Savery Transport Finance Limited Vs ACIT (ITAT Chennai)
Chennai: The Income Tax Appellate Tribunal (ITAT), Chennai bench, has provided relief to Savery Transport Finance Limited, a non-banking finance company (NBFC), by deleting an addition of ₹14.84 lakh made by the Assessing Officer (AO) on account of alleged unexplained cash deposits during the demonetization period. The Tribunal found that the cash deposits were duly recorded in the assessee’s books of account, which were audited and not rejected by the department. The ITAT also remitted the assessee’s claim for deduction under Section 80G back to the AO for fresh examination.
The appeal before the ITAT for the Assessment Year 2017-18 challenged two aspects of the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi. The first was the confirmation of the addition of ₹14.84 lakh, and the second was the denial of the deduction claimed under Section 80G of the Income Tax Act, 1961. The assessment in this case was framed by the AO under Section 143(3) read with Section 147 of the Act on December 31, 2019, following the reopening of the assessment.
During the assessment proceedings, the AO observed that Savery Transport Finance Limited had deposited a substantial amount of cash, totaling ₹1586.77 lakh, into its bank accounts between November 9, 2016, and December 30, 2016. This period coincided with the demonetization of specified bank notes (SBNs) of ₹500 and ₹1000 denominations. The AO, therefore, required the assessee to explain the source of these cash deposits.
In response, the assessee provided details and explanations regarding the source of the cash. It was submitted that the deposited cash represented amounts received back from various borrowers to whom the company had provided finance. Specifically, an amount of ₹14.84 lakh out of the total deposit was identified as being deposited in SBNs, which the assessee stated were repayments received from borrowers.
To verify the authenticity of these repayments, the AO issued notices under Section 133(6) of the Act to 108 parties who were identified by the assessee as the source of the cash receipts. Section 133(6) empowers the income tax authority to require any person to furnish information, documents, or statements relevant to any inquiry or proceeding under the Act. However, according to the assessment order, a large number of these notices remained unresponded. Based on the lack of response from a significant portion of the parties, the AO concluded that the source of the cash deposits to the extent of ₹14.84 lakh in SBNs was not satisfactorily explained by the assessee. Consequently, the AO added this amount to the assessee’s total income as unexplained investment under the provisions of the Act.
Aggrieved by the AO’s action, the assessee contested the addition before the CIT(A). The assessee argued that it was a regulated NBFC engaged in the business of providing finance, which inherently involves significant cash transactions, including the disbursal and recovery of loans. The assessee maintained that the cash deposits were part of its regular business operations and were duly recorded in its books of account. The assessee provided copies of its cash book and other relevant records to demonstrate that it had sufficient cash balance available in its books to cover the deposits made during the period. The assessee also emphasized that its books of account were subjected to tax audit, and no defects or irregularities were pointed out in the books by the tax auditor or the AO during the assessment process. However, the CIT(A) did not accept the assessee’s contentions and merely confirmed the addition made by the AO.
Before the ITAT, the assessee reiterated its arguments, highlighting its nature of business, the maintenance of audited books of account, and the availability of a sufficient cash balance in the books to explain the deposits. The assessee’s counsel submitted that drawing an adverse inference solely based on the non-response of some borrowers to notices issued several years after the transactions occurred was not justified. The cash deposits were recorded in the books contemporaneously, and the source was attributed to genuine business receipts from borrowers.
The ITAT, after hearing both sides and perusing the material on record, found merit in the assessee’s submissions regarding the cash deposit. The Tribunal observed that the assessee was an NBFC with substantial cash inflows and outflows as part of its regular financing business. Crucially, the ITAT noted that the cash deposits in question were duly recorded in the assessee’s cash book. The Tribunal also pointed out that the assessee’s books of account had not been rejected by the AO, nor had any specific defects been identified in the manner in which the cash transactions were recorded.
The ITAT took into account the fact that the AO’s inquiry under Section 133(6) was conducted more than three years after the relevant period of cash deposits. The Tribunal was of the view that in such circumstances, the mere non-response from some parties could not automatically lead to the conclusion that the cash deposits were unexplained, especially when the assessee had provided details of the borrowers and the receipts were recorded in its regular books of account. The Tribunal reasoned that drawing an adverse inference solely based on third-party non-response, without finding any infirmity in the assessee’s own books or explanation, was not sustainable.
