VISHWANATHAREDDY CHENNAREDDY,BANGALORE vs. INCOME-TAX OFFICER, WARD-2(2)(7), BENGALURU

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore

IN THE INCOME TAX APPELLATE TRIBUNAL “B’’ BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No.900/Bang/2023 Assessment Year: 2017-18 Vishwanathareddy Chennareddy #90/D, Begur Road Circle Hosur Road Bommanahalli ITO Vs. Bangalore 560 068 Ward-2(2)(7) Karnataka Bangalore PAN NO : ABPPC8134P APPELLANT RESPONDENT Appellant by : Shri Hemasundara Rao P., A.R. Respondent by : Shri Subramanian S., D.R. Date of Hearing : 25.01.2024 Date of Pronouncement : 01.02.2024 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal by assessee is directed against order of NFAC for the assessment year 2017-18 dated 25.9.2023 passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”). The assessee has raised following grounds of appeal: 1. The order of the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC) dated 25-Scp-2023 passed under section 250 of the Income-tax Act, 1961 ("the Act") insofar it is against the Appellant, is opposed to the law, weight of evidence, facts and circumstance of the Appellant's case. 2. The order is passed against the principle of natural justice and thus, liable to be quashed, 3. The learned CIT (Appeals) erred partly by upholding the cash deposits of Rs. 21,98,000/- as additions under section 68 of the Act, despite the fact that the appellant has provided corroborative evidence in support of his claim.

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 2 of 25 4. The learned CIT (Appeals) has erred in disbelieving that the impugned cash deposits were proceeds from the professional receipts already offered for tax. 5. The learned CIT (Appeals) erred by alleging that the appellant has failed to furnish service tax returns, without appreciating that service tax was not applicable to medical practitioners. 6. The learned CIT (Appeals) misconstrued the nature of the appellant's professional income as exclusively from cash receipts, whereas the appellant derives income from both cash and banking channels. The commissioner alleged non-submission of bank statements and cash book, despite the appellant having duly furnished all the relevant documents during the course of assessment proceedings. 7. The learned CIT (Appeals) erred in confirming the additions of cash deposits made during the demonetization period without rejecting the books of accounts and thereby bringing the same amount to tax twice. 8. Without prejudice to the above, the learned CIT(Appeals) erred by altering the applicability of tax provisions from section 68 to section 69A of the Act regarding the impugned cash deposits. This is in contravention of the powers under section 251(l)(a) of the Act which restricts only, confirming, reducing, enhancing, or annulling the assessment but not modifying the provision of law qua the item of which the assessment was made. 9. The learned CIT (Appeals) erred by upholding the unsecured loans ol Rs 1,98,71,364/- received from Mrs. Nivedita & Vishwanath Reddy HUF by invoking the provisions of section 68 of the Act, despite the fact that the Appellant has duly explained the source of such impugned unsecured loans. 10. The learned CIT (Appeals) erred in alleging that bank statements and return of income were not furnished during the appellate proceedings, despite the fact that these documents formed part of the appellant's submissions. 11. The learned ClT(Appeals) ought to have appreciated the fact that the part of the loan received from HUF as reflected in the appellant's books of accounts in the relevant assessment year constitutes an adjustment entry and no actual funds were received to that extent in the preceding assessment year. 12. The learned CIT(Appeals) ought to have appreciated the facts that source and creditworthiness were duly explained by furnishing the return of income of the specified parties. 13. The learned CIT( Appeals) completely erred in by not considering the submissions made during the course of the proceedings and upheld the view of the learned Assessing officer based on surmises and conjectures without any logical reasoning.

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 3 of 25 14. Without prejudice to the above, Ld. CIT(A) was partially satisfied with some of the claims of the Appellant arid therefore, he should not have disallowed the claim to the extent he was satisfied with the submissions of the Appellant. 15. The learned CIT (Appeals) erred in confirming the disallowance of Rs. 1,70,850/- as an expenditure towards the agricultural income and subsequently including it under "income from other sources" without mentioning the relevant section of the Act under which such addition is made. 16. The learned CIT (Appeals) erred in failing to acknowledge the fact that the land documents and invoices pertaining to the agricultural income were duly furnished in the course of the assessment proceedings. 17. The learned Assessing Officer and the learned CIT (Appeals) both failed to appreciate the fact the appellant had disclosed his net agricultural income after setting off with the relevant expenditure. Furthermore, they disallowed to the extent of 30% on ad hoc basis without providing a substantiated rationale for such disallowance. 18. The appellant craves leave to add, alter, substitute, and delete any or all the grounds of appeal urged above.”

