SABBARAPU NARAYANA RAO,KAKINADA vs. INCOME TAX OFFICER, WARD-1, KAKINADA

PER S. BALAKRISHNAN, Accountant Member :

This appeal filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal

2 Centre, Delhi [CIT(A)-NFAC] vide DIN & Order No.

ITBA/NFAC/S/250/2022-23/1045812115(1), dated 22/9/2022

arising out of the order passed U/s. 143(3) of the Act, dated

16/12/2019 for the AY 2017-18.

an individual deriving income from purchase and sale of

fertilizers and pesticides in the name and style of “Dhanalakshmi

Agencies” filed its return of income on 9/6/2017 for the AY 2016-

17 admitting a total income of Rs. 5,10,480/- u/s 44AD of the

Act(presumptive taxation). Subsequently, the case was selected

for “limited scrutiny” under CASS to verify the sources for cash

deposits during the year. Accordingly, notices U/s. 143(2) was

issued electronically on 9/8/2018 and served on the assessee.

Subsequently, notice U/s. 142(1) was also issued on 15/7/2019,

25/10/2019, 5/11/2019, 14/11/2019 and 21/11/2019 calling

for the information relating to the cash deposited during the

year. Consequently, the Ld. AO also issued letters u/s. 133(6) of

the Act calling for the information from the banks. In response

to the notices, the assessee filed its return of income on

11/12/2019 stating that the cash deposited in the bank accounts

are out of sale of paddy, fertilizers & pesticides, gift received from

3 his mother-in-law, investment by partners of new firm viz.,

Dhanalakshmi Traders, agricultural income and cash withdrawn

from various banks on various dates. In support of the

submissions the assessee enclosed copies of VAT returns, sale

deed and details of agricultural land holdings. Subsequently, the

Ld. AO issued show cause notice on 11/12/2019 calling for

detailed information. In reply, the assessee on 11/12/2019

furnished the details as required by the Ld. AO through ITBA.

Examining the submissions made by the assessee on various

dates, the Ld. AO concluded the assessment by making the

following additions:

1 Disallowance of gift from mother in Rs. 18,00,000 law 2. Amount received from farmers on sale Rs. 42,50,280 of paddy, fertilizers and pesticides 3. Amount withdrawn from partnership Rs. 35,40,000 firm 4. Unexplained agricultural income Rs. 4,00,000 5. Unexplained cash deposits in HDFC Rs. 2,50,000 Bank 6. Unexplained cash deposits during Rs. 32,00,000 demonetization period Total Rs. 1,34,40,280

115BBE of the Act as unexplained cash deposits in various bank

4 accounts. Aggrieved by the order of the Ld. AO the assessee filed

an appeal before the Ld. CIT(A)-NFAC.

the assessee during the appeal proceedings, dismissed the appeal

of the assessee and upheld the order of the Ld. AO. Aggrieved by

the order of the Ld. CIT (A)-NFAC, the assessee is in appeal

before us.

however, the only issue raised by the assessee is with respect to

addition of Rs. 1,34,40,000/- made by the Ld. AO U/s. 69A of the

Act towards alleged unexplained cash deposits in bank accounts.

fertilizers and pesticides and has filed copies of VAT returns

while admitting the income @ 12% on the sales. Further, the Ld.

AR submitted that the assessee has admitted Rs. 2,60,000/-

being 5% of the turnover with respect to paddy sales commission.

The Ld. AR also further submitted that the assessee owns 10

acres of land and leased 16 acres and derived agricultural income

of Rs. 5 lakhs per annum. Further, the Ld. AR also submitted

that the assessee’s mother-in-law has sold her property on

30/07/2016 for Rs. 18 lakhs and it was gifted to the assessee for

5 making cash deposit into the assessee’s bank account. The Ld.

AR submitted the gift deed was also submitted before the Ld.

