MAHESH PARGANIHA,DURG vs. INCOME TAX OFFICER, WARD-1(4), DURG

The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 10.12.2021, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 25.12.2019 for the assessment year 2017-18. The assessee has assailed the impugned order on the following grounds of appeal: 1). On the facts and in the circumstances of the case CIT(A) erred in confirming addition of Rs.20,00,000/- made by the Assessing Officer by invoking provision of section 69A in respect of cash deposited in bank accounts during demonetization period of Rs.20,00,000/-, duly recorded in the books of account maintained by the assessee and produced before the Assessing Officer for verification, because provisions of this section cannot be invoked in case where concerned money is already recorded in the books of account. The assessee prays that the addition of Rs.20,00,000/- made u/s 69A be deleted. 2). On the facts and in the circumstances of the case CIT(A) erred in confirming addition of Rs.20,00,000/- made by the Assessing Officer only on presumption and surmises by treating cash deposited during demonetization period to the extent of Rs.20,00,000/- (Rs.10,00,000/- each in bank accounts with "Allahabad Bank" and "Central Bank of India"), duly recorded in the books of account maintained by the assessee, as unexplained money u/s.69A and levied tax thereon as per provisions of section 115BBE(1) of the Act @ 60% without considering written submissions, books of account and other documents furnished before him to explain sources of cash deposited during demonetization period and 3 Mahesh Parganiha Vs. ITO, Ward-1(4) ITA No.03/RPR/2022

Succinctly stated, the assessee had e-filed his return of income for A.Y.2017-18 on 16.03.2018, declaring an income of Rs.12,89,900/-. Subsequently, the case of the assessee was selected for limited scrutiny through CASS for the reason that there were cash deposits in his bank accounts during the demonetization period.

During the course of the assessment proceedings, it was observed by the A.O that the assessee during the year under consideration had made cash deposit of Rs.10 lac each in his bank A/c. No.1385225338 with Central Bank of India and bank A/c. No.21287579605 with Allahabad Bank. On being queried about the source of the aforesaid cash deposits, the assessee as observed by the A.O had claimed that the same was sourced out of his agriculture income. Rebutting the aforesaid claim of the assessee, it was observed by the A.O that the assessee had not offered any agriculture income for taxation in his return of income for the year under consideration. Apart from that, it was observed by the A.O that as agricultural land was owned by the assessee’s HUF and the income arising therefrom was assessed in the latter’s hand, therefore, the claim of the assessee as regards availability of cash in hand out of agriculture income which belonged to HUF was merely an afterthought on the basis of which he had tried to explain the source of the cash deposits in his bank accounts. Accordingly, the A.O not finding favour with the aforesaid claim of the assessee held the entire amount of Rs.20 lac as the unexplained money of the assessee u/s.69A of the Act.

Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). During the course of the proceedings before the 5 Mahesh Parganiha Vs. ITO, Ward-1(4) ITA No.03/RPR/2022 appellate authority, it was the claim of the assessee that cash deposits in the bank accounts were made out of his books of account. In support of his aforesaid contention the assessee had produced his books of accounts for the year under consideration i.e. A.Y.2017-18, as well as those for the immediately two preceding years a/w. copies of capital account and Balance Sheet for the said years. It was further claim of the assessee that as the entire amount of cash deposits were duly recorded in his books of account, therefore, the A.O had grossly erred in disregarding the said factual position and held the same as his unexplained money u/s.69A of the Act. In sum and substance, it was the claim of the assessee that now when the cash deposits of Rs. 20 lac made during the demonetization period were duly recorded in his books of account, therefore, the provisions of Section 69A of the Act could not have been triggered by the A.O for making the impugned addition in his hands. On appeal, as observed by the CIT(Appeals), it was the claim of the assessee that the cash deposits of Rs.20 lac made in his bank accounts were sourced out of agriculture income of its HUF. Apart from that, it was also the claim of the assessee that the cash deposits in question were funded out of accumulated funds and cash withdrawals made by him over the years from his bank account. However, the CIT(Appeals) did not find favour with the aforesaid claim of the assessee and in absence of any 6 Mahesh Parganiha Vs. ITO, Ward-1(4) ITA No.03/RPR/2022 material which would support the same upheld the addition of Rs.20 lac made by the A.O u/s.69A of the Act.

The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before me.

