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Facts
The assessee, an individual, made large cash deposits of Rs. 2,86,69,670/- during demonetization across three bank accounts. She claimed these deposits were business transactions of a partnership firm, Coastal Vaccines, formed by converting her proprietorship. The Assessing Officer (AO) added the amount under Section 69A as unexplained money, which the CIT(A) sustained, citing lack of proof and discrepancies.
Held
The Tribunal noted that while the assessee provided evidence of the partnership and bank account conversion, neither the AO nor the CIT(A) adequately verified if the cash deposits were properly accounted for in the partnership firm's books. Therefore, the Tribunal set aside the CIT(A)'s order and remanded the matter back to the AO for de novo verification and a decision after giving the assessee an opportunity to be heard.
Key Issues
Whether substantial cash deposits made during demonetization, claimed to be business proceeds of a converted partnership firm, can be added as unexplained money under Section 69A without adequately verifying if these funds were accounted for in the firm's books.
Sections Cited
69A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, VISAKHAPATNAM “SMC” BENCH : VISAKHAPATNAM
Before: SHRI MANJUNATHA G & SHRI K. NARASIMHA CHARY
ORDER PER MANJUNATHA G, A.M. : This appeal filed by the assessee has been directed against the order dated 10.10.2024, of the learned CIT(A)-National Faceless Appeal Centre [in short “NFAC”], Delhi, relating to assessment year 2017-2018.
The brief facts of the case are that, the assessee is an individual, earning income from remuneration and 2 ITA.No.492/VIZ./2024 income from other sources. The assessee filed her return of income on 30.03.2018 declaring total income of Rs.28,15,250/-. The case of the assessee was selected for scrutiny under CASS to verify large value of cash deposits during demonetization period. During the course of assessment proceedings, the Assessing Officer noted that the assessee has made cash deposits of Rs.2,86,69,670/- into three bank accounts maintained with Karur Vysya Bank, Union Bank and Andhra Bank. On verification of the return of income filed by the assessee, it is noticed that assessee had shown income from business derived from partnership firm viz., Sai Vaccine Stores, Sai Vaccines & Special Drugs and Coastal Vaccines being remuneration from the Firm and interest on capital. The Assessing Officer on the basis of the details submitted by the assessee and also taken note of large sums of cash deposited into the above three bank accounts observed that, the income declared by the assessee for the year under consideration is not commensurate with the cash deposited into bank accounts. The Assessing Officer called upon the assessee to 3 ITA.No.492/VIZ./2024 file relevant evidences to prove source of cash deposits. The assessee has uploaded various information including cash book, details of cash sales, credit sales, VAT returns of partnership firm viz., Coastal Vaccines and claimed that the proprietary concern has been subsequently converted into partnership firm by admitting an individual partner viz., Mr. M. Anilkumar and the account with Andhra Bank has been operated by the partnership firm and relevant cash deposits is accounted in the books of accounts of the partnership firm. The Assessing Officer after considering the relevant submissions of the assessee held that assessee could not establish the source of cash deposited into bank account and, therefore, rejected the arguments of the assessee and made addition of Rs.2,86,69,670/- u/sec.69A of the Income Tax Act, 1961 as unexplained money.
