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Income Tax Appellate Tribunal, VISAKHAPATNAM “DIVISION” BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HONBLE & SHRI S BALAKRISHNAN, HONBLE
& 364/VIZ/2025 Yarlagadda Venkanna Chowdary आदेश /O R D E R PER SHRI S BALAKRISHNAN, ACCOUNTANT MEMBER:
These cross appeals are filed by the revenue and 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/250/2024-25/1075146623(1) dated 27.03.2025 for the A.Y.2021-22 arising out of the order passed under section 143(3) of Income Tax Act, 1961 (in short ‘Act’) dated 28.12.2022. First, we take up the appeal of the assessee in (A.Y. 2021-22).
Brief facts of the case are that, assessee is an individual filed its return of income for the A.Y. 2021-22 on 31.03.2022 admitting a total income of Rs.89,98,918/- and agricultural income of Rs.1,23,250/-. Subsequently, a search and seizure operation under section 132 of the Act conducted in the Sardar Group of cases on 10.11.2021. During the course of search proceedings, a warrant of authorization under section 132 of the Act was executed in the case of the assessee and his residential premises in Seethammadhara, Visakhapatnam. As part of the search and seizure operations, a survey operation under section 133 of the Act was conducted simultaneously in the business premises of M/s. Anuradha Auto Service Centre (AASC),
Page No. 2 & 364/VIZ/2025 Yarlagadda Venkanna Chowdary Visakhapatnam. M/s. AASC is a partnership firm where Shri GSS Shivaji and Smt G. Vijaya Lakshmi are the partners. However, the daily activities of M/s.AASC looked after by the assessee. During the survey operations certain material documents were impounded and marked as annexure AASC/OFF/1 to 17. Based on the impounded material, it was noticed that from the printouts taken from the mobile of Shri Ungati Srinivasa Rao, Cashier working with M/s.AASC in which daily cash sheets are available and asked for explanation. He confirmed that these entries are created by him from time to time and all the daily sales at petrol bunk and unaccounted cash received from third parties. He also further confirmed that only cash sales and cash deposits in the bank account are routed through regular books of accounts and all other cash transactions both inflow and out flow are not recorded in the books of accounts. During the survey proceedings, summary of daily cash receipts and payments was got prepared from Shri U. Srinivasa Rao wherein he has arrived at unaccounted cash receipts of Rs.7,24,06,000/- and unaccounted cash expenditure of Rs.10,42,44,400/- for the period 06.07.2020 to 07.11.2021. The computation of the unaccounted receipts and expenditure was made on the basis of “loose sheets”. It was noted that all the entries in the loose sheets are nothing but the amounts drawn by Shri GSS Sivaji and reintroduced as and when necessary. Whereas in the statement given by Shri U. Srinivasa Rao, he has clearly mentioned the names in the loose sheets were that of friends and relatives of Shri GSS Sivaji. It was explained that, it was so done to prevent the Page No. 3 & 364/VIZ/2025 Yarlagadda Venkanna Chowdary cashier from knowing the fact that Shri GSS Sivaji is drawing the cash in his own name. He therefore also said that these transactions are merged with the transactions already entered in the cash book to ascertain the real position of cash. Therefore, he submitted that the sum of Rs.2,78,33,800/- treated as unexplained is not justified. However, not being convinced by the reply of the assessee, which is not supported by any credible evidence, Ld. Assessing Officer [hereinafter in short “Ld. AO"] prepared an unaccounted cash flow statement financial year wise. He then tabulated entries relating to cash receipts and payments not routed through books of accounts from the impounded material and arrived at the amount of Rs.2,12,06,890/- as unaccounted inflow of Cash and Rs.4,58,91,320/- as unaccounted outflow of cash during the impugned assessment year. Thereafter, he proceeded to assess the entire amount of Rs.4,58,91,320/- as unexplained expenditure in the hands of the assessee. Further, he also added an amount of Rs.34,39,566/- as deemed Dividend under section 2(22)(e) of the Act with respect to advance taken by the assessee from M/s. Sardar Projects Private Limited.
