2022, 18.10.2022 and 17.11.2022 were issued and served on the assessee Company. In response, assessee filed information on 29.11.2022 and 01.12.2022. On perusal of the Page No. 2 (A.Y. 2021-22) M/s. Sardar Projects Pvt Ltd., submissions furnished by the assessee, Ld. AO quantified an amount of Rs.41,90,694/- as undisclosed income for the impugned assessment year. Thereafter he issued show-cause notice on 12.12.2022 requesting him to show- cause why addition of Rs.41,90,694/- should not be made towards undisclosed cash receipts. In response, Assessee furnished his explanation on 24.12.2022 stating that it has already admitted an amount of Rs.40,63,000/- as additional income and paid the taxes accordingly while filing revised return of income for the A.Y. 2021-22. Further they also accepted the difference of Rs.1,27,694/- as undisclosed income and requested to consider as undisclosed business receipts. Ld. Assessing Officer [hereinafter in short “Ld. AO"] noticed that assessee has admitted an amount of Rs.40,63,000/- under the head “other sources” and the same was not offered as unexplained receipts / money. Hence, he did not accept the contention of the assessee and accordingly made an addition of Rs.41,90,694/- as unexplained money under section 69A r.w.s. 115BBE of the Act. Further, Ld. AO also opined to give credit for the amount of Rs.40,63,000/- in the computation of income. Further Ld. AO also made additions with respect to short admission of sales amounting to Rs.3,00,000/-. Further he also made addition of Rs.4,41,082/- under section 36(1)(iii) of the Act considering notional interest @12% on the advance given to Shri J.V. Giri.
Aggrieved by the additions made by the Ld. AO, assessee filed an appeal before Ld. CIT(A). Considering the decision of the Co-ordinate Bench of the Page No. 3 (A.Y. 2021-22) M/s. Sardar Projects Pvt Ltd., Tribunal, Ld. CIT(A) directed the Ld. AO to treat the entire amount of Rs.41,90,694/- as business income thereby allowing the ground raised by the assessee. Further with regard to short admission of Rs.3,00,000/- the Ld.CIT(A) found that it is a business receipt and not undisclosed money under section 69Aof the Act. With regard to addition of notional interest of Rs.4,41,082/- Ld. CIT(A) found that the advance given to Shri J.V. Giri was out of interest free funds and hence deleted the additions made on account of notional interest by the Ld. AO. Further by relying on the decision of the jurisdictional Tribunal the Ld.CIT(A) also allowed the unexplained expenditure added by the Ld. AO.
On being aggrieved by the deletion of the additions by the Ld. CIT(A), the revenue is in appeal before us by raising 25 grounds. The following are the issues emanating from the grounds raised by the revenue: -
I. Deletion of addition of Notional interest of Rs.4,41,082/-. II. Deletion of addition of Rs.46,79,614/- as unexplained expenditure. III. Treating the undisclosed cash receipt of Rs.41,90,694/- as undisclosed receipts and not as business receipts.
Ld. DR submitted that various grounds have been raised covering the above issues regarding the deletion of above additions and pleaded that the order of the Ld.AO be restored. He further submitted that the Ld. CIT(A) erred in considering the income as business receipts instead of undisclosed cash
Page No. 4 (A.Y. 2021-22) M/s. Sardar Projects Pvt Ltd., receipts as there is no nexus between the same as it was disclosed as income from other sources and not as business income by the assessee. Further with respect to unexplained expenditure, Ld. DR submitted that it is clear from the seized material that there is no nexus between the undisclosed receipts and undisclosed expenditure and hence the Ld. CIT(A) ought to have upheld the order of the Ld. AO.
Per contra, Ld. Authorised Representative [hereinafter “Ld.AR”] relied on the orders of the Ld. CIT(A).
