KALAVATHY GANESAN,SALEM vs. DCIT, CIRCLE-1(1), SALEM

PER INTURI RAMA RAO, ACCOUNTANT MEMBER:

1. The Order of the Commissioner of Income Tax(Appeals) NFAC in so far as it is against the assessee is contrary to law, erroneous and unsustainable on the facts of the case.

2. The CIT(A) NFAC erred in confirming the addition to the extent of Rs.25,56,000/- as unexplained money u/s.69A of the Act.

3. The CIT(A) NFAC failed to appreciate that source for the cash deposit was explained out of opening balance of Rs.37,54,246 as on 01.4.2016, disclosed in the return filed by M/s.R.K.& Sons (Firm) for 2 -: asst. year 2016-17 and the rejection of the same was arbitrary and unsustainable on the facts of the case.

4. The CIT(A) NFAC further failed to appreciate that assessee had post 01.4.16, withdrawn amounts in cash from the Firm in which she is a partner on various dates and these amounts were available as on 08.11.16 for deposit in the bank account and hence there was no basis or material to reject the valid explanation of the assessee.

5. The CIT(A) NFAC had completely misled himself by stating that there was no documentary evidence for generating income in cash, whereas assessee had clearly explained that the cash availability from the withdrawal from the Firm's books and deposited in the bank after demonetisation was announced on 08.11.16 and hence confirming the addition was wholly unjustified on the facts of case.

6. The CIT(A) NFAC ought to have considered that the source for the cash deposit was clearly explained as arising out of the opening balance and there was no case for applying the provisions of sec. 115BBE of the Act and also concluded that higher rate of tax cannot be applied for the asst. year 2017-18 as held by the jurisdictional High Court.

7. The CIT(A) NFAC erred in confirming the addition under other sources of Rs. 13,03,308 made by the officer as disallowance of claim of expenditure under presumptive income.

8. The CIT(A) NFAC ought to have seen that assessee had declared income of Rs.356962 u/s.44AD of the Act from the money lending activity carried on by her and the addition was unjustified.

9. The CIT(A) NFAC further failed to appreciate that the AO was entirely wrong in treating the difference between the gross interest of Rs. 1660000 and the net income admitted of Rs.356962 as unaccounted business income and there is no basis for the assumption that the difference is the expenses to be disallowed.

10. The CIT(A) NFAC further failed to appreciate that the business of money lending carried on by the assessee does not fall under any of the exclusions provided under sec.44AD and his conclusion that assessee is not licensed money lender to be eligible for presumptive rate of taxation is beyond the scope of the provisions of sec.44AD and therefore is untenable in law.

11. The CIT(A) NFAC, in any event, ought to have considered the contentions of assessee in the proper perspective, deleted the additions and thus accepted the income returned by assessee under sec.44AD of the Act.

The appellant is an individual deriving income from share of profits, remuneration from the partnership firm. The return of income for the Assessment Year 2017-18 was filed on 5th December, 2017, disclosing a total income of Rs. 22,43,110/-. Against the said return of income, the assessment was completed by the DCIT, Circle-1 (1), Salem (hereinafter referred to ‘AO’) vide order dated 5th December, 2019 passed u/s 143(3) of the Act at a total income of Rs. 65,07,148/-. While doing so, the Assessing Officer made addition of Rs. 29,61,000/- being the cash deposits made in the bank accounts in specified bank notes (SBN) during demonetization period treating as unexplained money, rejecting the explanation of the appellant that the said cash deposits were made out of cash withdrawals made from the partnership firm namely, M/s R. K & Sons of which the appellant is a partner. The Assessing Officer also made addition of Rs. 13,03,038/- by disallowance of the claim for the deduction of expenses incurred to earn business income in the form of interest on capital contribution and remuneration from partnership firm by holding that the provisions of section 44AD of the Act, cannot be applied in respect of interest income earned on capital contributions to partnership firm and remuneration received from the partnership firm.

