Subba Rayudu Kalikiri Vs ITO (ITAT Hyderabad)
Summary: The Hyderabad Bench of the Income Tax Appellate Tribunal, comprising Shri Vijay Pal Rao, Vice President, disposed of ITA Nos. 1279 & 1331/Hyd./2026 for Assessment Year 2021-2022 by a common order dated 05.08.2026. The appeals arose from separate orders dated 11.02.2026 and 12.02.2026 of the CIT(A), National Faceless Appeal Centre (NFAC), Delhi, relating respectively to the assessment under section 143(3) and penalty under section 271AAC(1) of the Income-tax Act, 1961.
The assessee had filed his return on 30.08.2021 declaring total income of Rs.14,06,110/-. During scrutiny assessment, additions were made towards HRA, performance duty, food allowance, Leave Travelling Allowance (LTA), NPS, deduction under section 80E and cash-paid rent. The assessment table recorded the additions at Rs.1,45,972/- for HRA, Rs.37,746/- for performance duties, Rs.64,856/- for food allowance, Rs.1,24,785/- for LTA, Rs.1,39,654/- for NPS ER, Rs.1,17,081/- under section 80E and Rs.9,96,000/- towards rent in cash, resulting in assessed income of Rs.30,32,204/- or Rs.30,32,200/-.
Before the Tribunal, the assessee did not press the additions relating to HRA, NPS, performance duty and deduction under section 80E. The Tribunal accordingly confirmed those additions as not pressed.
In relation to conveyance and food allowance, the assessee submitted that the expenditure represented fuel and telephone expenses incurred in performance of duties, with payments made through Card or UPI, and that the amounts of Rs.19,602/- and Rs.26,678/- were reimbursements. The Revenue contended that the assessee had failed to substantiate the claim with documentary evidence. The Tribunal observed that the expenses appeared to relate to fuel and telephone bills claimed as reimbursement and held that the Assessing Officer ought to have verified the expenses and their reimbursement by the company. The issue was therefore remanded to the Assessing Officer for reconsideration after verification and examination of the details and evidence furnished by the assessee.
As regards LTA, the Assessing Officer had disallowed Rs.1,24,785/- on the ground that the claim was not verifiable and was found to be bogus and fictitious. Before the Tribunal, the assessee relied upon air tickets and boarding passes placed at pages 76 to 81 of the paper book. The Tribunal noted that these documents had not been verified and remanded the issue to the Assessing Officer for fresh adjudication after verification and examination of the air tickets and boarding passes, with an appropriate opportunity of being heard to the assessee.
The principal dispute concerned the addition of Rs.9,96,000/- relating to cash payment of residential rent. The Assessing Officer had treated the amount as unexplained money under the [TaxGuru-linked Section 69A of the Income-tax Act, 1961](https://taxguru.in/income-tax/section-68-69-69a-69b-69c-income-tax-act1961.html), and brought it to tax under [Section 115BBE](https://taxguru.in/income-tax/taxation-unexplained-investments-credits-section-115bbe.html). The assessee contended that the rent was paid from cash recovered from an earlier advance of Rs.9 lakh paid through banking channels to Mr. Mathi Chandra Sekhar towards purchase of a plot. According to the assessee, the plot transaction failed because of defects in title and the amount was subsequently refunded in cash instalments, which were used for rent payments. The assessee also relied upon his bank account, affidavit and other supporting material.
The assessee alternatively contended that the payment was expenditure and could not constitute money, bullion, jewellery or other valuable article found in his possession so as to attract section 69A. He submitted that, if at all the expenditure were to be considered as unexplained, [Section 69C](https://taxguru.in/income-tax/section-68-69-69a-69b-69c-income-tax-act1961.html), which concerns unexplained expenditure, would be the relevant provision.