We have heard both the sides and perused the material available on record. It is an admitted fact that the assessee while filing the revised return of income has admitted addition income of Rs.40,63,000/- and has also offered to treat the difference amount of Rs.1,27,694/- as undisclosed income with a request to consider it as undisclosed business receipts. From the submissions available on record, it is noticed that the cash receipts from the flat buyers are recorded in the books of accounts by mentioning the amounts were received periodically both in cash and cheques over the various assessment years. Ld.AO while arriving at the total undisclosed cash receipts at Rs.1,87,69,101/- quantified undisclosed income at Rs.41,90,694/- for the impugned assessment year. However, the contention of the assessee is that he has already accepted Rs.40,63,000/- while filing revised return of income, which arise out of undisclosed on-money receipts from flat buyers, with a request to consider the Page No. 5 (A.Y. 2021-22) M/s. Sardar Projects Pvt Ltd., difference amount of Rs.1,27,694/- (Rs.41,90,694/- - Rs.40,63,000/-) as business receipts. The fact that the assessee has received sale consideration in the regular books of accounts was not disputed by the revenue. The only contention of the revenue is that the assessee himself has offered “income from other sources” instead of “business receipts” and hence provisions of section 69A of the Act cannot be made applicable to the said on-money receipts. In the instant case, the Ld. AO has accepted the on-money receipt from sale of flats in the assessment year and therefore it has to be construed as business receipts and not as undisclosed under section 69A of the Act. The Ld. CIT(A) has rightly observed that since the nature and source have been duly accepted by the Ld.AO it can be construed as business receipts and not be unexplained cash credits u/s. 69 of the Act. The Ld.CIT(A) also relied on the decision of the jurisdictional Tribunal in the case of DCIT v. Sri Sriram Manchukonda in while arriving at this conclusion. In these circumstances as per the facts discussed above, we are of the considered view that there is no infirmity in the decision of the Ld. CIT(A) and hence no interference is required on this issue.
Further with respect to addition of Rs.3,00,000/- as short admission of sales. Similar view was taken by the Ld. CIT(A) that the provisions of section 69A cannot be made applicable to the said short admissions as it has been identified that the source of credit received is from the sale of Flat No. 111
Page No. 6 (A.Y. 2021-22) M/s. Sardar Projects Pvt Ltd., which was not disputed by the Ld. AO in the assessment order. Ld. CIT(A) has therefore rightly construed as business receipts and we do not find any infirmity in the decision of the Ld. CIT(A), hence this ground raised by the revenue is dismissed.
With respect to notional interest of Rs.4,41,082/-, it was established that the advance of Rs.37,50,186/- to Shri J.V. Giri was out of the interest free funds available in the form of share capital and reserves and surplus, as per the financial statements. The Ld. CIT(A) has therefore rightly considered and found that the Ld. AO has erred in making addition of notional interest @12% on Rs.37,50,186/- and the assessee Company has at its disposal in the form of share capital and reserves an amount of Rs.13.16 Crores which are considered as interest free funds. The Ld.CIT(A) relied on various judicial pronouncements while concluding that in the present set of facts and circumstances when huge interest free funds are available addition made by the Ld.AO on the proportionate interest expenditure is not legally sustainable. We agree with the findings of the Ld.CIT(A) and hence we do not want to interfere on this issue. Thus, the grounds raised by the revenue is dismissed.
With respect to the addition of Rs.46,79,914/- under section 69C of the Act towards unexplained expenditure, Ld. AO observed that it is not part of the regular books of accounts where the assessee could not substantiate the source for such expenditure. However, Ld. AO concluded that assessee has received
Page No. 7 (A.Y. 2021-22) M/s. Sardar Projects Pvt Ltd., unaccounted cash receipts amounting to Rs.44,90,694/- and observed that the alleged unrecorded expenses were made from the unrecorded receipts. However, the Ld. AO failed to give any credit to the unrecorded credits amounting to Rs.44,90,694/-. The Ld. CIT(A) while considering all the facts as discussed above, found that unaccounted unexplained expenditure amount of Rs.46,79,614/- was made out of unaccounted receipts arising out of construction activities was not disputed by the Assessing Officer in the assessment order and therefore relying on the jurisdictional Bench of the Tribunal in the case of Badam Bhogallinga Swamy v. ACIT in & 09/VIZ/2021 allowed the telescopic benefit of the unaccounted income against the unaccounted expenditure. We concur with the view of the Ld. CIT(A) and we find no infirmity in the decision of the Ld. CIT(A) and hence no interreference is required. Accordingly ground raised by the revenue is dismissed.
In the result, appeal of the revenue is dismissed.
Order pronounced in the open court on 04th September, 2025.