4 -: 4. Being aggrieved by the above assessment order and, an appeal was preferred before ld. CIT(A), who vide impugned order deleted the addition to extent of Rs. 4,05,000/- in respect of cash deposits by holding that the cash withdrawals from partnership firm namely M/s R. K. & Sons to extent of Rs. 4,05,000/- commensurate to the date of cash deposit in the bank account. The balance additions were confirmed by the ld. CIT(A). Thus, appeal filed by the assessee was partly allowed by ld. CIT(A).

The ld. Counsel for the assessee submits that the said cash deposits in specified bank notes during the demonetization period, were made out of cash withdrawals from the partnership firm namely M/s. R. K. & Sons of which the appellant was a partner. The Assessing Officer made addition of cash deposits by rejecting the above explanation by holding that the explanations was highly suspicious in nature. The Assessing Officer also noted that the amount of cash withdrawn from partnership firm on various dates. It is settled the position of law that in the absence of any evidence to show that the amounts withdrawn were utilized for some other purpose, the amounts so withdrawn and should be treated as available for deposits in the bank account. Therefore, we are considered opinion that the matter requires fresh consideration by the Assessing Officer and 6 -: accordingly, the matter is remanded to the file of Assessing Officer for fresh adjudication in accordance with law after affording an opportunity being heard to the assessee.

In the result, ground nos. 2 to 5 stands partly allowed for statistical purposes.

(MD) NO. 2078 of 2020 and W.M.P (MD) No. 1742 of 2020 dated 19.11.

2024, wherein it is held as under:-

7 -: Evasion of taxes deprives the nation of critical resources which could enable the Government to undertake anti-poverty and development programmes. It also puts a disproportionate burden on the honest taxpayers who have to bear the brunt of higher taxes to make up for the revenue leakage. As a step forward to curb black money, bank notes of existing series of denomination of the value of Rs.500 and Rs. 1000 [Specified Bank Notes(SBN)] have been recently withdrawn the Reserve Bank of India Concerns have been raised that some of the existing provisions of the Income-tax Act, 1961 (the Act) can possibly be used for concealing black money. The Taxation Laws (Second Amendment) Bill, 2016 ('the Bill') has been introduced in the Parliament to amend the provisions of the Act to ensure that defaulting assessees are subjected to tax at a higher rate and stringent penalty provision.

Further, in the wake of declaring specified bank notes "as not legal tender", there have been suggestions from experts that instead of allowing people to find illegal ways of converting their black money into black again, the Government should give them an opportunity to pay taxes with heavy penalty and allow them to come clean so that not only the Government gets additional revenue for undertaking activities for the welfare of the poor but also the remaining part of the declared income legitimately comes into the formal economy.

In this backdrop, an alternative Scheme namely, "Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016' (PMGKY) has been proposed in the Bill. The declarant under this regime shall be required to pay tax @ 30% of the undisclosed income, and penalty @10% of the undisclosed income. Further, a surcharge to be called 'Pradhan Mantri Garib Kalyan Cess' @33% of tax is also proposed to be levied. In addition to tax, surcharge and penalty (totaling to approximately 50%), the declarant shall have to deposit 25% of undisclosed income in a Deposit Scheme to be notified by the RBI under the 'Pradhan Mantri Garib Kalyan Deposit Scheme, 2016. This amount is proposed to be utilised for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc., so that there is justice and equality.

An overview of the amendments proposed in the Bill are placed below; Overview of Amendments Proposed

9 -: In view of the above decision, we are of the considered opinion that the provisions of section 115BBE of the Act cannot be applied for the Assessment Year 2017-18. Therefore, we direct to Assessing Officer not to apply the provisions of section 115BBE in respect of addition made on account of unexplained cash deposits in the bank account.

In the result, ground of appeal Nos. 6 stands allowed.

Therefore, we do not find any illegality in the findings of ld. CIT (A) in holding the provisions of section 44AD have no application in respect of income received from remuneration of partnership firm and share of partnership firm.

In the result, ground of appeal No. 7 to 10 stands dismissed.

Order pronounced on the 4th day of March, 2026 in Chennai.