The Tribunal accepted this alternative contention. It observed that the Rs.9,96,000/- was admittedly paid towards rent and was therefore an expenditure, rather than cash found in the possession of the assessee. The Tribunal further held that section 69A applies where money, bullion, jewellery or another valuable article is found in the possession of the assessee and is not recorded in the books of account. Since the rent-payment transactions were part of the record, the mandatory condition for invoking section 69A was not satisfied. The Tribunal accordingly held that section 69A could not be applied to the transaction of payment of rent in cash and decided that issue in favour of the assessee.
On the merits of the source of the Rs.9,96,000/- rent payments, however, the Tribunal did not finally delete the addition. It noted the bank-account entries dated 19.10.2019 showing payment of Rs.9 lakh towards a plot and considered the assessee’s explanation that the transaction did not materialise and that the amount was subsequently recovered from Mr. Mathi Chandra Sekhar in cash instalments. The affidavit filed by the assessee was also considered. The affidavit stated, inter alia, that the assessee was employed with M/s Aurobindo Pharma Limited, had incurred annual residential rent of Rs.9,96,000/- at Rs.83,000/- per month, and had originally paid Rs.9 lakh through his ICICI Bank account on 19.10.2019 to Mr. Mathi Chandra Sekhar for purchase of land.
The Tribunal noted that the relevant facts had been explained before the Assessing Officer, but the affidavit was not available before him. It further observed that the Assessing Officer had not conducted any enquiry with Mr. Mathi Chandra Sekhar to ascertain the transaction. Since the assessee had produced the bank account, affidavit and a relieving letter concerning Mr. Mathi Chandra Sekhar, the Tribunal held that the explanation could not be rejected without further enquiry. The Assessing Officer was therefore directed to conduct proper enquiry and decide the issue in accordance with law after giving the assessee an appropriate opportunity of hearing.
Consequently, ITA No.1279/Hyd./2026 was partly allowed for statistical purposes.
In the connected penalty appeal, ITA No.1331/Hyd./2026, the penalty under section 271AAC(1) had been levied in respect of the addition relating to cash-paid rent. Since the corresponding quantum issue had been remanded to the Assessing Officer, the Tribunal held that the penalty could not survive in its existing form and remanded the penalty matter to the Assessing Officer for reconsideration in accordance with the outcome of the quantum remand proceedings. The penalty appeal was accordingly allowed for statistical purposes.
The common order therefore resulted in the quantum appeal being partly allowed for statistical purposes and the penalty appeal being allowed for statistical purposes. The Tribunal’s decision on section 69A was in favour of the assessee, while the factual merits of the source of the cash used for rent were left for verification and fresh determination by the Assessing Officer. The order also directed that an appropriate opportunity of hearing be given to the assessee.
FULL TEXT OF THE JUDGMENT/ORDER OF INCOME TAX APPELLATE TRIBUNAL, HYDERABAD
These two appeals by the Assessee are directed against the two separate Orders dated 11.02.2026 and 12.02.2026 of the learned CIT(A)-National Faceless Appeal Centre [in short “NFAC”], Delhi, arising from the assessment order passed u/sec.143(3) and penalty order passed u/sec.271AAC(1) of the Income Tax Act [in short “the Act”], 1961 respectively, for the assessment year 2021-2022.
2. In quantum appeal ITA.No.1279/Hyd./2026 the assessee has raised the following grounds of appeal:
1) “On the facts and in the circumstances of the case and in law, the learned CIT APPEAL NFAC has erred in confirming the assessment order passed under section 143 r.w.s. 144B of the Income Tax Act, 1961 by the National Faceless Assessment Centre NFAC, which is bad in law, contrary to the settled principles of assessment, and violates the principles of natural justice
2) On the facts and in the circumstances of the case and in law, the CIT APPEAL has gravely erred in confirming the addition of Rs.9,96,000 under section 69A of the IT Act, 1961 without proper reviewing the material submitted before the Honble CIT APPEAL
3) On the facts and in the circumstances of the case and in law, the CIT APPEAL has erred in confirming the disallowance of LTA exemption without proper verifying the records submitted.”
