WhatsApp Chats, Retraction & Pure Estimates Can’t Build a ₹1.22 Crore ‘On-Money’ Addition+ Bangalore ITAT Deletes Additions in Unabated Search Assessment

DCIT Vs Shriya Properties (ITAT Bangalore)

WhatsApp Chats, Retraction & Pure Estimates Can’t Build a ₹1.22 Crore ‘On-Money’ Addition+ Bangalore ITAT Deletes Additions in Unabated Search Assessment

In a significant ruling, the Bangalore ITAT held that no addition can be made in a completed/unabated assessment u/s 153A without incriminating material relatable to the relevant assessment year. The Tribunal upheld deletion of multiple additions made against real estate firm Shriya Properties, Hubballi, including a major ₹1.22 crore alleged on-money addition for AY 2015-16.

The Tribunal noted that the search took place on 16.08.2018, whereas AY 2015-16 had already attained finality since the time limit for issue of notice u/s 143(2) had expired on 30.09.2016. Hence, it was a completed/unabated assessment and additions could survive only if backed by incriminating material found during search.

The AO had made additions exceeding ₹2.22 crore, including alleged on-money receipts, negative cash balance, estimated disallowance of sundry creditors, disallowance u/s 40(a)(ia), interest disallowance, understatement of closing stock, etc. However, the Tribunal observed that almost all additions were based merely on books of account, audited financials and assessment proceedings material  and not on seized incriminating evidence.

On the alleged on-money issue, the Revenue relied heavily on a statement recorded u/s 132(4), WhatsApp chats and certain loose papers. But the Tribunal found that the WhatsApp chats and cash receipts related only to later years like AYs 2017-18 to 2019-20 and not AY 2015-16. The Tribunal also emphasized that the managing partner had later retracted the statement, alleging coercion and pressure during search.

Importantly, the ITAT held that there was “not even a whisper” of excess cash found during search, and that uncorroborated statements without supporting evidence could not justify additions. The Bench observed that a solitary WhatsApp message or statement cannot automatically justify extrapolation of on-money across all projects and years.

For AY 2019-20 also, the Tribunal refused to sustain large estimated on-money additions, holding that the AO had merely extrapolated one alleged cash instance into all flat sales without corroborative evidence. Only the specific ₹4 lakh transaction supported by WhatsApp evidence was sustained.

The Tribunal relied upon the Supreme Court ruling in Abhisar Buildwell and reiterated that completed assessments cannot be disturbed in search proceedings unless supported by incriminating material pertaining to that year

FULL TEXT OF THE ORDER OF ITAT BANGALORE

These cross appeals by the revenue and assessee are directed against the order of the ld. CIT(A)-2, Panaji, Goa dated 22/07/2024 vide DIN: ITBA/APL/M/250/2024-25/1066891788(1) for the AY 2015-16 and against the common order of the ld. CIT(A)-2, Panaji, Goa dated 25/07/2024 vide DIN- ITBA/APL/M/250/2024-25/1067030734(1) for the AY 2017-18, vide DIN-ITBA/APL/M/250/2024-25/1067030599(1) for the AY 2018-19 & vide DIN- ITBA/APL/M/250/2024-25/1067030886(1) for the AY 2019-20 as tabulated below passed under section 250 of the Income Tax Act, 1961( in short “The Act”). Since common issues are involved in all these appeals, these are clubbed together, heard together and disposed of by this common order for the sake of convenience & brevity.

2. The Revenue has raised the following grounds of appeal in ITA No.2033/Bang/2024 for the AY 2015-16:

3. Brief facts of the case are that the assessee is a partnership Firm comprising of the following partners, sharing profit and loss equally:-

a. Veerabhadragouda Hosamani

b. Satish Davalagi

c. Suraj Alawandi (Managing Partner)

d. Sudha Kundargi; and

e. Ankit Kumar Jain.

The assessee firm is into the business of real estate. It is engaged in the construction of residential apartments and commercial complexes. It is also executing work contracts. The assessee firm had undertaken 7 projects for the construction of flats at Hubli namely, Shriya Enclave, Shriya Paradise, Shriya Mansion, Shriya Samrudhi, Shriya Sankalp, Shriya Sannidhi and Shriya Solitaire. Further, Shri Suraj Alawandi, Managing Partner of the assessee firm had also in his individual capacity also executed 3 projects in Hubli namely, Shriya Swastik, Shriya Elite and Shriya Venusin.