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 4 of 25 submitted extract of cash book from 09/11/2016 to 30/12/2016. The assessee has not submitted the entire cash book alongwith the corresponding vouchers/bills in support of the entries made in the cash book. The assessee has not submitted any proof that can substantiate the claim of the assessee that Rs.31,98,000/- is out of his professional receipts. The assessee was required to substantiate his claim for cash in hand as on 09/11/2016. As on 09/11/2016 cash in hand was Rs.26,94,953/- only whereas the assessee has made cash deposit of Rs.31,98,000/- in SBNs. Therefore, the ld. AO observed that the assessee was not able to satisfactorily explain the source of the cash deposit of Rs.31,98,000/- and is liable to be treated as unexplained cash credit u/s 68 of the Act. Further the assessee has not submitted before the ld. AO, the Form 4 which is the proof that the declaration of assessee is accepted under PMGKY and he is eligible for immunity. Hence, the ld. AO observed that in absence of Form 4 the claim of the assessee is not eligible for getting benefit under PMGKY and the amount of Rs.30,00,000/- is liable to be added as unexplained cash credit u/s 68 of the Act and the ld. AO made addition u/s 68 of the Act at Rs.61.98 lakhs.

3.1 During the first appeal proceedings, the learned CIT (Appeals) accepted the contention of the Assessee that the deposit of Rs. 30,00,000/- offered for taxation under the PMGKY scheme, taxes were duly paid and additions to the extent were deleted. Further relating to the remaining additions of Rs. 3l,98,000/- the learned CIT (Appeals) partially upheld the addition of Rs. 21,98,000/- under section 69A of the Act without accepting the submissions of the Assessee that enough cash balance exists as of 09-Nov-2016 i.e of Rs. 26,94,953/- and the remaining deposit i.e 5,03,047/- is from receipts from the profession, rental receipts during the period of demonetization. The learned CIT (Appeals) while confirming the additions of Rs. 21,98,000/- has made an observation which is reproduced below:

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 5 of 25 "In respect of the remaining amount of Rs.31,98.000/- the appellant makes a distinction of Rs.26,94,953/- as available cash balance on 09,11.2016 and remaining Rs.5,03,047/ This is without logic. The sources of income for the applicant have the be the source of the entire amount deposited after 09.11.2016. If only Rs. 5,03,047/- is from his income of the year, how the cash balance of Rs.26,94,953/- has accumulated is not understood. However, on perusal of the cash book, it is seen that the entire receipts of a nursing home is shown as cash received. There is no evidence to back this claim especially, when all the amount is accumulated without deposit into bank account. No service tax return, no bank statement explaining the credits, when most turnover is cash is given. It is rather impossible that all patients paid only cash and there are no credit card or payments or bank transfers. If this was the general mode of business for the appellant, then the pattern of cash deposits across years is to be the same. This is not established by the appellant. Further, no details are given. In view of the same, considering the business of the appellant and the agricultural income, income returned, Rs. 10,00,000/- is found to be the acceptable source of cash deposit and the addition of Rs. Rs. 21,98,000/- is upheld. AO is directed to restrict the addition to this amount."

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 6 of 25 details are given. In view of the same, the ld. CIT(A) held that considering the business of the assessee and the agricultural income, income returned, Rs. 10,00,000/- is found to be the acceptable source of cash deposit and the addition of Rs. 21,98,000/- is upheld and he directed the ld. AO to restrict the addition to this amount. Against this assessee is in appeal before us. 5. The ld. A.R. submitted that the Assessee has a cash balance of Rs.26,94,953/- as of 09-Nov-2016 wherein the books of accounts have been audited and the cash book of the year is produced before the learned Assessing Officer and Appeal Authority. Therefore, the cash balance accumulated till the demonetized date is from the income of professional receipts and rental income. Hence, the source of the available cash balance is explained to the extent, and for the remaining balance, the source is daily receipts received till the date of respective deposits and rental income received during the period. Therefore, the learned C1T (Appeals) comments on the above stating that how the cash balance is accumulated lacks rationale and logic as the sources of the cash balance are appropriately explained.

5.1 He submitted that the learned CIT (Appeals) further alleged that the Assessee is running his business only on a cash basis without any substantial review. In this regard, he submitted that apart from the cash receipts, professional income is also received through the bank channel and credit card during the year under consideration in the following manner.

S. No Professional receipts Amount (2016-17) (Rs.) 1 Through - Insurance Receipts 35,22,382/-

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 7 of 25 2 Through - Credit Card 49,66,492/- 3 Through -Cash 1,66,60,300/- Total 2,51,49,174/-

5.2 He submitted that the learned CIT (Appeals) further alleged that the Assessee has not filed the service tax return for the AY 2016-17. However, the learned CIT (Appeals) erred in noticing that the Assessee is a medical practitioner and he is exempt from the Service Tax Act. He submitted that Health care Services by a clinical Establishment or Authorized Medical Practitioner or Para medics are exempt from service tax, Notification No. 25/2012 - ST dated 20.06.2012 w.e.f 1-7-2012.

5.3 He further submitted that the cash deposit of Rs.31,98,000 has been recorded in the books of accounts and the books of accounts are audited under section 44AB of the Act and the same has been offered to tax under the head professional and business income. Further, the assessee explained the nature and source along with the documentary evidence, and submitted the cash book for the FY 2016-17 in support of his claim.