3. On being aggrieved by the additions made by the Assessing Officer, assessee filed an appeal before Ld. CIT(A). Before Ld. CIT(A), assessee reiterated the submissions made before the Assessing Officer. Assessee also contested the addition in the hands of the assessee wherein it was observed by the Ld. AO himself in the assessment order that the unaccounted cash was Page No. 4 & 364/VIZ/2025 Yarlagadda Venkanna Chowdary generated out of the sales from M/s. AASC. After considering the submissions made by the assessee, Ld. CIT(A) concluded that section 69C cannot be invoked as the sources for the expenses were established by the assessee, being unaccounted cash sales from M/s. AASC. He therefore directed the Ld. AO to calculate the interest @12% on the funds / loans provided to the third parties. He also deleted the addition made by the Ld. AO on account of deemed dividend under section 2(22)(e) of the Act and thereby partly allowed the appeal of the assessee.
On being aggrieved by the order of the Ld. CIT(A), assessee is in appeal before us by raising the following grounds of appeal: -
“1. The order of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and also the law applicable to the facts of the case. 2. The learned Commissioner of Income Tax (Appeals) is not justified in directing the assessing officer to assess as income from other sources, the notional interest computed @12% of Rs.4,58,91,320. 3. Any other ground that may be urged at the time of appeal hearing.”
Ground Nos. 1 and 3 are general in nature and needs no adjudication.
Ground No. 2 is with respect to assessing the income from other sources based on the notional interest computed at 12% of Rs.4,58,91,320/-. On this issue, Ld. Authorised Representative [hereinafter “Ld.AR”] submitted that it was accepted by the revenue that the sources of the unaccounted cash arise out of the sales made in the petrol bunk of M/s.AASC. This fact was not disputed
Page No. 5 & 364/VIZ/2025 Yarlagadda Venkanna Chowdary by the Ld. CIT(A) that the unaccounted cash transactions arise from the seized material which in turn arise out of the sales of petrol bunk M/s. AASC . It was further submitted that these transactions relate to the firm M/s. AASC wherein the assessee is only a managing partner of the firm and hence it cannot be treated as transaction belonging to the assessee. He therefore pleaded that the additions sustained by the Ld. CIT(A) be deleted.
7. On the other hand, Ld. Departmental Representative [hereinafter in short “Ld. DR”] submitted that the assessee in the statements recorded during the survey proceedings has accepted the generation of unaccounted cash and incurred unaccounted expenditure. He further submitted that the sample copies of the seized material which is extracted in the assessment order contain both unaccounted and accounted cash transactions arising out of the sales / expenses of petrol bunk. Further the Cashier Shri U. Srinivasa Rao also confirmed in his statement recorded during the survey proceedings. The Ld. AO has categorically mentioned that these unaccounted financial transactions are done by the assessee as an individual and has nothing to do with the transactions of M/s. AASC since the same is not reflected in the books of accounts of M/s.AASC. He therefore pleaded that the Ld. AO has rightly added an amount of Rs.4,58,91,320/- as unexplained expenditure in the hands of the assessee and prayed for sustaining the same.
Page No. 6 & 364/VIZ/2025 Yarlagadda Venkanna Chowdary 8. We have heard both the sides and perused the material available on record. It is an undisputed fact that during the survey proceedings certain seized material was impounded showing the unaccounted cash receipts and payments belonging to the assessee. However, the contention of the assessee is that these transactions relates to the firm M/s. AASC and it is not justifiable to make the addition in the hands of the assessee. It was also not disputed that the impounded material was found in the business premises of M/s. AASC and these transactions are recorded by Shri U. Srinivasa Rao who is a cashier working in the above firm. It was submission of the Ld.AR that there is no cash deficit and that the cash balance of M/s. AASC is considered as on the dates mentioned in the loose sheets, there is no question of unaccounted expenditure, which therefore stood explained. Further, it was also observation in the order of the Ld. AO that the withdrawal made by the assessee alleging rotation of funds of the petrol bunk in the individual capacity is not substantiated by any evidence. It is found that the Ld. AO has merely relied on the statements deposed by the cashier during the survey operations. Therefore, in our considered view the addition of Rs.4,58,91,320/- in the hands of the assessee is not justifiable as the unaccounted funds arise from the cash sales of the petrol bunk M/s. AASC. Ld. AO ought to have taxed it in the hands of the partnership firm M/s. AASC instead of treating it has unexplained expenditure in the hands of the assessee. We therefore do not agree with the findings of the Ld. CIT(A) that notional interest of 12% needs to be charged against the rotation of funds
Page No. 7 & 364/VIZ/2025 Yarlagadda Venkanna Chowdary provided to third parties in the hands of the assessee. Accordingly, the Ground No. 2 raised by the assessee is allowed.
