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Facts
The assessee, in the poultry business, filed her return for AY 2017-18. Her case was selected for scrutiny, and the Assessing Officer (AO) made additions of Rs. 25,10,000/- as unexplained money under Section 69A (cash deposits in SBNs from sundry debtors) and Rs. 8,78,000/- as unexplained cash credits under Section 68. The CIT(A) partly allowed the appeal, reducing the Section 69A addition to Rs. 18,10,000/- and upholding the Section 68 addition, leading to the current appeal by the assessee.
Held
The Tribunal held that the Section 69A addition was unwarranted because the cash deposits were recorded in the books of accounts and adequately explained as recoveries from sundry debtors/advances from prior years. For the Section 68 addition, the Tribunal found that the AO did not have sufficient time to examine the genuineness and creditworthiness of the loan parties due to late submission of confirmations, thus remanding this issue back to the AO for re-examination.
Key Issues
1. Whether cash deposits recorded in books of accounts can be treated as unexplained income under Section 69A of the Income Tax Act. 2. Whether the genuineness and creditworthiness of unsecured loans under Section 68 were adequately verified by the Assessing Officer.
Sections Cited
143(3), 143(1), 143(2), 142(1), 129, 69A, 115BBE, 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, VISAKHAPATNAM “DIVN” BENCH, VISAKHAPATNAM
Before: SHRI VIJAY PAL RAO, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
सुनिाईकीतारीख/ Date of Hearing : 24/04/2025 घोर्णाकीतारीख/Date of : 13/05/2025 Pronouncement O R D E R PERS. BALAKRISHNAN, AM:
This appeal filed by the assessee is against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (“Ld. CIT(A)”) vide DIN & Order No. ITBA/NFAC/S/250/2023-24/1063614662(1), dated 29/03/2024 for the AY 2017-18 arising out of the order passed U/s. 143(3) of the Income Tax Act, 1961 (“the Act”), dated 30/12/2019.
2. The facts in brief are that the assessee is in poultry business under the name and style of M/s. Sri Annapurna Agro Industries as proprietary concern. The assessee furnished her return of income admitting a total income of Rs. 3,74,590/- and agricultural income of Rs. 2,62,842/- for the AY 2017-18 on 29/12/2017. The said return was summarily processed U/s. 143(1) of the Act on 16/05/2018. Subsequently, the case was selected for scrutiny under CASS and accordingly notices U/s 143(2) & 142(1) of the Act were issuedfrom time to time. A letter was also addressed to the assessee on 11/10/2019 intimating the change in his jurisdictional Assessing Officer in accordance with section 129 of the Act. In response to the notices, the assessee furnished the required information and the Ld. AO after verification of the submissions, completed the assessment by making an addition of Rs. 25,10,000/- as unexplained money U/s. 69A r.w.s 115BBE of the Act. Further, the Ld. AO also made an addition of Rs. 8,78,000/- U/s. 68 r.w.s 115BBE of the Act. On being aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A).
3. Before the Ld. CIT(A), the assessee made detailed submissions along with supporting documents. The Ld. CIT(A), after examination, admitted the additional evidence and forwarded it to the Ld. AO calling for remand report. The Ld.AO submitted the remand report on 06/12/2022 by observing that the assessee has not proved that cash received from debtors and also the creditworthiness of the loan parties and therefore, requested the Ld. CIT(A) to disallow the same. The Ld. CIT(A) forwarded the remand report to the assessee calling for rebuttal of the same. The assessee submitted its report on 15/03/2024 by making point wise rebuttal of the observations of the Ld.AO in the remand report. The Ld. CIT(A) after careful consideration of the submissions and the material available on record, estimated the total additions at Rs. 18,10,000/- as against 25,10,000/- made by the Ld. AO while so upholding the addition of Rs. 8,78,000/- U/s. 68 of the Act. Thus, the Ld. CIT(A) partly allowed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us by raising the following grounds of appeal:
1. The Ld. CIT(A) is not justified in confirming the action of the Ld. AO in treating the amount of Rs. 25,10,000/- being cash deposits in bank as unexplained income u/s 69A after allowing relief only to the extent of Rs. 7,00,000/-.