5.4. In this regard, the ld. A.R. placed reliance on the judgment of the Hon'ble ITAT, Mumbai in the case of R. S Diamonds India Private Limited Vs ACIT [2022] 198ITD 344, wherein it was held that the addition made on account of cash deposits from the cash balance available in the books of accounts cannot be added under section 68. He reproduced the extract of the judgment, which is as under: "Accordingly, in the facts and circumstances of the case, I am of the view that the addition of Rs. 45 lakhs made in the hands of the assessee is not justified, since the said deposits have been made from the cash balance available in the books of account. Accordingly, I set aside the order passed by learned CIT(A) on this issue and direct the Assessing Officer to delete the addition of Rs. 45 lakhs." 5.5 The ld. A.R. also placed reliance on the judgment of the Hon'ble ITAT, Ahmadabad in the case of Shree Sanand Textile Ltd. ITA No. 995/Ahm./2014, wherein it was held that the provisions of section

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 8 of 25 68 cannot be applied in relation to the sales receipt shown by the assessee in the books of accounts. It is because the sales receipt has already been shown in the books of accounts as income at the time of sale only.

5.6 Further he placed reliance on the decision of Hon'ble High Court of Patna case of Lakshmi Rice Mills (1974) 97 ITR 258 (Patna), wherein it has held that, when books of account of the assessee were accepted by the revenue as genuine and cash balance shown therein was sufficient to cover high denomination notes held by the assessee, then the assessee was not required to prove source of receipt of said high denomination notes which were legal tender at that time.

5.7 Further he placed reliance on the decision of the Hon'ble ITAT, Vishakhapatnam in the case of M/s, Hirapanna Jewellers (ITA No. 253/Viz/2020 dated 12.5.2021) wherein it was held that when the cash receipts represented the sales which has been duly offered for taxation, there is no scope for making any addition under section 68 of the Act in respect of deposits made into the bank account.

5.8 Further, he submitted that in the present case that the learned Assessing Officer has not doubted or rejected the books of accounts of the assessee and accepted the books of accounts of the Assessee without finding any defects. He further submitted that the professional receipts were recorded in the regular books of accounts, and the amount was deposited in the bank account. Subsequently, the contention was raised before the learned CIT (Appeals) wherein he stated that the rejection of books and estimation of income does not make any difference to the income returned by the Assessee and remains only a technical/procedural aspect.

5.9 Further, he submitted that the learned CIT (Appeals) himself accepted that the returned income i.e. net profit of 19.14% for the year under consideration is higher than the previous two years i.e. 11.64% and 15.46% respectively. Therefore, when the professional receipts were

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 9 of 25 recorded in the regular books of accounts, and the amount was deposited in the bank account out of the professional receipts, treating such deposits as unexplained credits by the learned Assessing Officer and the learned CIT (Appeals) is not justified.

5.10 Without prejudice to the above, he submitted that upholding the additions made by the learned Assessing Officer under section 69A of the Act for cash credits will amount to double taxation in the hands of the Assessee as the same was already offered as Professional receipts.

5.11 The ld. A.R. further submitted that the learned Assessing Officer has made an addition under section 68 on account of cash deposited by the Assessee in the bank account during the demonetization period stating it as unexplained credits. He submitted that it amounts to double taxation since the said cash deposits were out of the Assessee's professional receipts which were already offered to tax by the Assessee. Hence the learned Assessing Officer ought to have reduced the total turnover of the Assessee to that extent.

5.12 Further, he prayed that the assessee has only professional income, rental income, and the impugned cash deposits been substantiated by the evidence, and therefore provisions of section 115BBE of the Act will have no application to treat the income of the Assessee as income from other sources. 5.13 The ld. A.R. submitted that with context to above, he placed reliance on the decision of Bangalore ITAT in the case of Anantpur Kalpana vs. Income-tax Officer [2022] 138 taxmann.com 141 where the Tribunal while considering the issue of the implication of section 68 of the Act during demonetization held as under (Para 9):

"I have carefully considered the rival submissions. Both the AO and CIT(A) accepted the fact that the cash receipts are nothing but sale proceeds in the business of the assessee. The addition has been made only on the basis that after demonetization, the demonetized notes could not have been accepted as valid tender. Since the sale proceeds for which cash was received from the customers