In the result, appeal of the assessee is allowed.
ITA No. 349/VIZ/2025 (A.Y. 2021-22)
Revenue has raised following grounds of appeal : - “1. The order of the Ld.CIT(A) is erroneous both on facts and in law.
2. The Ld.CIT(A) erred in deleting the addition made u/s.69C by holding that the addition u/s.69C is possible only if the sources for such expenses is not established by the assessee and in the present case, the assessee had established the sources of cash is from the petrol bunk sales and also sufficient opening balance was available for the relevant days of transaction.
The Ld.CIT(A) erred in not considering the fact that there is material evidence indicating unaccounted cash inflow and unaccounted cash outflow, which was impounded at the time of survey in the business premises of M/s.Anuradha Auto Service Centre.
4. The Ld.CIT(A) erred in not considering the fact that Shri U.Srinivasa Rao who prepared summary of daily cash receipts and expenditure statements, had accepted the fact of unaccounted cash inflow and unaccounted cash outflow at the business premises. This fact was further confirmed by Sri K.Chinnam Naidu, Accounts Manager and also the assessee, Sri Y.V.Choudary, key person of Sardar Group and who is managing the firm M/s.AASC.
5. The Ld.CIT(A) erred in not appreciating the fact that during the course of post survey investigation, the assessee had furnished the names of persons who had made unaccounted financial transactions as appearing in the loose sheets impounded, which were found to be not correct as some of these persons had denied the said transactions and in respect of others, the amounts did not tally. The assessee could not satisfactorily explain the unaccounted financial transactions/expenditures and hence addition u/s.69C of Rs.4,58,91,320/- was rightly made by the A.O.
6. The Ld.CIT(A) erred in not considering the fact that Sri K.Chinnam Naidu, Sr. Accountant, M/s.AASC in his statement recorded
Page No. 8 & 364/VIZ/2025 Yarlagadda Venkanna Chowdary has confirmed that the aggregate value of Rs,7,24,06,000/- pertains to unaccounted cash received outside the books ofaccount and Rs. 10,42,44,400/- pertains to unaccounted cash payments made outside books of account. Further, the assessee during the course of post search investigation, himself confirmed that these details were maintained by the accountant Sri K Chinnam Naidu, who acted on his directions. The Ld.CIT(A) ought to have considered thesebefore passing its order.
The Ld.CIT(A) erred in not considering the fact that the assessce furnished a cash flow Statement claiming that these financial transactions were considered in the books of M/s.Anuradha Auto Service Centre and positive cash balance was available every day.This claim of the assessee was rightly not accepted by the AO for the reason that if at all the Managing Partner withdrew these amounts and utilized for unaccounted expenditure, these should have been reflected in the capital account of the Managing Partner but it was not done so. In view of the above, the claim of the assessee that this unaccounted expenditure pertained to the Firm, M/s.AASC is devoid of merits in this regard.
The Ld. CIT(A) erred in deleting the addition of Rs.34,39,566/- towards deemed dividend u/s.2(22)(e) of the Act merely based on the submissions made by the assessee.
9. The Ld.CIT(A) erred in not appreciating the fact that the above addition was made only after the assessee failed to furnish copy of development agreement claimed to have been entered by the assessee with the company along with the other Director for construction of flats on their lands. Therefore, provisions of section 2(22)(e) are squarely applicable in the hands of the assessee for the amounts so received by him from the company.Accordingly, the above addition was made in the assessment by the A.O.