The Ld. CIT(A) is not justified in confirming the action of the AO in treating Rs. 8,78,000/- as unexplained cash credits u/s. 68 of the Act.
The appellant craves leave to add to, alter, modify, delete any of the above grounds of appeal
.”
4. Ground No.3 is general in nature and needs no adjudication.
5. Ground No. 1 relates to addition of Rs. 18,10,000/- by allowing a marginal relief of Rs. 7 lakhs by the Ld. CIT(A) as unexplained income U/s. 69A of the Act. On this issue, the Ld. AR submitted that the additions cannot be made U/s. 69A of the Act when the amounts are recorded in the books of accounts. The Ld. AR referred to page No. 62 of the paper book wherein the cash book of the Head Office is showing that the amount of Rs. 2,50,000/- has been accounted in the books of accounts of the assessee. Similarly, the Ld. AR also referred to page No. 18 in the paper book wherein the Branch Office cash book was submitted before us disclosing the cash deposit. He vehemently submitted that since the amounts were accounted in the books of accounts of the assessee, invoking of section 69A of the Act by the Ld.AO is bad in law. The Ld. AR further submitted that the receipts are from sundry debtors which are in Specified Bank Notes (SBNs) and received prior to the demonetization period. He also conceded that on two occasions after demonetization period, the assessee has received money from sundry debtors in SBNs. He also further submitted that prior to the date of demonetization ie., on 7/11/2016, the assessee had sufficient opening balance as per the books of accounts and hence no addition can be made U/s. 69A of the Act. He also further explained that amounts were paid to the farmers as advances for procurement of quality paddy seeds in the earlier years. However, due to failure in the quality test of the seeds supplied by the farmers, the assessee has taken back the advances paid to the farmers during the earlier accounting period. The Ld. AR also referred to the Income Tax Return filed for the AY 2016-17 wherein the sundry debtors have been disclosed at Rs. 86,13,774/- which is available at page 145 of the paper book. He also further submitted that during the impugned assessment year, the assessee has discontinued her business of procuring quality paddy seeds and therefore realized the advances given to the farmers and deposited the same into the bank account of the assessee. He further submitted that the Ld. CIT(A) without considering the facts has erred in allowing the amount of Rs. 7 laksh without any basis. He therefore pleaded that since the amounts have been explained and recorded in the books of accounts, the entire addition made U/s. 69A of the Act deserves to be deleted.
6. Per contra, the Ld. DR submitted that the Ld. CIT(A) has called for the remand report from the Ld. AO wherein the Ld. AO after examination, confirmed the additions. Further, the Ld. DR also submitted that the Ld.CIT(A) has observed in his order that the assessee is not into the business of purchase of quality seeds but carried on only poultry business. He also further referred to the order of the Ld. CIT(A) wherein the turnover was disclosed at Rs. 70 lakhs and the advances to the farmers was disclosed at Rs. 86 lakhs. He therefore submitted that since the advances are more than the turnover, it cannot be relied upon. On the issue of SBNs, the Ld. DR relied on the decision of the coordinate Bench of the Chennai in the case of Vidhiyasekaran Pradeep Malliraj vs. ITO [2024] 62 taxmann.com 254 (Chennai. Trib.). Countering the arguments of the Ld. DR, the Ld. AR reiterated that the advances were paid during the assessment year 2016-17 which was recovered during the impugned assessment year wherein these facts have been already disclosed while filing the return of income for AY 2016-17. Further, the Ld. AR also submitted that as per the Specified Bank Notes (Cessation of Liabilities) Act, 2017 high denominations continued to be a legal tender till the appointed date which is 31/12/2016 and hence there is no illegality in accepting the same and depositing into the bank account of the assessee.