CIT(A)-NFAC. Further, the Ld. AR submitted that the cash

deposit of Rs. 32 lakhs during the demonetization period is out of

the cash withdrawals made by the assessee and has been re-

deposited within a span of 5 days. Further, in respect of

amounts received from partners as capital in the partnership firm

Dhanalakshmi Traders, the Ld. AR submitted that the partners

have contributed capital to the firm and since the firm does not

have a bank account these amounts are deposited into the

assessee’s bank account. The Ld. AR further submitted before us

that the petition for admission of additional evidence has been

placed before us with respect to the sources for cash deposits

made by various partners of the partnership firm Dhanalakshmi

Traders and pleaded that the additional evidence may be

admitted.

Per contra, the Ld. DR submitted that the gift from mother-

in-law was not accepted by the Ld. AO due to the fact that there

is a huge time lag between the date of sale of property and date

of gift to the assessee. Further, the Ld. DR submitted that the

partnership firm is unregistered and it entered into on

6 11/11/2016 which is during the demonetization period. The Ld.

DR also questioned the need of depositing the cash as

contribution towards capital by the various partners into the

assessee’s bank account. The Ld. DR also submitted that the

partners to the firm are non-filers of the income tax returns and

has never disclosed their agricultural income as claimed by them

and has never filed their returns of income for any assessment

year. Further, the Ld. DR also submitted that the claim of the

Ld. AR that the assessee is a commission agent for Paddy sales

and purchases and this fact was not disclosed in the VAT return

submitted by the assessee. The Ld. DR therefore pleaded that the

order of the Ld. Revenue Authorities may be upheld.

available on record and the orders of the Ld. Revenue

Authorities. With respect to Rs. 18 lakhs as gift from mother-in-

law, the submission of the Ld. AR is that the assessee deposited

the same into the bank account on 30/07/2016 itself. The Ld.

AR brought our attention to page 9 of the paper book where the

HDFC bank statement has been placed and submitted that the

cash of Rs. 40 lakhs was deposited on 30/07/2016 and in his

submissions the Ld. AR reiterated that this amount comprised of

7 Rs. 18 lakhs gifted from mother-in-law and cash withdrawn from

bank for Rs. 20 lakhs on 25/7/2016 and cash withdrawn from

bank account for Rs. 1 lakh on 15/7/2016 and the balance Rs. 1

lakh was the amount received from farmers on account of sale of

pesticides and fertilizers. The Ld. AR also in his reply to the Ld.

AO on 16/12/2019 has reiterated that the deposit of the gift from

mother-in-law for Rs. 18 lakhs was made into the bank account

on 30/07/2016. We also find from the translated copies of the

sale deed produced by the Ld. AR in pages 80 to 82 of the paper

book confirms the sale of two lands for Rs. 9 lakhs each. In view

of the above, the claim made by the assessee that it is a gift from

mother-in-law and it was deposited into the bank account on

30/07/2016 itself in our considered view is acceptable and

allowed.

fertilizers and pesticides, it was submitted by the Ld. AR that the

assessee has made turnover of Rs. 51 lakhs during the impugned

assessment year by way of purchase and sale of paddy and has

earned the commission of Rs. 2,60,000/- being 5% as disclosed

in the returns of income filed by the assessee. This fact was not

disputed by the Ld. AO. The Ld. AO has merely relied on the

8 reported turnover as per VAT returns and has considered the

submissions of the assessee as illogical. We find merit in the

arguments of the Ld. AR that the assessee has acted as a

mediator between the rice millers and the farmers for a

commission and has routed the transactions through his

account. This commission was also disclosed in the return of

income filed by the assessee. We therefore are inclined to delete

the addition made by the Ld. Revenue Authorities on account of

sale of paddy for Rs. 42,50,280/-.

has relied on the returns of income filed by the assessee that the

assessee has not disclosed the agricultural income while filing

the return of income. The Ld. AR in his paper book filed narrated

that the assessee has shown an exempt income of Rs. 5 lakhs as

agricultural income while filing the return of income. We find

that the Ld. AO has not considered this exempt income of Rs. 5

lakhs as disclosed by the assessee in his return of income. The

Ld. AO has therefore erred in treating the agricultural income of

Rs. 4 lakhs as unexplained. We therefore direct the Ld. AO to

delete this addition as it has been properly explained and

disclosed in the return of income filed by the assessee.

considered as no source was explained by the assessee and hence

treated the same as unexplained. It was the submission of the

Ld. AR that this amount was out of surplus available with the

assessee and which has been deposited into the bank account.