2.1. The assessee has also raised additional grounds as under:
4.1. Incorrect Invocation of Section 69A instead of Section 69C: “Without prejudice to the primary ground that the source of rent paid is fully explained, the Learned CIT(A) erred both in law and on facts in sustaining the addition of Rs. 9,96,000/- under Section 69A of the Act.”
4.2. Mischaracterization of “Expenditure” as “Unexplained Money”: “The lower authorities failed to appreciate that the payment of residential house rent is an outflow/expenditure incurred by the Assessee, and does not constitute ‘money, bullion, jewellery or other valuable article’ found in the ownership/possession of the Assessee as contemplated under Section 69A.”
4.3. Violation of Statutory Pre-conditions: “If at all any addition was to be evaluated for unexplained rental payments, the same could legally be considered only under Section 69C (‘Unexplained Expenditure’). The invocation of Section 69A by the Assessing Officer is legally misplaced, without jurisdiction, and bad in law.”
3. The assessee is an individual and filed his return of income for the year under consideration on 30.08.2021 declaring total income of Rs.14,06,110/-. During the scrutiny assessment, the Assessing Officer has made various additions as under:
3.1. Thus, the Assessing Officer has made additions on account of HRA, performance duty, food allowance, Leave Travelling Allowance, NPS, disallowance of claim of deduction u/sec.80E, education loan and on account of rent paid in cash. The assessee challenged the action of the Assessing Officer before the learned CIT(A) but could not succeed.
4. Before the Tribunal, the learned Authorised Representative of the Assessee has submitted that the assessee does not wish to press the addition made by the Assessing Officer on account of HRA, NPS, performance duty, and deduction u/sec.80E. Therefore, the same may be dismissed as not pressed. The learned DR has raised no serious objection if these additions are confirmed as the assessee has not pressed the same. Accordingly, these additions made by the Assessing Officer are confirmed as not pressed.
5. As regards the conveyance and food allowance, the learned Authorised Representative of the Assessee has submitted that the Assessing Officer has made the addition by disallowing the same for want of supporting evidence. The learned Authorised Representative of the Assessee has submitted that the assessee has incurred the expenditure on fuel expenses and details of which are placed at Page nos.154 and 155 of the paper book. Thus, the learned Authorised Representative of the Assessee has submitted that all the payments were made by the assessee through the Card or UPI and telephone expenses are also paid through UPI therefore, the said payment of Rs.19,602/- and Rs.26,678/- are in respect of fuel expenses i.e., conveyance charges and telephone expenses incurred by the assessee while performing his duty. The reimbursement of the same cannot be assessed as income of the assessee. Thus, he has submitted that without considering these details, the Assessing Officer has disallowed the claim of the assessee.
6. On the other hand, the learned DR has submitted that the assessee has failed to substantiate the claim by producing any documentary evidence before the Assessing Officer. He has relied upon the Orders of the authorities below.
7. I have considered the rival submissions and gone through the Orders of the authorities below. The Assessing Officer has disallowed the claim of the assessee by giving the reasons that the assessee has failed to submit the documentary evidence and has also admitted himself that the above expenditure claimed under the Head is not part of the salary rather it is reimbursement. From the details, it appears that the expenses were incurred on fuel and telephone bills which are claimed as reimbursement and therefore, the Assessing Officer ought to have verified the expenses incurred by the assessee and the reimbursement of the same by the company. Accordingly, in the facts and circumstances of the case, this issue is remanded to record of the Assessing Officer for reconsideration of the same after verification and examination of the details and evidence as provided by the assessee.
8. As regards the leave travel allowance, the Assessing Officer has disallowed the claim of the assessee on the ground that the claim of the assessee is not verifiable and found to be bogus and fictitious.
9. Before the Tribunal, the learned Authorised Representative of the Assessee has referred to the air tickets and boarding pass placed at page nos.76 to 81 of the paper book and submitted that this is also supported by the documentary evidence of the air tickets and boarding pass and therefore, this claim of the assessee cannot be held to be bogus or fictitious. The learned Authorised Representative of the Assessee has submitted that the Assessing Officer has made this addition without considering the relevant facts.