10. The Ld CIT(A) ought to have appreciated the fact that evidence was unearthed at the time of Survey in relation to un-admitted receipts, but there was no running account/cash book available, containing both the unaccounted receipts and unaccounted expenditure. 11 The Ld. CIT(A) ought to have appreciate the fact that admissions are relevant and may be proved as against the person who makes them, as per the section 21 of the Indian Evidence Act 1872. In the instant case, the statements given by the partners of theassessee firm during the Survey proceedings has an evidentiary value. The CIT(A) has erred in not considering these statements recorded at the time of Survey u/s 133A.
The Ld. CIT(A) is not justified in allowing relief to the assessee without applying the decision of Hon'ble Apex Court in the case of Sumati Dayal v CIT (1995) 214 ITR 801 (SC), wherein it was held that Surrounding circumstances and test of applying human probabilities "Though an apparent must be considered real until it was shown that there were reasons to believe that the apparent was not real in the case where a Page No. 9 & 364/VIZ/2025 Yarlagadda Venkanna Chowdary party relied on self-serving recitals in document, it was for that party to establish the truth of those recitals. Taxing authorities were entitled to look into the surrounding circumstances to find out the reality of the recitals".
The Ld. CIT(A) is not justified in allowing relief without applying the decision of Hon'ble Apex Court in the case of CIT v. Durga Prasad More (1971) 82 ITR 540 (SC) (546,547). wherein it was held that "Science has not yet invented any instrument to test the reliability of the evidence placed before a Court or a Tribunal. Therefore, the Courts and the Tribunals have to judge the evidence before them by applying the test of Human Probabilities. Human minds may differ as to reliability of a piece of evidence, but that sphere decision of the final fact-finding authority is made conclusive by law"
Any other ground that may be urged at the time of hearing.”
The two issues emanating from the grounds of appeal of the revenue are the deletion of addition of Rs.4,58,91,320/- and deletion of the amount of Rs.34,39,566/- as deemed dividend u/s. 2(22)(e) of the Act by the Ld.CIT(A).
12. The revenue contends that the Ld. CIT(A) has erred in directing the Ld.AO to adopt 12% as notional interest on the rotation of funds provided to third parties, by deleting the entire addition of Rs.4,58,91,320/- made by the Ld.AO. Since this issue raised by the assessee in Ground No. 2 in the grounds of appeal in has been decided in favour of the assessee as in the aforesaid paragraphs, the grounds raised by the revenue stands dismissed.
13. With respect to Ground Nos. 8 & 9 regarding deemed dividend under section 2(22)(e) of the Act, the Ld. CIT(A) while examining the submissions of the assessee, held in para 8.2 as below:
Page No. 10 & 364/VIZ/2025 Yarlagadda Venkanna Chowdary “8.2 I have considered the findings of the AO and the submissions of the appellant and the order of the jurisdictional Hon'ble ITAT. As seen from the table at para no. 7.8 of this order, the appellant had explained that each payment from the company represents the amount already given by him to the company. These are repayments of the amounts given earlier by the appellant. The contention of the Ld. AR that the amounts received by him are not fresh advances and in nature of repayment of amount received from the appellant, holds merit and the addition of Rs. 34,39,566/-made on account of deemed dividend u/s 2(22) (e) of the Act is legally not tenable.Accordingly, the AO is hereby directed to delete the addition of Rs. 34,39,566/- made on account of deemed dividend u/s 2(22) (e) of the Act. Hence the ground no. 3 is here by allowed.”
14. In the instant case, it was observed by the Ld.CIT(A) that these amounts were earlier given by the assessee and are in the nature of repayment of earlier advances. We are in agreement with the findings of the Ld. CIT(A) as there is no infirmity in the order of the Ld. CIT(A) on this issue. Accordingly, grounds raised by the revenue are dismissed.
In the result, appeal of the revenue is dismissed.
To sum-up, appeal of the assessee is allowed and appeal of the revenue is dismissed.
Order pronounced in the open court on 04th September, 2025.