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 10 of 25 was already admitted as income and if the cash deposits are added under section 68 of the Act that will amount to double taxation once as sales and again as unexplained cash credit which is against the principles of taxation. It is also on record that the assessee was having only one source of income from trading in beedi, tea power and pan masala and therefore provisions of section 115BBE of the Act will have no application so as to treat the income of the assessee as income from other sources. Hon 'ble Kolkata Tribunal in the case of Associated Transport (P.) Ltd. (supra) on identical facts took the view that when cash sales are admitted and income from sales are declared as income, wherein the Hon'ble Tribunal found that the assessee had sufficient cash in hand in the books of account of the assessee, that there was no reason to treat the cash deposits as income from undisclosed sources. The Hon'ble Vishakapatnam Tribunal in the case of Hirapanna Jewellers (supra) on identical facts held that when cash receipts represent the sales which the assessee has offered for taxation and when trading account shows sufficient stock to effect the sales and when no defects are pointed out in the books of account, it was held that when Assessee already admitted the sales as revenue receipt, there is no case for making the addition u/s 68 or tax the same u/s 115BBE again, I am of the view that in the light of the facts and circumstances of the present case, the addition made is not sustainable and the same is directed to be deleted. 10. In the result, appeal of the assessee is allowed." 5.14 Without prejudice to the above, the ld. A.R. submitted that no power conferred upon the learned CIT (Appeals) to assess a particular item under a different provision of the Act what the learned Assessing Officer had made an addition without giving specific notice to the Assessee regarding such action.

5.15 He further submitted that as per section 251(l)(a) of the Act, when an appeal is preferred against the assessment order, the learned CIT (Appeals) may confirm, reduce, enhance, or annul the assessment, but there is no power provided by the provision under the aforementioned section to the learned CIT(Appeals) to change the provision of law qua the item on which assessment was made.

5.16 The ld. A.R. placed reliance on the judgment of the ITAT, Chennai in the case of Smt. Sekar Jayalakshmi Vs. The Income Officer, Tambaram (ITA. No. 20/Chny/2021) wherein it was held that ld. CIT(A) cannot change the section under which the Assessing Officer made an

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 11 of 25 addition during the assessment. He reproduced the relevant extract of the order as below: "I am of the considered view that law does not perm it for such change of provision of law. As per section 250 of the Act, the Id. CIT(A) is empowered to make further inquiry as he thinks fit or may direct the Assessing Officer to make further inquiry and report to the Id. CIT(A). As per section 251{l)(o) of the Act, in appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment, but there is no such power provided by the law that Id. CIT(A) could change the provision of law qua the item of which assessment was made. Therefore, in the absence of such power, learned CIT(Appeals) could not have treated the addition made under section 69A of the Act. Therefore, the addition made by the Id. CIT(A) under section 69A of the Act is liable to be deleted".

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 12 of 25 audited u/s 44AB of the Act and the same has been disclosed as professional income and due credit to be given. In our opinion, this issue has been considered by this Tribunal in the case of Bhoopalam Marketing Services Pvt. Ltd. In ITA No.375/Bang/2022 dated 15.9.2022 wherein held as under: “7. We have carefully considered the rival contention and perused the orders of the lower authorities. Admittedly the assessee has deposited Rs.298,08,080/- during the post- demonetization between 09/11/2016 and 30/12/2016. Therefore, Ld.AO made addition of INR 5,82,76,300/- as income of the assessee u/s. 68 of the income tax act, by passing assessment order u/s. 144 of the Act. The Ld.AO made such addition as the assessee could not file requisite details as the notice was issued to the email address that was not functional. In the interest of justice, we deem it proper to remand the issues back to the Ld.AO for a de novo verification. 7.1 We have carefully gone through the various standard operating procedures laid down by the central board of direct taxes issued from time to time in case of operation clean. The 1st of such instruction was issued on 21/02/2017 by instruction number 03/2017. The 2nd instruction was issued on 03/03/2017 instruction number 4/2017. The 3rd instruction was in the form of a circular dated 15/11/2017 in F.No. 225/363/2017-ITA.II and the last one dated 09/08/2019 in F.no.225/145/2019-ITA.II. These instructions gives a hint regarding what kind of investigation, enquiry, evidences that the assessing officer is required to take into consideration for the purpose of assessing such cases. 8. In one of such instructions dated 09/08/2019 speaks about the comparative analysis of cash deposits, cash sales, month wise cash sales and cash deposits. It also provides that whether in such cases the books of accounts have been rejected or not where substantial evidences of vide variation be found between these statistical analyses. Therefore, it is very important to note that whether the case of the assessee falls into statistical analysis, which suggests that there is a booking of sales, which is non-existent and thereby unaccounted money of the assessee in old currency notes (SBN) have been pumped into as unaccounted money. 8.1 The instruction dated 21/02/2017 that the assessing officer basic relevant information e.g. monthly sales summary, relevant stock register entries and bank statement to identify cases with preliminary suspicion of back dating of cash and is or fictitious sales. The instruction is also suggested some indicators for suspicion of back

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 13 of 25 dating of cash else or fictitious sales where there is an abnormal jump in the cases during the period November to December 2016 as compared to earlier year. It also suggests that, abnormal jump in percentage of cash trails to on identifiable persons as compared to earlier histories will also give some indication for suspicion. Non- availability of stock or attempts to inflate stock by introducing fictitious purchases is also some indication for suspicion of fictitious sales. Transfer of deposit of cash to another account or entity, which is not in line with the earlier history. Therefore, it is important to examine whether the case of the assessee falls into any of the above parameters are not.”