ASSESSMENT YEAR 2015-16

3.1 The assessee firm filed its original return of income for the AY 2015-16 on 18/12/2015 declaring total income of Rs.15,15,580/-. The said return of income was processed & accordingly intimation u/s 143(1) of the Act was passed by accepting the returned income. It is worthwhile here to note that no regular assessment u/s. 143(3)/144/147 of the Act was carried out in the case of the assessee for the assessment year 2015-16.

3.2 A search and seizure action u/s.132 of the Actwas initiated in the case of the assessee on 16/08/2018. As search action u/s. 132 of the Act was initiated in the case of the assessee, the provisions of section 153A of the Act are applicable in the case of the assessee and therefore, notice u/s. 153A of the Act was issued & served to the assessee on 28/08/2020 requiring the assessee to furnish its return of income within 35 days from the date of service of the said notice. In response to the said notice u/s. 153A of the Act, the assessee furnished a return of income 21/09/2020 declaring the same total income of Rs.15,15,580/- as declared in its original return of income. Accordingly, the notices u/s 143(2) as well as u/s. 142(1) of the Act was issued to the assessee on 16/10/2020 requiring the assessee to furnish the details. Further, the notices u/s. 142(1) of the Act/ show cause notices were also issued on 25/01/2021 and 15/06/2021 calling for the details and requiring the assessee to explain as to why certain issues should not be held against the assessee. In response to the said notices, the AR of the assessee appeared & furnished the required details. The AO after affording full opportunity to the assessee concluded the assessment proceedings & made the following additions-

Thus, the AO completed the assessment proceedings u/s 143(3) r.w.s. 153A of the Act vide Order dated 17/08/2021 on a total assessed income of Rs. 2,37,76,359/-.

4. Aggrieved by the assessment completed u/s 143(3) r.w.s. 153A of the Act on 17/08/2021, the assessee preferred an appeal before the ld. CIT(A).

5. The ld. CIT(A) allowed the appeal of the assessee by holding as follows-

(i) No incriminating material relevant to the assessment year under consideration found during the course of the search.

(ii) There was no reference to seized material pertaining to AY 2015-16.

(iii) The addition towards on-money receipts were made on the basis of few cash receipts found pertaining to the AY’s 2017-18 to 2019-20.

(iv) The contention of the assessee was accepted as no addition can be made in the case of completed/unabated assessment in the absence of incriminating material found during the course of search – In support, the ld. CIT(A) relied upon the judgment of the Hon’ble Supreme Court in the case of PCIT v. Abhisar Buildwell (P) Ltd. [2023] 149 com 399 (SC).

6. Aggrieved by the order of ld. CIT(A) dated 22/07/2024, the Revenue has filed the present appeal before this Tribunal.

7. Before us, the ld. DR vehemently submitted that the ld. CIT(A) erred in not appreciating the fact that the addition of Rs.1,22,40,000/- on account of on-money was made based on the statement of Suraj Alawandi recorded u/s 132(4) of the Act, which itself is an evidence/ incriminating statement. Further, the ld. DR heavily relied upon the judgment of Hon’ble Supreme Court in the case of B. Kishore Kumar vs. DCIT, Chennai [234 Taxman 771(SC)] & submitted that it was held that the assessee himself had stated in sworn statement during search & seizure about his undisclosed income, tax was to be levied on the basis of admission without scrutinizing document.

8. Per contra, the ld. AR of the assessee relied on the order of the ld. CIT(A) and vehemently submitted that in respect of completed/unabated assessments, no addition can be made by the AO in the absence of any incriminating material found during the course of search u/s 132 of the Act for the AY 2015-16. Further, the ld. AR also relied upon the judgement of PCIT v. Abhisar Buildwell (P) Ltd (supra) and submitted that the assessee firm had filed its return of income originally on 18.12.2015 and the time limit to issue notice u/s.143(2) of the Act against the said return was expired on 30.09.2016. The Return of Income was duly processed u/s.143(1) of the Act. The Search took place on 16.08.2018. Thus, as on the date of search, no assessments were pending in the case of the assessee for the AY 2015-16 and accordingly, the impugned assessment year falls under the category of completed/unabated assessment. Lastly, the ld. AR submitted that the AO had made an addition of Rs.1,22,40,000/- towards estimated on-money receipts pertaining to projects Shriya Mansion and Shriya Enclave. It is submitted that none of the materials as referred to by the AO in the assessment order either relating to the impugned assessment year or to the projects Shriya Mansion and Shirya Enclave. Thus, there is no incriminating material for the impugned assessment year evidencing the receipt of on-money for the projects against which estimated addition had been made by the AO. The AR submitted that in the absence of incriminating material evidencing receipt of on-money for the impugned assessment year, addition of Rs.1,22,40,000/- made by the AO is devoid of merits and liable to the deleted which the Ld. CIT(A) had righty deleted.