Considering the above submissions, we are inclined to direct the

Ld. AO to delete the addition of Rs. 2,50,000/- which was made

out of the savings of the assessee.

made by the assessee into the bank account, the submissions of

the Ld. AR that these amounts have been received by cash being

the contribution towards the capital of the firm Dhanalakshmi

Traders by various partners of the firm. The Ld. AR also

submitted admission of additional evidence substantiating the

sources of funds by various partners towards contribution to the

capital to the firm. The Ld. AR also submitted a copy of the

partnership deed before us. Further, from the verification of the

partnership deed, we find that there is no recital with respect to

the capital contribution made by the partners. Further, the Ld.

AR also could not explain why the capital contribution was

deposited into the assessee’s bank account instead of the bank

10 account of the partnership firm Dhanalakshmi Traders. Further,

on verification of the additional evidences submitted before us,

we find that the various partners have declared their income as

agricultural income and has provided confirmation letter

regarding their investment in the partnership firm Dhanalakshmi

Traders. However, the creditworthiness of the partners could not

be established and also the income earned by the partners

through agricultural sources could not be substantiated by the

Ld. AR. At the cost of repetition, we also find that these cash

deposits was made into the assessee’s bank account but not into

the bank account of the partnership firm. In view of the above

facts and circumstances, we are inclined to reject the additional

evidence submitted by the Ld. AR.

that he had deposited cash of Rs. 20 lakhs on 10/11/2016; Rs.

12 lakhs on 11/11/2016 into the SOD account and Rs. 1 lakh on

10/11/2016 in the current account of the assessee. Further, the

assessee has also deposited Rs. 1 lakh on 19/1/2017 by way of

cash and Rs. 1,40,000/- by way of cheque on 7/3/2017. All the

above deposits aggregating to Rs. 35,40,000/- is stated by the

Ld. AR as received from the partnership firm. We find that

11 therefore the deposits during the demonetization period for Rs.

33,00,000/- in both the bank accounts by way of cash is out of

the capital alleged to be introduced by the partners of the firm.

In the absence of any substantiated evidence with regard to

deposits of the cash into the assessee’s account instead of

partnership firm’s account we could not accept that these

deposits are from explained sources. We are therefore inclined to

uphold the addition of Ld. Revenue Authorities to the extent of

Rs. 33,00,000/- deposited by way of cash during the

demonetization period and hereby confirm the order of the Ld.

Revenue Authorities.

Authorities being the cash deposited during the demonetization

period we find that these cash deposits in the bank account of

the assessee arise out of the alleged cash contribution by the

partners. The Ld. Revenue Authorities have erred in disallowing

the same cash deposits and we therefore direct the Ld. AO to

delete the addition of Rs. 32 lakhs.

Pronounced in the open Court on the 17th March, 2023.

Sd/- Sd/- (दु�वू�आर.एलरे�डी) (एसबालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखासद�य/ACCOUNTANT MEMBER Dated : 17.03.2023 OKK - SPS आदेशक���त�ल�पअ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee–Sabbarapu Narayana Rao, D.No. 3-71, 1. Anjaneya Swamy Temple Street, Bikkavole Mandal, East Godavari District, Andhra Pradesh. राज�व/The Revenue –Income Tax Officer, Ward-1, 3rd Floor, Deepthi 2. Towers, Main Road, Kakinada. 3. The Principal Commissioner of Income Tax, आयकरआयु�त (अपील)/ The Commissioner of Income Tax 4. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण, �वशाखापटणम/ 5. DR,ITAT, Visakhapatnam गाड�फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER

Sr. Private Secretary ITAT, Visakhapatnam