10. On the other hand, the learned DR has submitted that the assessee failed to file any documentary evidence to substantiate the claim of leave travel concession allowance. Thus, he has submitted that the documentary evidence now referred by the assessee requires proper verification and examination.
11. I have considered the rival submissions as well as relevant material on record. The Assessing Officer has disallowed this claim of the assessee by giving the reasons as under:
The assessee again failed to submit any supporting documentary evidences in this regard. In absence of details/documents, the claim of Rs. 1,24,785/- under the head LTA is not verifiable and found bogus and fictitious. Hence, considering the above facts and circumstances, an amount of Rs. 1,24,785/- is disallowed and added back in total income for the year under consideration. A penalty proceeding u/s 270A of the Act is also initiated for under reporting inconsequence of misreporting of income.
[Add: Rs. 1,24,785/-]
12. The assessee has filed the relevant documentary evidence in the shape of air tickets and boarding pass in support of its claim placed at page nos.76 to 81 of the paper book therefore, the disallowance made by the Assessing Officer without verification and examination of these records needs to be reconsidered. Accordingly, in the facts and circumstances of the case, this issue is remanded to the record of the Assessing Officer for fresh adjudication after verification and examination of the evidence in the shape of air tickets and boarding pass filed by the assessee. Needless to say, the assessee be given an appropriate opportunity of being heard before passing the order.
13. The addition made on account of cash payment of rent.
14. The Assessing Officer noted that the assessee has paid rent of Rs.9,96,000/- in cash however, the assessee failed to submit any supporting evidence to explain the source of the said payment of cash. The relevant findings of the Assessing Officer are as under:
On going through the submission of the assessee narrated above as well as e-records, it is found that the assessee has not submitted any cash proof of payment of Rs. 9,00,000/- and trying to deceive. The onus lies of the assessee to prove the source of payment towards rent amounting to Rs. 9,96,000/- in cash but the assessee has failed to submit the concrete evidences in support of cash and nature of payment. Moreover, it is crystal clear that the aggregate amount of Rs. 9,96,000/- is own money of the assessee from the undisclosed sources and treated as unexplained money.
Hence, the unexplained money of Rs. 9,96,000/- is disallowed u/s 69A of the I.T. Act, 1961 and accordingly is being added back to the total income of the assessee and brought to tax under section 115BBE of the I.T. Act under the head income from the other sources. Subsequently, the penalty proceedings u/s. 271AAC((1) of the I.T. Act, 1961 is initiated separately.
[Add: Rs. 9,96,000/-]
15. On appeal, the learned CIT(A) has confirmed the addition.
16. Before the Tribunal, the learned Authorised Representative of the Assessee has referred to the bank account of the assessee and particularly the transactions of payment of Rs.9 lakhs to one Mr. Mathi Chandra Sekhar with the narration ‘Plot’. The learned Authorised Representative of the Assessee has submitted that this payment was made by the assessee to his colleague who was also working with M/s. Aurobindo Pharma Limited for purchase of plot however, subsequently it was found that there is a defect in the title of the said property and therefore, the transaction of purchase of plot could not materialized and assessee then, pursued for refund of the said amount from Mr. Mathi Chandra Sekhar. He has further submitted that Mr. Mathi Chandra Sekhar was working as a middleman/broker for the transaction and also indulged in some malpractices and deceiving the persons in the name of sale of properties. The assessee after great persuasion and with the support of colleagues as well as management of the Company viz., M/s. Aurobindo Pharma Limited was able to recover the said amount but the same was refunded by Mr. Mathi Chandra Sekhar in instalments and in cash which was used by the assessee for making the payment of rent during the year under consideration. The learned Authorised Representative of the Assessee has referred to the affidavit of the assessee placed at Page nos.23 to 25 of the paper book and submitted that the assessee has explained the source of the said payment of rent as it was earlier given as an advance payment for purchase of land but subsequently the same was received back in cash which was utilized by the assessee for making the rent payment. Thus, the learned Authorised Representative of the Assessee has submitted that the addition made by the Assessing Officer is not justified and liable to be deleted. He has also submitted that as an alternative plea raised in the additional ground, the addition cannot be made u/sec.69A of the Act as this is an expenditure incurred by the assessee for making the rent payment and not an amount or any valuable asset found falling in the ambit of sec.69A of the Act. Thus, the learned Authorised Representative of the Assessee has submitted that provisions of sec.69 are not applicable and consequently, the higher rate of tax u/sec.115BBE is also not applicable on this issue.
