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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI R. K. PANDA & MS. ASTHA CHANDRA
The above two appeals filed by the assessee are directed against the common order dated 02.04.2024 of the Ld. CIT(A), Pune-11 relating to assessment years 2018-19 and 2019-20 respectively. Since identical grounds have been raised by the assessee in both these appeals, therefore, for the sake of convenience, these were heard together and are being disposed of by this common order. for assessment year 2018-19 as the lead case. Facts of the case, in brief, are that the assessee is a partnership firm and filed its return of income u/s 139(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) on 13.10.2018 declaring total income of Rs.15,26,720/-. A search and seizure action u/s 132 of the Act was conducted in the case of the assessee on 14.11.2019. In response to the notice u/s 153A of the Act issued on 04.01.2021, the assessee filed the return in response to the same on 10.02.2021 declaring total income of Rs.15,26,720/-. Subsequently, statutory notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee in response to which the assessee filed the requisite details from time to time as called for by the Assessing Officer.
During the course of assessment proceedings, the Assessing Officer noted that at the time of search u/s 132(1) of the Act at the office of M/s. Chetan Traders, some incriminating material were found and seized as per Bundle No.1 and 2 of Annexure to Panchnama. These bundles contain entries of cash payments made to third parties. He further noted that in the statement recorded u/s 132(4) of the Act, the managing partner of the assessee firm Shri Chetan Parekh in his sworn statement had admitted that the payments were made to some middlemen / agents in cash for arranging business which were not recorded in the books of account. Since the assessee had not included the amount as income in the return in response to notice u/s 153A of the Act, the Assessing Officer asked the assessee to explain the source of these payments and whether this amount has been offered for taxation in return of income. The assessee in his submission stated that the payments to the middlemen / agents were made out of withdrawals made by the partners from the firm. It was submitted that no deduction has been claimed by the assessee firm or any of its partners in relation to the aforesaid payments. Since no deduction has been claimed, there is no question of disallowing the same. It was submitted that the said payments were made out of withdrawals of the firm and / or its partners or by funds given by the partners from their sources. It was accordingly submitted that the provisions of section 69C of the Act has no application to the same.
However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. He noted that during the course of search action, Shri Chetan Parekh, managing partner of the assessee firm had stated that the payments were made out of cash withdrawals from the bank. Now, the assessee has taken a new plea that these payments were made by the partners from the withdrawals from their respective capital accounts. According to the Assessing Officer, if the payments were made for arranging business and incidental to the business activities, then the transactions were not recorded in the books of account. He noted that Shri Chetan Parekh in his statement recorded u/s 132(4) of the Act had categorically stated that the payments were made out of cash withdrawals from the bank. Since, as per accounting principle, the cash so withdrawn must have been recorded in the books of account as cash in hand but there were no entries in the books of account regarding the payments to the agents, therefore, the Assessing Officer was of the opinion that the source of such payments cannot be the cash withdrawals from the books of account. He, therefore, rejected the change in stand taken during the course of assessment proceedings. So far as the contention of the assessee that the payments were not claimed as deduction and therefore, the provisions of section 69C of the Act have no application is concerned, the Assessing Officer held that the assessee failed to explain the source of these payments and therefore, the amount of expenditure so incurred is the deemed income of the assessee. Rejecting the various explanations given by the assessee, the Assessing Officer made addition of Rs.8,12,70/- to the total income of the assessee u/s 69C r.w.s. 115BBE of the Act. Similar addition was made in assessment year 2019-20 amounting to Rs.2,45,950/-.
In appeal, the Ld. CIT(A) upheld the action of the Assessing Officer by observing as under:
“8. I have considered the facts of the case and the submissions made by the appellant. It is not under dispute that, the appellant had made certain cash expenses (as found recorded in the seized documents) amounting to Rs.8,12,705/- during the year under consideration. It is also not under dispute that the said cash expenses are not recorded in the books of the account of the appellant even though as per appellant's stand, the said expenses were incurred to generate business. Only dispute is regarding the source of these cash expenses. As per the appellant, the said cash expenses were incurred out of the withdrawals made by the partners of the appellant firm. In support of this, the appellant has also given the amount of withdrawal made by each partner which is reproduced in para 6.2 above.
I have considered the contention of the appellant but I do not find the same as acceptable. The total amount of cash withdrawal by the partners during the whole year comes to Rs.10,40,125/-. If it is accepted that the unrecorded cash expenses amounting to Rs.8,12,705/- was funded out of above withdrawals in that case hardly any money (to be precise Rs.2,27,420/-) will be left with three partners of the appellant firm for supporting their families. Thus, the explanation that the cash expenses were incurred out of withdrawals made by the partners cannot be accepted. Moreover, the appellant has not given any one-to-one co-relation between the cash expenses found recorded in the seized documents and the bank withdrawals made by the partners.
It is also important to note that as per appellant's explanation, the cash expenses were incurred for the purpose of business, therefore, it is very strange that the said expenses are not recorded in the books of accounts. Normally, the expenditure directly made by the partners of the firm shall be credited in the partner's capital account and corresponding amount shall be debited in the P&L account along with corresponding entries in cash-book. But this is not done in this case and admittedly, the said cash expenses remained unrecorded. These facts clearly suggest that the cash expenses of Rs.8,12,705/- were made by the firm, out of undisclosed sources and when the documents were seized, the appellant is trying to cover-up it by the withdrawal made by the partners from their bank account which were otherwise made by the partners for other purposes. Thus, the explanation regarding source of expenditure is nothing but an afterthought and remained unsubstantiated.