Being aggrieved by the assessment order, the assessee preferred appeal before the learned CIT(A). Before the learned CIT(A), the assessee has filed submissions and claimed that cash deposited into Andhra Bank OD account is a business transaction of Coastal Vaccines, a partnership
4 ITA.No.492/VIZ./2024 firm. Further, the assessee contended that erstwhile proprietorship concern managed by the assessee viz., Naga Usharani Chirumamilla and the said proprietorship has been subsequently converted into partnership firm by admitting Mr. M. Anilkumar a partner and relevant details has been submitted to the Andhra Bank for updation of KYC. However, the bank has not effected the said change in their system and continue to operate the existing bank account along with OD facility and the same has been reported in the PAN of the assessee. Otherwise, all credits into bank account has been accounted as business turnover of partnership firm. To support this argument, the assessee has filed relevant books of accounts and also a letter from the Bank evidencing the conversion of proprietorship concern into partnership firm and the operation of the account by the partnership firm. The learned CIT(A) after considering the relevant submissions of the assessee and taking note of various evidences filed during the course of appellate proceedings before him observed that, although, the assessee has filed various details including books of 5 ITA.No.492/VIZ./2024 accounts of the partnership firm, partnership deed and ITR filed for the relevant assessment year, but, the fact remains that the letter issued by the Bank confirming the conversion of proprietorship concern into partnership firm and the relevant bank account mentioned in the letter issued by the bank, there is a difference in the account number mentioned by the bank which is altogether different from account held by the assessee in her individual capacity. Further, the conversion of proprietorship concern into partnership firm has not been put before the Assessing Officer during the course of assessment proceedings. Therefore, in the assessment order, the Assessing Officer has not mentioned any of such fact. In the ITR filed for the year under consideration, there is no reference to Andhra Bank account held by the assessee. Therefore, the learned CIT(A) observed that the assessee could not establish the source of cash deposited into Andhra Bank account and thus, rejected the explanation of assessee and sustained the addition made by the Assessing Officer u/sec.69A of the Act.
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Aggrieved by the order of the learned CIT(A), the assessee is now in appeal before the Tribunal.
Learned Counsel for the Assessee Shri C. Subrahmanyam, C.A. referring to various documents submitted that assessee was running Coastal Vaccine as a proprietorship concern and the bank account was opened in the name of the erstwhile proprietorship concern. The proprietorship concern’s business has been converted into partnership firm vide partnership deed dated 06.04.2015 w.e.f. 01.04.2016 and the business including all assets and liabilities has been taken over by the partnership firm. The bank account held with Andhra Bank has been operated by the partnership firm. Although, the relevant documents were furnished by the assessee to the bank to update KYC in their system, but, the bank has not updated KYC details. However, confirmed the operation of Bank account for the F.Y. 2016-2017 by the partnership firm. The assessee has filed all details including books of accounts, partnership deed and letter from the bank. The assessee had also explained the discrepancy noticed in the ITR-V filed by the 7 ITA.No.492/VIZ./2024 partnership firm and argued that since it is a OD account, the bank account number has not been mentioned in the column provided for reporting various bank accounts. Although, the details has been filed before the learned CIT(A), the learned CIT(A) summarily rejected the explanation furnished by the assessee and sustained the additions made by the Assessing Officer. He, accordingly, submitted that the addition made by the Assessing Officer should be deleted.
Learned Sr. AR Dr. Aparna Villuri, on the other hand, supporting the order of the learned CIT(A) submitted that conversion of proprietorship concern into partnership firm has not been put-up before the Assessing Officer during the course of assessment proceedings which is evident from the assessment order passed by the Assessing Officer where there is no reference of any conversion of proprietorship concern into partnership firm. Further, the account held with Andhra Bank has not been reported in ITR-V filed for the year under consideration and the details in the ITR have been left blank. Further, there is a 8 ITA.No.492/VIZ./2024 difference in account number mentioned by the Bank in their letter dated 20.03.2020 and the bank account considered by the Assessing Officer during the assessment proceedings. The assessee could not explain the discrepancy noticed by the Assessing Officer and also not explained the cash deposited into bank account either by furnishing relevant books of accounts of the partnership firm or any other evidences. The learned CIT(A) after considering the relevant facts, has rightly sustained the additions made by the Assessing Officer and, therefore, the order of the learned CIT(A) should be upheld.
