ITAT Chennai Orders Reassessment of Income Sources Post-Cash Seizure during Vellore elections

G. Elumalai Vs DCIT (ITAT Chennai)

In the case of G. Elumalai vs. DCIT heard by the Income Tax Appellate Tribunal (ITAT) in Chennai, the key issue centered on the seizure of cash amounting to Rs. 27,74,000 found in Elumalai’s possession during by-elections in the Vellore Parliamentary Constituency. The Assessing Officer sought to ascertain the nature and source of this cash, but Elumalai was unable to provide sufficient evidence. Consequently, the Assessing Officer added the entire amount to Elumalai’s income, a decision later modified by the Commissioner of Income Tax (Appeals) to Rs. 22,89,925. Elumalai’s legal representative argued that his client’s agricultural income, rental income, and commission from real estate transactions provided adequate justification for the cash amount.

The appeal presented by the assessee included documentation claiming agricultural income of Rs. 11,75,000, alongside rental income of Rs. 8,47,500 and Rs. 3 lakhs from commissions, totalling Rs. 23,22,500. Elumalai’s family holds a significant amount of agricultural land, which the appellant contended supports the validity of their income claims. The arguments emphasized that the income could sufficiently account for the amount sustained by the CIT(A). Additionally, the legal representative requested that the case be remitted back to the Assessing Officer due to a lack of proper opportunity to present evidence during the initial assessment.

In light of the submissions made, the ITAT ruled to restore the matter back to the Assessing Officer, enabling further scrutiny into Elumalai’s agricultural and rental income claims. This decision was based on a precedent set by the Supreme Court in the case of Tin Box Company vs CIT, which allows for reassessment in cases where the taxpayer has not been afforded a fair chance to demonstrate their income sources. The tribunal confirmed the CIT(A)’s decision to eliminate the portion of the addition amounting to Rs. 4,84,075 while directing Elumalai to present all pertinent documents supporting his claims.

In summary, the ITAT’s order effectively opens the door for a thorough examination of Elumalai’s financial declarations. The Tribunal’s decision highlights the importance of a fair opportunity for taxpayers to present their cases, particularly in complex matters involving significant cash holdings and various income sources. The case remains allowed for statistical purposes, indicating that it is not concluded but rather ongoing with the potential for further developments based on the forthcoming assessment.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

This appeal instituted by the assessee is against the order of the Commissioner of Income Tax (Appeals), Chennai-20, for the assessment year 2020-21, vide order dated 08.12.2023.

2. The sole issue raised by the assessee is that sustaining the addition of Rs.22,89,925/- out of Rs.27,74,000/- being cash found during the search on 13.07.2019 as unexplained money u/s. 69A of the Income-tax Act, 1961 (hereinafter referred to as “the Act”).

3. The brief facts are that, the assessee is an agriculturist and doing business of real estate cum builders. In connection with the by-election to the Vellore Parliamentary constituency, checking was conducted on 13.07.2019 by the flying squad team, during which cash of Rs.27,74,000/- was found in the residence of the assessee, for which the assessee could not explain source for the same. Subsequently, a summons u/s. 131 of the Act was issued to the assessee. During the course of examination, the assessee claimed that the amount received against sale of immovable properties was the source for the said cash but could not furnish any documentary evidence for the same. Since, the assessee failed to substantiate the source for cash, the same is treated as unexplained money. The case was notified to the Circle vide notification no. 20/2020-21 in C.No.831/PCIT-8/Cent & Decent/2020-21 dated 29.03.2021. The Assessing Officer noted that the assessee has not filed his return of income for the assessment year 2020-21 and issued notice u/s. 142(1) of the Act on 26.08.2021. Later, the assessee filed return of income but Assessing Officer noted that e-verification was pending and therefore notice u/s. 143(2) of the Act was not issued.

4. And the Assessing Officer noted that during the course of examination u/s. 131 of the Act, the assessee has claimed that the source for the cash of Rs.27,74,000/- found was out of sale of some immovable properties and the jewel loan taken by his son. And pointed out that in the statement recorded u/s. 132A of the Act, the assessee had provided the details of income earned by himself and his family and his HUF was Rs.11,53,700/-. However, the Assessing Officer didn’t accept the statements of the assessee and passed an order u/s. 153A r.w.s. 153B(1)(b) r.w.s. 144 of the Act on 28.09.2021 and added Rs.27,24,000/- as unexplained money u/s. 69A of the Act, r.w.s. 115BBE of the Act. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the ld.CIT(A).