7.1 In view of the above order of the Tribunal, we are inclined to remit the issue in dispute to the file of ld. AO for fresh consideration to examine in the light of above order of the Tribunal. Ground Nos.9 to 14:- 8. Facts of the issue are that the assessee has shown unsecured loan of Rs.3,96,81,929/- as on 31/03/2017. The assessee was requested to provide the details of persons from whom he has received unsecured loan along with their ITR V, computation of income, balance sheet etc., the assessee has not submitted any details which can prove the genuineness of the unsecured loan and creditworthiness of persons who have advanced the loan. As the assessee has not submitted any documents to substantiate the genuineness of the unsecured loan, the ld. AO held that the same is liable to be added as unexplained cash credits u/s 68 of the Act.

“Section 68 - Cash credits: "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year" 8.1 In the present case, the assessee has shown unsecured loan of Rs.3,96,81,929/- which is treated as unexplained cash credit. The unsecured loans of Rs.3,96,81,929/- are found credited in the books of the assessee. The assessee was found owner of the said amount but has not offered any acceptable and cogent explanation regarding the source of

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 14 of 25 such amount. Therefore, the ld. AO treated a sum of Rs.3,96,81,929/- as unexplained credit u/s 68 of the Act. Against this assessee carried the appeal before ld. CIT(A). 9. The learned CIT (Appeals) has accepted the contention of the assessee that out of the total unsecured loan of Rs.3,96,81,929/-, an amount of Rs. 1,98,10,565/- relating to the previous years and to that extent, additions were deleted. For the remaining balance of Rs.l,98,71,364/-, the learned CIT (Appeals) upheld the addition stating that the assessee has not proved the genuineness and creditworthiness of the unsecured loans even though the assessee has furnished bank statements, return of income. The remaining addition under unsecured loans consists of two balances Rs. 1,10,05,034/- from the Vishwanathareddy HUF and Rs.88,66,330/- from Mrs. Niveditha. Against this assessee is in appeal before us. 10. The ld. A.R. with regard to loan payable to Dr. Vishwanathareddy HUF of Rs.1,10,05,34/-, submitted that the additions related to the HUF Loan amount of Rs.1,10,05,034/- consist of adjustment entries in the books of accounts. The actual loan taken during the year is only Rs.14,26,612/- and the remaining loan amounts were adjustment entries of the previous year Rs.95,78,422/-. During the previous years, there was construction of a hospital wherein payments for such construction were paid from the accounts of HUF, the same was confirmed through filing the confirmation letter and bank statements of HUF. The Assessee has inadvertently not accounted for such payments in the relevant previous years and adjusted such balances in the current assessment year which in turn looked like loans were given in the relevant year under consideration. In this regard, the ld. A.R. submitted that the HUF has incurred the expenses in connection with the investments in the name of the Assessee during the previous year amounting to Rs.95,78,422/- in earlier years but the same was not recorded in the books of accounts in the year of expenditure. However, the same was capitalized in the year under consideration and hence the

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 15 of 25 expenditure incurred by the HUF has been recorded in the books of the Assessee as prior period items. The balance expenditure of Rs. 14,26,612/- was incurred by the HUF on behalf of the Assessee in the current year. Therefore, he prayed before us to delete the additions to the extent that the loan amount not relating to the year under consideration following the order of the learned CIT (Appeals) that the amount relating to the previous year cannot be brought to tax in the current year under section 68 of the Act. Further, the ld. A.R. for the assessee has explained the source of such unsecured loans by furnishing written submissions, confirmation letters, bank statements, and return of income of HUF which is enclosed on page no. 174 to 198 of the paper book. However, the learned CIT (Appeals) has inadvertently ignored the evidence submitted and alleged that the Assessee has not furnished bank statements and return of income of HUF and doubted the existence of HUF itself, 10.1 With regard to loan payable to Mrs. Nivedita of Rs.88,66,330/- the ld. A.R. submitted that during the year under consideration, the Assessee received a loan of Rs.88,66,330/- from Mrs. Nivedita, spouse of the Assessee. The source of such loans is explained by the written submissions, bank statements, and returns of income filed. However, the learned CIT (Appeals) inadvertently ignored the written submissions of the Assessee and made allegation remarks stating that the Assessee had not furnished any of the evidence to prove the creditworthiness. The ld. A.R. once again reiterated that the Assessee had furnished the details of the unsecured loans such as the return of income, and bank statements along with the confirmation letters from the unsecured loans, and fortified the payment through banking channels when all the onus obligated on the Assessee have been duly discharged the addition of the sum of Rs.1,98,71,364/-. In this context, where the Assessee explained the credit by furnishing evidence of identity along with the confirmations, the Assessee can be said to have discharged his initial