17. On the other hand, the learned DR has submitted that the Assessing Officer has made the addition as the amount of Rs.9,96,000/- was paid in cash and therefore, the assessee failed to explain the source of the said cash and consequently, the Assessing Officer has rightly made the addition u/sec.69A of the Act. He has relied upon the Orders of the authorities below.
18. I have considered the rival submissions as well as relevant material on record. The Assessing Officer has made the addition of Rs.9,96,000/- u/sec.69A by treating the same as unexplained money whereas it is not in dispute that this amount was paid by the assessee towards rent and thus it was not a cash found with the assessee by the Assessing Officer but it is only an expenditure incurred by the assessee towards the rent payment. Further, the provisions of sec.69A are attracted only if some money, bullion or article or thing are found in the possession of the assessee and not recorded in the books of account whereas, in the case in hand, these transactions are duly part of the record and not a case of not recorded in the books of account therefore, the mandatory condition for invoking the provisions of sec.69A that the transaction is not recorded in the books of account is not satisfied here. Accordingly, the provisions of sec.69A of the Act cannot be applied in respect of the transaction of payment of rent in cash. Thus, this issue as raised in the additional grounds by the assessee is decided in favour of the assessee.
19. As regards the merits of the addition on account of cash payment of rent of Rs.9,96,000/- it is manifest from the bank account of the assessee and particularly, the entries dated 19.10.2019 that a sum of Rs.9 lakhs was paid towards plot. The assessee has explained the transaction as this amount was paid to one Mr. Mathi Chandra Sekhar for purchase of plot of land however, due to defect in the title and some developments the transaction could not be materialized and assessee has demanded refund of the same from the said person. The assessee has filed an affidavit to explain this transaction placed at Page nos.23 and 24 as under:
1. I am the Appellant in the income tax appeal for the Assessment Year 2021-22 pending before the Hon’ble Income Tax Appellate Tribunal, Hyderabad Bench. I am a salaried individual employed with “M/s Aurobindo Pharma Limited”, Hyderabad, and I maintain a true, regular, and clean record of my tax compliance and return filings.
2. During the Financial Year 2020-21 relevant to the Assessment Year 2021-22, I occupied a residential property on a lease basis and incurred a total actual rental obligation of Rs. 9,96,000/- computed at a monthly rate of Rs. 83,000/-.
3. The lower income tax authorities, during the scrutiny and first appellate stages, disallowed my legitimate claim under Section 10(13A) and made a high-pitched addition of the equivalent amount of Rs. 9,96,000/- under Section 69A read with Section 115BBE of the Income-tax Act, 1961, by mischaracterizing the regular cash payments made toward my monthly residential rent as unexplained money from undisclosed sources.
4. I state and verify that the cash utilized to discharge my monthly rental obligations was entirely derived from an authentic, traceable source representing the recovery of an advance of Rs. 9,00,000/-. This advance was originally paid by me through standard banking channels on 19.10.2019 via my ICICI Bank Account Number 631201513396 to “Mr. Mathi Chandra Sekhar” (holder of PAN: AKHPM2564N), who at the relevant time was an official corporate colleague employed within the same organization under Employee Code 3261,
5. The land transaction for which the advance was given failed completely due to defects in title and the inability of the counterparty to provide valid, marketable land documents Following standard community arbitration, the said colleague refunded the entire advance of Rs.9,00,000/- to me in cash installments over the course of the Financial Year 2020-21.