5. The ld.CIT(A) acknowledged that the assessee had furnished the details of cash flow statements of himself, (G. Elumalai), Elumalai HUF, E. Babu (son) and E. Janaki Ammal (wife), in support of the cash found at Rs.27,74,000/- on the date of search. On perusal of documents and statements including cash flow statement by the assessee, the ld.CIT(A) has accepted Rs.4,84,075/- as cash on hand available as on 13.07.2019 (date of seizure) and reduced the addition made u/s. 69A of the Act by the Assessing Officer to Rs.22,89,925/-by giving a deduction of Rs.4,84,075/- as explained money and passed an order on 18.12.2023. Aggrieved by the impugned order of the ld.CIT(A), the assessee is before us.

6. The Ld. Counsel for the assessee assailing the action of the ld.CIT(A) stated that the complete cash flow was provided to show that the cash was available at the time of search which belongs to the family members (Supra). However, the ld.CIT(A) has erred in passing the impugned order by sustaining the addition of Rs.22,89,925/-.The Ld. Counsel for the assessee filed a paper book containing 53 pages wherein the assessee had filed a cash flow statement of G.Elumalai, G.Elumalai HUF, E.Babu and E.Janaki Ammal from 01.04.2018 to the date of seizure i.e. up to 13.07.2019 and stated that the cash available was Rs.29,09,042/- as against the amount allowed as cash held by the ld.CIT(A) of Rs.4,84,075/-. The Ld. Counsel for the assessee, submitted that the ld.CIT(A) has erred in not considering the commission of Rs.3 lakhs rental income of Rs.8,47,500/- and agricultural income of Rs.11,75,000/- as income of the family members to arrive at the cash on hand as on 13.07.2019, which totals to Rs.23,22,500/- which according to ld.AR would explain the balance amount of Rs.22,89,925/- and placed before us the cash flow statement which is reproduced as under:

7. Further, the ld.AR submitted that the ld.CIT(A) has not considered the following income which was available as cash on hand as on 13.07.2019 as under:

8. According to the ld.AR, the ld.CIT(A) failed to appreciate that the assessee has sufficient source of the cash as explained supra and therefore prayed that the addition sustained by the ld.CIT(A) be deleted.

9. Per contra, the ld.DR relying on the decision of the ld.CIT(A)/AO submitted that the ld.CIT(A) has already given relief of Rs.4,84,075/- and therefore, the balance addition should be sustained.

10. We have gone through the facts and circumstances of the case and perused the material. We note that the assessee claims himself to be an agriculturalist and doing business of real estate/builder and during the by-election to the Vellore Parliamentary Constituency, the flying squad found that the assessee was having cash of Rs.27,74,000/- in his possession/residence. Later on, the Assessing Officer asked the assessee to prove the nature and source of the amount seized and according to the Assessing Officer, the assessee failed to prove the same and therefore, he made the entire addition of Rs.27,74,000/- which addition was restricted to Rs.22,89,925/-by the ld.CIT(A). Before us, the ld.AR has submitted that he has agricultural income to the tune of Rs.11,75,000/- in the year under consideration and was available with him and for that he has brought to our notice that the assessee and his family is holding the agricultural land in their name which is captured in chart below:

11. Thus, according to the ld.AR, the assessee/family agricultural income cannot be doubted and ought to have been accepted. Likewise, according to the ld.AR, the assessee had rental income of Rs.8,47,500/- and commission/brokerage from real estate transactions of Rs.3 lakhs which totals to Rs.23,22,500/-, which will be sufficient to explain the balance amount of Rs.22,89,925/- (sustained by the ld.CIT(A)). The assessee has filed paper book containing more than 53 pages to prove the agricultural income, rental income as well as the commission income and prayed us to remit back issue to Assessing Officer, since the assessee did not get proper opportunity before the Assessing Officer. Therefore, relying on the decision of the Hon’ble Supreme Court in the case of Tin Box Company vs CIT, [2001] 249 ITR 216 (SC), we restore the addition of Rs.22,89,925/- back to the file of the JAO. Since, the revenue is not in appeal, we confirm the ld.CIT(A) action of deleting Rs.4,84,075/-. We direct the assessee to file all the documents to prove the agricultural income, rental income and commission and if the Assessing Officer finds that the explanation given by the assessee is correct, then no addition may be made or else addition may be sustained. The ld.AR, has undertaken to file all the details and participate in the assessment proceedings and the Assessing Officer to frame in accordance with law.

12. In the result, appeal filed by the assessee is allowed for statistical purposes.

Order pronounced in the open court on 05^th July, 2024 at Chennai.