The Tribunal also addressed the judicial precedents. The CIT(A) had referred to the ITAT’s decision in the case of Vidhiyasekaran Pradeep Malliraj (ITA No.698/Chny/2022) to support the addition. However, the ITAT noted that its own subsequent decision in the case of M/s R.R. Foods (ITA No.1359/Chny/2023 dated 03-07-2024) had distinguished the Vidhiyasekaran Pradeep Malliraj case. The Tribunal in M/s R.R. Foods case observed that in Vidhiyasekaran Pradeep Malliraj, the assessee could not fully substantiate the source of the cash deposit with sufficient documentary evidence. The ITAT held that this was not the situation in the present case of Savery Transport Finance Limited, where the cash deposits were duly recorded in the books and attributed to business receipts with supporting details of borrowers provided. Therefore, the circumstances were distinguishable. Based on its analysis, the ITAT concluded that the addition of ₹14.84 lakh as unexplained investment was not warranted and accordingly deleted the entire addition.
Apart from the cash deposit issue, the assessee had also claimed a deduction of 50% of a donation of ₹60 lakh made to Anna Charitable Trust under Section 80G of the Act. The AO had denied this deduction because no response was received from the donee entity (Anna Charitable Trust) in response to a notice issued under Section 133(6). The CIT(A) had confirmed this disallowance as well. Before the ITAT, this issue was also raised.
The ITAT, after considering the matter of the 80G deduction, decided to restore this issue back to the file of the AO for re-examination. The Tribunal directed the assessee to submit the necessary documents and information to the AO to substantiate its claim for the deduction under Section 80G. This would provide the assessee with another opportunity to prove the genuineness of the donation and the eligibility for the deduction as per the provisions of Section 80G. Consequently, this ground of appeal was allowed by the ITAT for statistical purposes, meaning it is sent back to the lower authority for fresh consideration and is not finally decided by the Tribunal at this stage.
In conclusion, the ITAT’s order dated December 10, 2024, partly allowed the appeal filed by Savery Transport Finance Limited. The major relief was the deletion of the ₹14.84 lakh addition related to cash deposits during demonetization, with the Tribunal accepting that the amounts were recorded in the assessee’s regular business books. The claim for the 80G deduction will now be re-evaluated by the AO based on the documentation and evidence to be provided by the assessee.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
Aggrieved by confirmation of certain addition of Rs.14.84 Lacs and denial of deduction u/s 80G for Assessment Year (AY) 2017-18, the assessee is in further appeal before us. The appeal arises out of the order of learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] dated 01-03-2024 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s.143(3) r.w.s 147 of the Act on 31-12-2019. Having heard rival submissions, the appeal is disposed-off as under.
2. The assessee is a non-banking finance company. During assessment proceedings, it transpired that the assessee deposited cash of Rs.1586.77 Lacs from 09-11-2016 to 30-12-2016 and accordingly it was directed to establish the source thereof. The assessee furnished various details. It was noted that the cash of Rs.14.84 Lacs was deposited in Specified Bank Notes which was stated to be received back from various borrowers. Notices u/s 133(6) was issued to 108 parties which largely remained un-responded. Considering the same, Ld. AO added the amount of Rs.14.84 Lacs as unexplained investment. The assessee made donation of Rs.60 Lacs to Anna Charitable Trust and claimed 50% deduction u/s 80G. Since no response was received from donee entity u/s 133(6), the same was denied. The Ld. CIT(A) merely endorsed the action of Ld. AO against which the assessee is in further appeal before us.
Our findings and Adjudication
3. From the facts, it emerges that the assessee is engaged in finance business and it is a regulated entity. Its books of accounts are subjected to Tax Audit and it has reflected revenue from operations for Rs.45.31 Crores. The assessee conduct substantial business in cash and it has regular cash inflows and outflows which is evident from assessee’s tabulation as extracted in the assessment order. The cash deposits are duly recorded in the cash book and the assessee has sufficient cash balance in the books to make these deposits. The books have not been rejected and no defect has been pointed out in the same. The assessee placed on record complete details of the borrowers who repaid the amount in cash. The enquiry by Ld. AO has happened after more than 3 years and therefore, merely on the fact that the borrower did not respond to the notice issued u/s 133(6), no adverse inference could be drawn against the assessee. The case law of this Tribunal in Vidhiyasekaran Pradeep Malliraj (ITA No.698/Chny/2022) as referred by Ld. CIT(A) has been distinguished in the case of M/s R.R. Foods (ITA No.1359/Chny/2023 dated 03-07-2024) since in the former case, the assessee could not fully substantiate the source of cash deposit with sufficient documentary evidences. The same is not the case here. Therefore, considering the facts of the present case, we delete the impugned addition and allow the corresponding grounds as raised by the assessee.
4. The issue of deduction u/s 80G stand restored back to the file of Ld. AO with a direction to the assessee to file requisite documents and substantiate the claim. The ground stand allowed for statistical purposes.
5. The appeal stand partly allowed in terms of our above order.
Order pronounced on 10th December, 2024