At the very outset of the hearing of the appeal, it was submitted by the Ld. Authorized Representative (for short ‘AR’) for the assessee that both the lower authorities had grossly erred in observing that the assessee had claimed that the cash deposits of Rs.20 lac in his bank accounts were sourced out of agriculture income. Our attention was drawn by the Ld. AR to the submissions which were filed before the CIT(Appeals), dated 04.09.2020 wherein the assessee had duly clarified that as the agricultural land was owned by his HUF, therefore, the income earned therefrom belonged to the latter and had duly been accounted for in its returns of income for the year under consideration as well as those for the preceding years. It was further averred by the Ld. AR that the assessee had before the CIT(Appeals) categorically refuted the observation of the A.O that he had in the course of the assessment proceedings claimed that the source of the cash deposits in his bank accounts was out of agriculture income. On the contrary, it was submitted by the Ld. AR that the assesee had brought to the notice of the CIT(Appeals) that cash deposits in 7 Mahesh Parganiha Vs. ITO, Ward-1(4) ITA No.03/RPR/2022 question were made from his books of accounts which were duly produced in the course of the assessment proceedings before the A.O. It was further submitted by him that the A.O had never pointed out any mistake or irregularity in the books of account of the assessee which were produced before him, nor found any instance of inclusion of any agriculture income. On the basis of the aforesaid facts, it was the claim of the Ld. AR that it was not only beyond comprehension as to on what basis the A.O had observed that the assessee had tried to relate the cash deposits under question to agriculture income, but also most surprisingly the CIT(Appeals) despite being informed about the aforesaid serious infirmities in the observation of the A.O, and the fact that cash deposits in question were made from the books of account, had however most whimsically discarded the same. In order to fortify his aforesaid contention the Ld. AR had taken us through an undated letter that was filed by the assessee with the A.O in the course of the assessment proceedings, which substantiated the fact that the assessee had not only produced the books of accounts for the year under consideration i.e. A.Y.2017-18 before the A.O in the course of the assessment proceedings, but also those for the immediately two preceding years a/w. copies of the capital account and Balance Sheet for all the said respective years, Page 10 of APB. The Ld. AR further took us through the cash book of the assessee for 8 Mahesh Parganiha Vs. ITO, Ward-1(4) ITA No.03/RPR/2022 the year under consideration i.e. A.Y.2017-18, Page 38 to 51 of APB. Our attention was drawn by the Ld. AR to the relevant extract of the aforesaid cash book wherein both the transactions of cash deposit of Rs.10 lac each on 29.11.2016 in the aforementioned bank accounts, viz. A/c. No.1385225338 with Central Bank of India and A/c. No.21287579605 with Allahabad Bank stood reflected, Page 49 of APB were reflected. On the basis of the aforesaid facts, it was the claim of the Ld. AR that now when the assessee had duly substantiated the source of the cash deposits in the aforementioned bank accounts in question, therefore, both the lower authorities had grossly erred in law and the facts of the case in making an addition of Rs.20 lac u/s.69A of the Act.

Per contra, the Ld. Departmental Representative (for short ‘DR’) relied on the orders of the lower authorities.

I have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record.

I have given a thoughtful consideration to the issue in hand, i.e. sustainability of the addition of Rs.20 lac made by the A.O u/s.69A of the Act. Ostensibly, it is the claim of both the lower authorities that the assessee on being called upon to put forth an 9 Mahesh Parganiha Vs. ITO, Ward-1(4) ITA No.03/RPR/2022 explanation as regards the source of the cash deposits aggregating to Rs.20 lac (supra) in his aforementioned bank accounts, had claimed that the same were sourced out of his agriculture income. On the contrary, it is the claim of the Ld. AR that the assessee had never related the cash deposits with the agriculture income, which, in fact, belonged to his HUF and was duly offered to tax in the latter’s hand. To sum up, the observation of both the lower authorities as regards the explanation of the assessee qua the source of the cash deposits clearly militates as against that projected by the Ld. AR before me.

Having given a thoughtful consideration to the aforesaid controversy in hand, I find some substance in the claim of the assessee that he had stated before the lower authorities that the cash deposits in question were sourced from his books of accounts which were produced before the A.O in the course of the assessment proceedings. The aforesaid claim of the assessee is fortified on a perusal of the reply that was filed by him in response to a notice issued u/s.142(1) of the Act by the A.O, wherein the assessee has stated to have produced the books of accounts for the year under consideration a/w. those for the immediately preceding two years before the A.O, Page 10 of APB. Apart from that, I find that the assessee vide his written submission dated 04.09.2020 that was filed before the CIT(Appeals), had categorically stated that it was never his

In the result, appeal of the assessee is allowed for statistical purposes in terms of the aforesaid observations.