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 16 of 25 burden, so that where an addition is made with no further attempt on the part of the learned Assessing Officer to examine the source of credit, the addition with reference to section 68 of the Act will not be justified. The ld. A.R. further submitted that the learned Assessing Officer failed to perform his right empowered by the statute of issuing notice to the other parties under section 133(6} of the Act or to cross-examine them. It is a well-established principle of natural justice that the evidence filed by the Assessee cannot be disregarded unless it is cross-verified. In this regard, the Assessee company placed reliance on the decision of the ITAT, Delhi in the case of M/s. K.P.Manish Global Ingredients Pvt. Ltd. Vs. ACT I.T.A.No.2451/Chny/2017, wherein the Assessee had filed all the necessary documents/information to prove the genuineness of the transaction. The Tribunal held that once an Assessee discharged its burden, then the burden shifts to the Assessing Officer to prove otherwise that the said transaction was nothing but the undisclosed income of the Assessee. The Assessee in the present case has duly discharged its onus to prove the identity and the transactions' genuineness. The ld. A.R. placed reliance on the plethora of case laws wherein it has been upheld that once the Assessee discharged the onus cast upon it by furnishing necessary details/ documents to show the identity of the creditors and genuineness of the transactions, it is on the learned Assessing Officer to make further inquiry. The Assessee can be expected to only maintain adequate documents as required under the law. He submitted that the law does not contemplate or require the performance of an impossible act on the part of the Assessee as was held in Life Insurance Corporation of India vs. CIT (1996) 219 ITR410 (SC), although pronounced in a different context. In this connection he placed reliance on the decision of the ITAT, Bangalore in the case of D M Estates (P.) Ltd. v. DOT, Circle- 2(l)(l), [2020] 113 taxmann.com 386 (Bangalore -Trib.)/[2020] 180 ITD 813, held that, "The assessee has discharged its primary

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 17 of 25 onus/burden and the assessee could not be asked to do impossible. Fourthly, it held that the Income-tax Department has all the information and data base in its possession and control. The learned Commissioner of Income tax (Appeals)/Assessing Officer ought to have conducted necessary enquiries to unravel the truth but asking the assessee to do impossible is not warranted."

10.2 Further, he submitted that in connection with establishing the evidence regarding the unsecured loans, the learned CIT(Appeals) has relied on the judgment of the Hon'ble Supreme Court in the case of NRA Iron and Steel 103 taxmann.com 48 (2019) wherein it was held that the Assessee is expected to establish the following: a. Proof of Identity of the creditors; b. Capacity of creditors to advance money; and c. Genuineness of transaction. 10.3 In this regard he placed reliance in the case of Principal Commissioner of Income - tax vs Haresh Manila! Somaiya (R/TA. No. 255 of 2023) where the Hon'ble High Court of Gujarat has held that - "We find that during the remand proceedings, the details such copy PAN, ledger account and confirmation and other details such as bank statement, audited books were made available before the AO. However, the AO without considering and pointing any deficiency in the above primary document held that the assessee failed to prove the identity of the creditor, explain the genuineness of transaction and establish the credit worthiness of the creditor."

10.4 The ld. A.R. submitted that on the prima facie reading of the order under section 250, nowhere the learned CIT (Appeals) has considered the submissions made by the Assessee and the same amounting to the miscarriage of justice. The learned CIT (Appeals) ought to have considered the submission made by the Assessee in his support. He submitted that it is evident that the learned Assessing Officer and the learned CIT (Appeals) have made and upheld the addition without

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 18 of 25 considering the submissions made by the Assessee. This demonstrates the lack of application of mind on the matter of the fact. Hence, he prayed before us to delete the addition made on the unsecured loan amount under section 68 of the Act.

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 19 of 25 12.2 It is to be noted that the onus on the assessee is not only limited to establish the identity of the person making the advance but also his capacity to make advances and it has to be proved that it had actually been received as a loan from the creditor. The documents produced by the assessee shall not only proving identity of the parties but also creditworthiness of the creditor who should have the financial capacity to make the advance in question, to the satisfaction of the AO, so as to discharge the primary onus. The ld. AO is duty bound to look into the creditworthiness of the parties, verify the identity of the creditors and ascertain whether the transaction is genuine entries in the name of lenders. If the enquiries reveal that the identity of the creditors to be lack of creditworthiness, then the genuineness of the transaction would not be established. In such case, the assessee would not have discharged the primary onus contemplated by section 68 of the Act. 12.3 It was held by Hon’ble Supreme Court in the case of Roshan Di Hatti Vs. CIT (107 ITR 938) (SC) that onus of proving the source of sum of money found to have been received by the assessee, is of assessee. Once the assessee has submitted the documents relating to identity, genuineness of transactions and creditworthiness, then ld. AO must conduct enquiry and call for more details before invoking section 68 of the Act. If the assessee is not able to provide a satisfactory explanation of the nature and sources, the credit shown in the books of accounts in the assessment year under consideration is open to the lower authorities to hold that it is the income of the assessee and there would be no burden on the revenue to show that the income is from any particular sources. It is to be noted that once the assessee has produced the documents relating to identity, genuineness of transactions and creditworthiness of the lender, then the lower authority is duty bound to conduct an independent enquiry to verify the same. However, in the present case, the lower authorities has not made any independent enquiry to verify the