We have heard both the parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the amount of cash deposited in the three bank accounts including bank account held with Andhra Bank. It is also an admitted fact that, assessee has filed details of cash sales, credit sales, VAT returns, cash book, partnership deed and claimed that the proprietorship concern has been converted into partnership firm by way of partnership deed
9 ITA.No.492/VIZ./2024 dated 06.04.2015 w.e.f. 01.04.2016. These facts have been recorded by the Assessing Officer at page-3 of his assessment order. However, the Assessing Officer rejected the explanation furnished by the assessee only on the ground that details filed by the assessee including books of accounts which is in the name of Coastal Vaccines i.e., partnership firm where the assessee is one of the partner, but, it does not belong to the assessee or the bank account held with Andhra Bank. Before the learned CIT(A), the assessee has filed all evidences including books of accounts of partnership firm and also a letter from the bank dated 20.03.2020 where the bank has certified that the account number xxxxx0007 was opened in the name of sole proprietorship concern of the assessee as proprietor and latter the same has been converted into partnership firm with two partners by partnership deed dated 06.04.2015. The learned CIT(A) admitted the evidences filed by the assessee. However, disbelieved the partnership deed and books of accounts of the partnership firm only on the ground that there is no reference of partnership firm in the 10 ITA.No.492/VIZ./2024 assessment order passed by the Assessing Officer. Further, in the letter submitted by the bank, there is a difference in bank account number. Otherwise, the Assessing Officer and the learned CIT(A) have not brought-out any facts, whether the cash deposited into Andhra Bank account has been accounted in the books of accounts of partnership firm i.e., Coastal Vaccines.
Before us, the assessee has filed various evidences including relevant return of income filed by the partnership firm viz., Coastal Vaccines in ITR-V along with bank statements and audit report. In the ITR-V filed for the relevant assessment year, the secured loan taken from Andhra Bank has been reported under secured loans from others instead of loans from bank which is evident from page-4 of the ITR filed for the year under consideration. Further, the assessee has filed bank statements and tax audit report issued by the Auditor dated 30.10.2017 and also filed relevant registration with Commercial Tax Department in the name of the partnership firm. Although, these evidences goes to prove that there is a Firm i.e.,
11 ITA.No.492/VIZ./2024 partnership firm called Coastal Vaccines, however, those evidences does not prove whether the cash deposited into Andhra Bank account has been accounted in the books of accounts of partnership firm or not. Before us, the assessee neither furnished any books of accounts nor relevant bank statements of Andhra Bank account to prove that the cash deposited into Andhra Bank account has been accounted in the books of accounts of the partnership firm. Since the assessee is not able to file relevant evidences to prove her claim that the erstwhile proprietorship concern has been subsequently converted into partnership firm vide partnership deed dated 01.04.2016 and the bank account held with Andhra Bank has been accounted in the books of accounts of partnership firm. Further, the Assessing Officer also summarily rejected the claim of the assessee without even giving any finding whether the cash deposited into bank accounts is considered in the name of partnership firm or not. Therefore, in our considered view, the matter needs re-examination from the Assessing Officer. Therefore, we are of the considered view that the issue needs to go
12 ITA.No.492/VIZ./2024 back to the file of Assessing Officer for de novo verification of the claim of the assessee. Thus, we set aside the order of the learned CIT(A) and restore the issue to the file of Assessing Officer for de novo verification. The Assessing Officer is directed to verify the case of the assessee in accordance with law in light of any evidences that may be filed by the assessee and also decide the issue as per fact and law, after providing an opportunity of being heard to the assessee.
In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 20.03.2025. Sd/- Sd/- [K. NARASIMHA CHARY] [MANJUNATHA G] JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 20th March, 2025 VBP Copy to Naga Usharani Chirumamilla, 12-23-51, 1st Floor, Puvvadavari Street, Kothapet, GUNTUR – 522 001. Andhra Pradesh. 1. The ACIT, Circle-1(1), C R Bldg., Kannavari Thota, 2. GUNTUR – 522 001. Andhra Pradesh 3. The Pr. CIT, Vijayawada. 4. The DR ITAT “SMC” Bench, Visakhapatnam. 5. Guard File //By Order// //True Copy//
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