9. We have heard the rival submissions and perused the materials available on record. There was a search in this case on 16/08/2018. Consequently, the assessment for the assessment year 2015-16 was reopened by issuing notice u/s 153A of the Act on 28/08/2020 and the assessment for the AY 2015-16 was framed u/s 143(3) r.w.s. 153A of the Act. The primary contention of the ld. A.R. as well as ld. CIT(A) is that in this assessment year, the ld. AO made addition of Rs. 2,22,60,780/- and these are not based on any seized material unearthed during the course of search u/s 132 of the Act and the addition is not supported by any material other than statement recorded u/s 132(4)of the Act that too which was later on retracted by the assessee alleging that the declaration of Rs.7,15,50,000/- for the AY 2014-15 to AY 2019-20 was forcibly taken by the search team without any incriminating material by means of coercive, threats & pressure. On going through the order of the assessment, we take note of the fact that almost all additions except alleged on-money were made by the AO for the AY 2015-16 based on the books of accounts, Audited financial statements & the details/documents furnished during the course of the assessment proceedings which has nothing to do with the incriminating material. Thus, the only addition of alleged ‘on-money’ is claimed by the AO to be based on the incriminating material unearth during the course of search & seizure. The claim of the AO is that during the course of the search & seizure operations u/s 132 of the Act, incriminating evidences regarding unaccounted receipt of ‘on-money’ by both the assessee firm as well as by Shri Suraj Alawandi were found & seized at the business premises of the assessee firm on 16/08/2018. The claim of the assessee as well as the contention of the ld. CIT(A) are that there was neither any incriminating material relevant to AY 2015-16 were found during the course of search nor there was even any reference to seized material pertaining to AY 2015-16 in the assessment order also. On going through the order of assessment passed by the AO, we observed that the addition towards ‘on-money’ receipts was primarily made on the basis of retracted sworn statement of Shri Suraj Alawandi, Managing Partner of the assessee firm which was recorded on the basis of the following materials found during the course of the search:

• WhatsApp conversation relating to receipt of cash of Rs. 2,00,000/- from Shri Soma Shekhar on 09.10.2017 (AY 2018-19).
• WhatsApp conversation relating to receipt of cash in May and June, 2018 (AY 2019-20).
• Cash receipt of Rs.3,00,000/- dated 17.12.2016 (AY 2017-18).
• Cash receipt of Rs.4,00,000/- dated 25.06.2018 (AY 2019-20).
• Loose sheets page numbering 111 to 119 marked as A-1/SP/03 relating to projects Shriya Elite and Shriya Solitaire (Not relating to AY 2015-16).
• Statement of Smt. Priyabharati Shivakumar Betageri relating to cash payment of Rs.4,00,000/- on 25.06.2018 in respect of project Shriya Elite (AY 2019­20).

9.1 The AO has made an addition of Rs.1,22,40,000/- for the AY 2015-16 towards the estimated on-money receipts pertaining to projects Shriya Mansion and Shriya Enclave. Thus, as can been seen above none of the materials as referred to by the AO in the assessment order either relating to the impugned assessment year or to the projects Shriya Mansion and Shirya Enclave. Thus, we are of the considered opinion that there was no incriminating material for the impugned assessment year evidencing the receipt of ‘on-money’ for the projects against which estimated addition has been made by the AO for AY 2015-16. The AO had relied upon only the sworn statements of Sales executive & another employee including of Shri Suraj Alawandi, Managing Partner of the assessee firm. However, these statements were not corroborated with any evidence for the impugned assessment year. There was not even a whisper of seizure of the excess cash during the course of search. The onus to prove that the assessee had received on-money is on the department. However, in the assessment order there is no discussion of excess cash as compared to cash in hand as per the books of account was found. If excess cash had been found during the course of search, the statements, whatsApp message become relevant. Before us, the ld. DR heavily relied upon the whatsApp messages, however we find that none of the messages are related to the AY 2015-16. Thus, in the absence of any incriminating material evidencing receipt of on-money for the impugned assessment year 2015-16, the addition of Rs.1,22,40,000/- as made by the AO is devoid of merits. The addition made on the basis of the uncorroborated sworn statements is not sustainable and are liable to be deleted. The facts in the case of B. Kishore Kumar vs. DCIT, Chennai (supra) as heavily relied upon by the Revenue is quite distinguishable with the facts of the present case as the assessee himself retracted by alleging that the declaration of Rs.7,15,50,000/-for the AY 2014-15 to AY 2019-20 was forcibly taken by the search team without any incriminating material by means of coercive, threats & pressure.