11. Considering the totality of facts of the case, the action of the assessing officer of treating the cash expenses of Rs.8,12,705/- as unexplained, is upheld. Accordingly, the addition of Rs.8,12,705/- made u/s 69C of the Act is upheld. The grounds of appeal raised by the appellant are DISMISSED.”
Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:
1. In the facts and circumstances of the case and in law, the Learned Assessing Officer erred in assessing your appellant for income of Rs.8,12,705/- as against returned income of Rs.15,26,720/-.
2. In the facts and the circumstances and in law, the Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.8,12,705/- u/s. 69C of the Act as Unexplained Expenditures.
3. Your appellant craves leave to add, to amend, alter, delete and/or modify the above grounds of appeal on or before the final date of hearing.
The Ld. Counsel for the assessee at the outset submitted that all these payments were made out of withdrawals by the partners from their respective bank accounts or their capital accounts. He also filed an application seeking the admission of certain additional evidences as per Rule 29 of Appellate Tribunal Rules, 1963 and submitted that these additional evidences go to the root of the matter and therefore, the same should be admitted for fair justice to the assessee. The Ld. Counsel for the assessee drew the attention of the Bench to the following additional evidences:
Explanation for partner wise cash payment of Rs.8,12,700/- 2. Cash summary of partners of M/s Chetan Traders from 01.04.2014 to 31.03.2017 3. Consolidated Cash summary of partners of M/s Chetan Traders from 01.04.2014 to 31.03.2017 4. Cash Book for the period 01.04.2014 to 31.03.2017 of i. Chetan P. Parekh ii. Aakash C. Parekh iii. Damini C. Parekh 5. Bank Statements for the period 01.04.2014 to 31.03.2017 of i) Chetan P. Parekh ii) Aakash C. Parekh iii) Damini C. Parekh 6. Cash summary of partners of M/s Chetan Traders from 01.04.2017 to 31.03.2018 7. Consolidated Cash summary of partners of M/s Chetan Traders from 01.04.2017 to 31.03.2018 8. Cash Book for the period 01.04.2017 to 31.03.2018 of i) Chetan P. Parekh ii) Aakash C. Parekh iii) Damini C. Parekh 9. Bank Statements for the period 01.04.2017 to 31.03.2018 of i) Chetan P. Parekh ii) Aakash C. Parekh iii) Damini C. Parekh 10. Personal and Household expenses of the partners of M/s Chetan Traders for F.Y. 2017-18 11. Summary of Capital Account in the books of M/s Chetan Traders for the period 01.04.2017 to 31.03.2018 of i) Chetan P. Parekh ii) Aakash C. Parekh iii) Damini C. Parekh
He accordingly submitted that the matter may be restored to the file of the Assessing Officer with a direction to adjudicate the issue afresh on the basis of the additional evidences and decide the issue as per fact and law. He also relied on the following decisions: i) Babulal C. Borana vs. ITO (2006) 282 ITR 251 (Bom) ii) CIT vs. Radhika Creation (2011) 10 taxmann.com 138 (Del) iii) CIT vs. Bhagwati Developers (P.) Ltd. (2003) 261 ITR 658 (Cal) iv) DCIT vs. M/s. Shah Khodidas & Co. vide for A.Y. 2004-05, order dated 25.03.2011
9. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A).
10. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the paper book filed on behalf of both sides. We have also considered the various decisions cited before us by both sides. We find the Assessing Officer in the instant case made addition of Rs.8,12,705/- u/s 69C r.w.s. 115BBE of the Act on the ground that the assessee has incurred certain cash expenses as found and recorded in the seized documents but were not recorded in the books of account and the assessee failed to explain the source of these cash payments. The submission of the assessee that the said cash expenses were incurred out of withdrawals made by the partners of the assessee firm was rejected by the Assessing Officer on the ground that the assessee changed its stand at the time of assessment proceedings which is contrary to the statement given by Shri Chetan Parekh, managing partner of the assessee firm in the statement recorded u/s 132(4) of the Act at the time of search. We find the Ld. CIT(A) upheld the action of the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that the entire cash expenditure so found during the course of search and which was not recorded in the books of account are out of the cash withdrawals made by the partners from their bank accounts or from the firm and it has not been claimed as deduction since these are personal in nature. It is also his submission that once the assessee substantiates the source of such cash expenditure, the provisions of section 69C cannot be applicable. It is also his submission that the additional evidences which are filed now go to the root of the matter to decide the issue. Since the additional evidences so filed by the assessee in the paper book go to the root of the matter for deciding the issue, we admit the same and deem it proper to restore the issue to the file of the Assessing Officer with a direction to decide the issue afresh as per fact and law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
We have already decided the issue and restored the matter back to the file of the Assessing Officer for fresh adjudication. Following similar reasonings, grounds raised by the assessee in are also allowed for statistical purposes.
In the result, both the appeals filed by the assessee are allowed for statistical purposes.
Order pronounced in the open Court on 12th December, 2024.
Sd/- Sd/- (ASTHA CHANDRA) (R. K. PANDA) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; दिन ांक Dated : 12th December, 2024 GCVSR आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: 1. अपीलार्थी / The Appellant; 2. प्रत्यर्थी / The Respondent 3. The concerned Pr.CIT, Pune 4. DR, ITAT, ‘A’ Bench, Pune 5. गार्ड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अधिकरण ,पुणे / ITAT, Pune
S.No. Details Date Initials Designation 1 Draft dictated on 10.12.2024 Sr. PS/PS 2 Draft placed before author 11.12.2024 Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS Date on which the file goes to the Head 9 Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order