We have heard both the sides and perused the material available on record. It is an undisputed fact that the assessee has deposited an amount of Rs. 25,10,000/- in SBNs during the demonetization period which was claimed to be receipts from sundry debtors / advances paid to the farmers for procurement of quality paddy seeds. It is the case of the Ld. AO that the assessee has not brought any material evidence on record in support of her claim for the receipt of Rs. 25,10,000/- deposited in SBNs during the demonetization period. However, from the submissions made by the Ld. AR, we find that during the AY 2016-17, the assessee has disclosed sundry debtors amount of Rs. 86,13,774/- while filing the return of income. The contention of the Ld. AO is that the assessee has shown only an amount of Rs. 68,463/- towards total purchases during the impugned assessment year which also reveals that the assessee is not in this line of business. However, the Ld. AR has established from the accounting books submitted before us that the amounts have been received in cash and deposited into the bank account which is recorded in the books of account. In this connection, we hereby extract section 69A of the Act hereunder: “69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article 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 acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.” From the plain reading of the above section it can be found that the additions can be made only when it is not recorded in the books of account. Section 69A specifies that the assessee found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or other valuable articles must not be recorded in the books of account wherein the assessee is unable to offer an explanation regarding the source of acquiring the articles in question. In the instant case, the amounts have been recorded in the books of accounts and explained by the assessee as receipt from sundry debtors / advances paid in the earlier years and therefore, in our considered opinion, provisions of section 69A cannot be invoked and hence we direct the Ld. AO to delete the addition of Rs. 18,10,000/- confirmed by the Ld. CIT(A). Accordingly, Ground No.1 raised by the assessee is allowed.
With respect to Ground No.2 wherein an addition of Rs. 8,78,000/- was made U/s. 68 of the Act. The Ld. AR submitted that the assessee has taken an unsecured loan of Rs. 23.75 lakhs and the Ld. AO has considered Rs. 8.78 lakhs out of Rs. 23.75 lakhs as unexplained. He further submitted that the confirmations obtained from the creditors and the bank statements of the loan creditors are provided to the Ld. AO. However, the Ld. AO making a general observation that the confirmations are in stereo typed format, opined that it cannot be relied upon. The Ld. AR pleaded the Ld. AO has erred in considering the formats instead of the substance of the confirmations. Further, he also submitted that the assessee has claimed interest on these unsecured loans which was not disputed by the Revenue. He further submitted that the Revenue has neither disallowed the same while framing the assessment. The Ld. AR also submitted that these loans are repaid during the subsequent assessment year. He therefore pleaded that the Ld. AO has selectively considered the confirmations which cannot be accepted. He therefore pleaded that the addition made by the Ld. AO for Rs. 8.78 lakhs be deleted.
Per contra, the Ld. DR heavily relied on the order 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 has provided confirmation letter from various parties from whom the unsecured loans were taken by the assessee. The Ld.AO in para 2.2 of the order has also acknowledged the receipt of confirmations furnished by the unsecured loan creditors. However, the Ld. AO observed that the confirmations are in stereo typed format but could have been furnished along with the identity and the creditworthiness of the loan parties. The Ld. AO in his order in para 2.2.2 has observed that some of the confirmations were furnished by the assessee just three days before the completion of the assessment wherein the limitation period for the completion of the assessment expires on 31.12.2019. He has therefore observed that no sufficient time was available before the Ld. AO to examine the genuineness of the confirmations for the transaction and their creditworthiness. We therefore are of the considered view that one more opportunity is required to be provided to the Ld. AO to examine the genuineness of the transaction and the creditworthiness of the parties of unsecured loans thereby remitting this issue to the file of the Ld. AO to decide the disallowance of Rs. 8.78 lakhs in accordance with law after examining the material on record. Accordingly, this ground raised
by the assessee is allowed for statistical purposes.