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 20 of 25 capacity of lenders of genuineness of the transactions, though the lower authorities has pointed out the discrepancy and insufficiency in the documents furnished by the assessee before him. As seen from the facts of present case, the lower authorities concerned has to examine the evidences furnished by conducting independent enquiry and there after to state whether he is satisfied with the details of evidences produced by the assessee and conducting of enquiry made by him. If he is not satisfied with the details of evidence and enquiry made by him after confronting the same to the assessee, he should take a decision to make an addition or not to make addition. At this point of time, it is not possible to hold that assessee has successfully discharged its primary onus cast upon him to explain the source of alleged credits in its books of accounts. Though the lower authorities noted the various shortcomings in the compliance made by the assessee, the lower authorities has not carried out the enquiry to the full extent. 12.4 Further, the AO can also refer to any material or evidence available with him and call upon the assessee to file their response and a general and universal procedure or method to be adopted by AO while verification of facts cannot be laid down. However, the manner, the mode of conducting assessment proceedings has to be left to the discretion of the AO and same should be just, fair and should not cause any harassment to the assessee. Further, it is to be noted that the provisions of Evidence Act are not applicable, but the AO being a quasi-judicial authority must take care and caution to ensure that decision is reasonable and satisfied the balance of equity, fairness of justice and the principles of preponderance of probabilities apply. 12.6 In view of the above, we are of the opinion that it is appropriate to remit this issue in dispute to the file of ld. AO to carry out necessary enquiry on this issue as deemed fit and to decide accordingly.

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 21 of 25 Ground Nos.15 to 18:- 13. Facts of the issue are that the assessee has shown agriculture income of Rs.5,69,500/-. The assessee was asked to provide the details of agriculture income along with the details of expenditure incurred for earning the same along with supporting vouchers by the ld. AO. The assessee has not submitted any details regarding expenditure incurred on earning agriculture income and the sources for such expenditure to the ld. AO. As the assessee has not submitted any details regarding sources for expenditure made for earning agriculture income therefore 30% of the agriculture receipts was deemed as expenditure for earning agriculture income which is incurred from income from other sources. Accordingly, Rs.1,70,850/- is added to the returned income as income from other sources and Penalty u/s. 270A of the Act is initiated for misreporting of income as discussed by the ld. AO.

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 22 of 25 u/s 68 subject to the applicable rate of taxation. Against this assessee is in appeal before us. 15. The ld. A.R. submitted that during the year under consideration the Assessee disclosed his agricultural income of Rs.5,69,500/- after setting off the expenditure incurred in relation to the agricultural income and showed the net agricultural income. The assessee was holding agricultural land of 12 Acres and 20 Guntas and has carried the agricultural activities on the same land. The Assessee has periodically disclosed the same in his return of income from the past 15 years. The agricultural income so declared for earlier years was accepted by the department unquestioningly given its genuineness. In connection with this extract of the previous 3 years agricultural income disclosed by the Assessee every year after setting off the expenditure incurred is as under: S. No Assessment Year Amount 1. AY 2015-16 Rs.3,86,895/- 2. AY 2016-17 Rs.6,32,500/- 3. AY 2017-18 Rs.5,69,500/-

15.1 The ld. A.R. submitted that as per para 10 of the assessment order under section 143(3) of the Act the learned Assessing Officer has stated that the Assessee has not submitted any details regarding the expenditure incurred on earning agricultural income and the sources for such expenditure but the Assessee has duly submitted the required documents before the learned Assessing Officer during the assessment proceedings. Consequently, the learned CIT (Appeals) has upheld the addition by stating in para 6.3.1 of the order under section 250 of the Act that the Assessee has not submitted any land records and not even the statement of calculation of agricultural income but in fact, the Assessee has submitted the agricultural land record and the agricultural income receipts during the assessment proceedings and

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 23 of 25 without considering the submissions made by the Assessee and passing order would result against the principles of natural justice. He submitted that the ld. Assessing Officer has made an addition of 30% of the agricultural income on an ad hoc basis and did not specify the section under which it is taxable. Further, he submitted that the learned CIT (Appeals) upheld the additions stating that by disallowing the 30% expenditure of Rs.1,70,850/-, the agricultural income gets reduced and the amount becomes unexplained cash credit under section 68 of the Act in the books of the Assessee. The learned CIT (Appeals) completely erred in including the expenditure in the taxable income under Section 68 of the Act, a section that the learned Assessing Officer did not invoke. Moreover, the learned CIT (Appeals) failed to provide adequate justification for applying cash credit provisions when the disallowance pertains to expenditure. Further, considering the agricultural sector is an unorganized one, and given the nature of the Assessee's profession, maintaining comprehensive records of all incurred expenses is extremely challenging. The Assessee has consistently expended funds as needed from the personal drawings, making it impractical to seamlessly consolidate all incurred expenses. Furthermore, given the exemption of agricultural income, the learned Assessing Officer and CIT(Appeals) erred in providing adequate justification for disallowing expenses related to agricultural income raising questions about how such disallowances would contribute to an increase in taxable income. In this regard the ld. A.R. placed reliance upon the judgement of the ITAT, Chennai in the case of Smt. Annakkalanjiam Mathivanan Vs. ACIT, ITA No. 2451/Chny/2018 order dated 22-01-2019 where it was held as under:

"5. The Assessing Officer as well as the CIT(Appeals) have to appreciate the fact that the agricultural products in this country are traded in unorganized sector. The workforce in the agricultural sector is unorganized. When the agricultural products are traded in unorganized sector in the country, expecting the assessee to produce bills for sale of agricultural produce is something which cannot be produced by the assessee. Moreover, when the assessee engages labourers in carrying out agricultural operation and incur expenditure, producing vouchers is something uncalled for.

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 24 of 25 What is to be seen is that whether the assessee has cultivated the land as claimed. When the assessee claims that the land was cultivated with certain crops and when the Assessing Officer has taken up the assessment for examination after three or four years from the relevant financial year, no material evidence will be available on the land to show that the assessee has cultivated as claimed. The only evidence available is the record maintained by the State Government in its Revenue Department. As per the Revenue Board's standing orders of Government of Tamil Nadu, the Village Administrative Officer in his official duty has to go round the village and take stock of the cultivation made at the relevant field and it has to be recorded in Village Account No.2. The Village Account No.2 is otherwise known as adangal. Therefore, the only official document maintained in the course of administration is the adangal extract maintained by the Village Administrative Officer. Beyond this, the assessee cannot produce any evidence for establishing the cultivation. 6. Moreover, for yield, there cannot be any other evidence other than estimation. A coconut tree may yield 100-120 nuts in a year. Now the Agriculture Department and Agriculture University invented hybrid coconut varieties which give 150-200 nuts in a year. Therefore, estimation of yield in agriculture is something difficult and which needs to be appreciated by the authorities who are performing judicial function. When agricultural produce including coconuts is traded in unorganized market like Uzhavar Sandhai and other local market, expecting the assessee to produce bills and vouchers is nothing but asking the assessee to perform an impossible task. Therefore, this Tribunal finds no reason to disallow any claim of the assessee. Had the Assessing Officer found that the assessee has no land or he has not cultivated as claimed, the matter might have stood in a different foot. In this case, the Assessing Officer accepted the fact that the assessee has cultivated the land. The only reason for disallowance is that the assessee could not produce bills and vouchers for sale of agricultural produce and receipts for expenses. Apart from that, the assessee has established by producing copy of adangal extract that the land in question was subject to cultivation. In those circumstances, this Tribunal is of the considered opinion that there is no reason to disallow any part of claim. Therefore, this Tribunal is unable to uphold the order of the lower authority. Accordingly, orders of both the authorities below are set aside and the Assessing Officer is directed to delete the addition of £8,00,000/- 7. In the result, the appeal filed by the assessee is allowed. 15.2 Thus, the ld. A.R. prayed before us to delete the addition made on the agricultural income. 16. We have heard the rival submissions and perused the materials available on record. In this case, the addition of Rs.1,70,850/- has been treated as income u/s 68 of the Act out of Rs.5,69,500/- declared by assessee as an agricultural income. It was the contention of the ld. D.R. that the assessee has not placed necessary evidence with regard to earning of agricultural income along with details of land holdings and also details of expenditure incurred for the purpose of earning agricultural income. On the other hand, ld. A.R. submitted that assessee is holding 12 acres & 20 guntas of agricultural land and also filed details of sales bills of agricultural

ITA No.900/Bang/2023 Vishwanathareddy Chennareddy, Bangalore Page 25 of 25 product, photo copies of farm house and also pictures of agricultural products like poultry, Cuniculture (Rabbit breeding) and also sale deed copies of properties in the name of assessee to prove that assessee has been carrying on agricultural operations, however, it has not made it clear by the ld. A.R. whether these documents were filed before the lower authorities. Further, ld. A.R. made a plea that in earlier assessment years, the agricultural income declared by the assessee has been accepted. It was submitted that on similar line, the agricultural income declared by assessee in this AY to be accepted. In our opinion, the principles of res judicata does not applicable to the income tax proceedings. More so, there is no evidence produced by the assessee to suggest that in earlier assessment years, the agricultural income has been accepted by the department vide scrutiny assessment u/s 143(3) of the Act. The agricultural income earned by assessee in each assessment year depend upon the various factors and the assessee is required to establish in each assessment year that he has earned the agricultural income declared in his return of income. Being so, in the interest of justice, it is appropriate to remit the issue in dispute to the file of ld. AO to examine these facts with regard to earning of agricultural income and decide in accordance with law. This ground of appeal of the assessee is partly allowed. 17. In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 1st Feb, 2024

Sd/- Sd/- (Beena Pillai) (Chandra Poojari) Judicial Member Accountant Member Bangalore, Dated 1st Feb, 2024. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order

Asst. Registrar, ITAT, Bangalore.