6. I am forced by circumstances to bring to the notice of this Hon’ble Tribunal that the said counterparty, Mr. Mathi Chandra Sekhar, was subsequently terminated from the services of M/s Aurobindo Pharma Limited on 10.04.2024 after the management discovered that he had committed similar fraudulent acts and financially deceived various other office colleagues within the company ecosystem using an identical modus operandi.
7. I was forced by circumstances to accept the repayment in cash installments due to the non-cooperative attitude of the counterparty, his impending disciplinary issues, and the existence of an active personal dispute to salvage my hard-earned savings. I systematically and sequentially utilized this returned cash to satisfy my real, ongoing twelve-month residential rental outlays.
8. The counterparty was a fully identifiable corporate employee whose employment background is an established internal fact, and his subsequent dismissal for systemic misconduct further substantiates the existence of the dispute and the involuntary nature of the cash recovery. The cash utilized for rent represents a simple recycling of a documented banking asset, leaving zero room for any inference of unaccounted income or secret wealth.
9. I declare that this affidavit is executed in good faith to place the absolute truth and the complete background of this transactional dispute before the Hon’ble ITAT, Hyderabad Bench and I pray that the arbitrary addition under Section 69A and the consequential penalty under Section 271 AAC (1) be deleted in full.
19.1. Though these facts and details were explained by the assessee before the Assessing Officer but the affidavit now filed by the assessee was not available before the Assessing Officer. Accordingly, in the facts and circumstances of the case, when the assessee has explained the source as it is only an earlier payment made by the assessee to one Mr. Mathi Chandra Sekhar towards purchase of plot which was not materialized and subsequently the amount was recovered from the said person but in cash in instalments which was used by the assessee for payment of the rent. The Assessing Officer has not conducted any enquiry to ascertain these facts from the other party i.e., Mr. Mathi Chandra Sekhar. Hence, in the facts and circumstances of the case, I am of the considered opinion that the explanation of the assessee cannot be rejected without conducting further enquiry when the assessee has filed supporting evidence in the shape of bank account as well as filed the affidavit to explain the incidence. The assessee has also filed relieving letter of Mr. Mathi Chandra Sekhar due to his involvement in the malpractices and causing inconvenience to the colleagues to show that the said person was involved in these activities. Thus, all these facts are required to be verified. Accordingly, the Assessing Officer is directed to conduct proper enquiry and then decide this issue as per law, after giving an appropriate opportunity of hearing to the assessee.
19. In the result, ITA.No.1279/Hyd./2026 of the Assessee is partly allowed for statistical purposes.
ITA.No.1331/Hyd./2026:
20. In the penalty appeal, the assessee has raised the following grounds:
1. “On the facts and in the circumstances of the case and in law, the learned National Faceless Appeal Centre has erred in invoking the provisions of sec.271AAC ignoring the submissions and facts that the House Rent payment were made in cash out of the recoveries of advances made earlier to one of his friend by way of cheque which fact is available on record from the Bank Statement.
2. Such other ground OR grounds that may be urged during the appeal proceedings.
3. The assessment order made u/sec.271AAC(1) is erroneous and bad both on facts and in law.”
21. I have heard the learned Authorised Representative of the Assessee as well as learned DR. The Assessing Officer has levied the penalty u/sec.271AAC1 of the Income Tax Act [in short “the Act”], 1961 in respect of the addition made on account of rent paid in cash.
22. Since this issue has been remanded to the record of the Assessing Officer in quantum appeal therefore, the penalty levied by the Assessing Officer u/sec.271AAC(1) would not survive. Accordingly, the matter is remanded to the record of the Assessing Officer for reconsideration of the same as per the outcome of the quantum remand proceedings.
23. In the result, appeal ITA.No.1331/Hyd./2026 of the assessee is allowed for statistical purposes.
To sum up, ITA.No.1279/Hyd./2026 of the Assessee is partly allowed for statistical purposes and ITA.No.1331/Hyd./2026 of the assessee is allowed for statistical purposes. A copy of this common order be placed in the respective case files
Order pronounced in the open Court on 05.08.2026.