9.2 Now coming to question whether the assessment year under consideration is completed/unabated assessment? We take note of the fact that the assessee firm filed its original return of income for the AY 2015-16 on 18/12/2015 declaring total income of Rs.15,15,580/-. The said return of income was processed & accordingly intimation u/s 143(1) of the Act was passed by accepting the returned income. We also take a note of the fact that no regular assessment u/s. 143(3)/144/147 of the Act was carried out in the case of the assessee for the assessment year 2015-16. The notice u/s.143(2) of the Act for the AY 2015-16 was barred by limitation on 30.09.2016. It is also an undisputed fact that a search and seizure action u/s.132 of the Act was initiated in the case of the assessee only on 16/08/2018. The relevant facts as discussed above are presented through the tabular form for ease of reference & convenience-

9.3 At this stage, it is appropriate to analyze the scope of section 153A of the Act. The scope of provisions of section 153A of the Act could be summarized as follows as per the order of the Mumbai Special Bench in the case of All Cargo Global Logistics Ltd. Vs. Deputy Commissioner of Income-tax (23 taxmann.com 103):-

9.4 In the light of above, it is to be noted that the assessment year under consideration falls under category (4) in the above chart. Thus, it is appropriate to observe the facts of present case. As seen from the assessment order, the alleged seized materials found during the course of search do not reflect any undisclosed income made by ld. AO for the AY 2015-16 and it is solely based on the statement recorded u/s 132(4) of the Act which was later on retracted. In the case of assessment u/s 153A of the Act, the completed assessment can be tinkered only if there is incriminating material found during the course of search. Therefore, as in the AY 2015-16, there was no incriminating material suggesting the additions made by ld. AO. Though the AO is justified in issuing notice u/s 153A of the Act consequent to search action u/s 132 of the Act on 16/08/2018, however to make an addition in case of completed assessment year, there should be a positive seized material/incriminating material found during the course of search action. We observed that almost all additions except alleged on-money were made by the AO for the AY 2015-16 based on the books of accounts, Audited financial statements & the details/documents furnished during the course of the assessment proceedings which has nothing to do with the incriminating material. In the absence of such seized material/incriminating material, the AO is precluded from making any additions as rightly held by the ld. CIT(A). Thus, we have no hesitation but to uphold the order of the ld. CIT(A).

10. In the result the appeal filed by the Revenue for the AY 2015-16 is dismissed.

ASSESSMENT YEAR 2019-20

11. The revenue has raised the following grounds of appeal in ITA 2034/Bang/2024 for the AY 2019-20:

12. The assessee has raised the following grounds of appeal in ITA No.2086/Bang/2024 for the AY 2019-20:

13. Thus, for the AY 2019-20 the cross appeals have been filed by the Revenue & the assessee. The Revenue has challenged the deletion of Rs. 1,88,89,375/- by the ld. CIT(A) – 2, Panaji whereas, the assessee has challenged the additions made by the AO and confirmed by the CIT(A) – 2, Panaji.

13.1 First we take the Revenue’s appeal in ITA No. 2034/Bang/2024 for the AY 2019 – 20 for adjudication.

14. Brief fact of the case for the AY 2019 – 20 are that, a search and seizure action u/s.132 of the Act conducted in the case of the assessee firm on 16.08.2018. Pursuant to the search, notice u/s.153A of the Act was issued on 28.08.2020 for the impugned assessment year. In response to notice u/s.153A of the Act, the assessee firm filed its return of income on 25.09.2019 admitting a total income of Rs.51,93,570/-. Subsequently, assessment was completed u/s.143(3) r.w.s 153A of the Act vide order dated 17.08.2021 assessing the total income of the assessee firm at Rs.3,30,36,840/- the details of which are tabulated below for ease of convenience:

15. Ground No. 1 as raised by the Revenue is general in nature and does not require any adjudication.

15.1 Ground no. 2 as raised by the Revenue relates to the deletion of alleged on-money received by the assessee firm. Before us, the ld. DR contended that the addition of on-money amounting to Rs. 54,83,000/- was made based on the seized material and statement of Shri Suraj Alawandi recorded u/s. 132(4) of the Act and therefore ld. CIT (A) grossly errored in deleting the addition made on account of on-money received.

15.2 The ld. AR on the other hand vehemently submitted that the allegation of said unaccounted receipts is mainly based on whatsApp messages. Further ld. AR submitted that the opportunity to cross examine the witnesses testifying alleged receipt of unaccounted cash against Sriya Group was also not afforded as per the evidence procedure. It was also submitted that the declaration from Mr. Suraj Alawandi was not voluntary but was allegedly by force and the same was retracted on 28.08.2018 by Sri Suraj Alawandi. The ld. AR submitted that no substantial evidence such as excessive cash or any incriminating documents found as a result of search. Lastly, it was submitted that neither any sale instances for estimating the said per square foot rate was given by the AO for corroborating witness evidences to estimate as such nor any enquiry in association with valuation officer was made as per the guidelines for valuation of immovable property.

15.3 We have heard the rival submission and perused the material available on record. The genesis of the addition is primarily the sworn statement given by the Managing Partner, Mr. Suraj Alawandi wherein, he had admitted to the fact that on-money had been received with respect to the real estate projects undertaken by the assessee firm. The assessee firm had undertaken 7 projects for the construction of flats at Hubli, namely, Shriya Enclave, Shriya Paradise, Shriya Mansion, Shriya Samrudhi, Shriya Sankalp, Shriya Sannidhi and Shriya Solitaire. These projects were undertaken between assessment years 2013-14 and 2019-20. The Sales executive, Mr. Ramakrishna Kammannavar and employee, Shri Manjayya S. Hiremath of the assessee firm were interrogated and their statements were recorded on 16.08.2018. They admitted that the difference between the circle rate and the contracted rate was accepted in cash. Based on the above admission, the Managing Partner, Mr. Suraj Alawandi also deposed that cash was accepted in the nature of on-money and the same was not reflected in the books of account.

15.3.1 The ld. CIT(A) however observed that the only instance where the evidence for on-money receipt was that the transaction with Mr. Naveen Kumar involved unaccounted cash of Rs. 4,00,000/- in respect of a flat in the project ‘Shriya Solitaire’ based on a WhatsApp message dated 16.06.2018. Based on the depositions of Mr. Suraj Alawandi and others, the AO concluded that the assessee was regularly receiving on-money in cash which was not accounted in their regular books of account. Therefore, based on the sworn statement of Mr. Suraj Alawandi, the estimated rate of on-money was reckoned and accordingly based on the project area, the total amount of on-money for all the projects was estimated at Rs.5,64,30,000/-. Based on the total area sold during the year under consideration, i.e., 11,766 sq. ft. pertaining to the project ‘Shriya Solitaire’, the on-money for the impugned year was estimated at Rs. 58,83,000/- [11766 sq. ft * Rs. 500 per sq. ft].

15.3.2 We are of the considered opinion that the entire edifice of the addition on account of on-money is the sworn statement by the Managing Partner and the details given by him. There is no evidence brought on record to suggest that the sum as estimated was actually received with respect to the said projects. Therefore, the statements relied upon were not corroborated or backed by any documents. In such a scenario, it is not justifiable to make such a addition based on pure estimation alone. In our opinion such an addition would have no legs to stand on and was rightly deleted by the ld. CIT(A). Further, as rightly noted by the ld. CIT(A) that even after Mr. Suraj Alawandi had retracted his statement; no effort was made by the AO to ascertain the actual on-money that was received. The AO went on to extrapolate on the basis that unaccounted cash has been received with respect to all sale transactions and did not restrict the addition to that which was inferred from the seized material i.e., receipt and the WhatsApp communication. Therefore, a solitary instance of receipt of alleged on-money cannot be the basis for inferring that the same would be received at the same rate in all cases of sale of flats.

15.3.3 Further, as rightly pointed by the ld. CIT(A) that the addition was primarily based on estimation of income which can be done only in a case where the books of account have been rejected in terms of Section 145(3) of the Act. However, the books of account have not been rejected and hence an addition of this nature based on estimation is not justified. We are of the considered opinion that the addition cannot be made on the basis of sworn statements and estimation. Further, the entire addition is only based on extrapolation of data obtained from the WhatsApp chats and based on the probability that on-money is received in the impugned projects. The actual receipt of on-money in these projects has not been corroborated or established by any means. Further, as rightly contended by the AR of the assessee an opportunity to cross examine the witness testifying the alleged receipt of unaccounted cash was also not afforded to the assessee firm. In view of the above, we find no infirmity in sustaining the addition only to the extent of Rs. 4,00,000/- by the ld. CIT(A) and accordingly, this ground of the revenue is dismissed.

16. The next ground of the Revenue pertains to the addition due to discrepancy in the account balances inter-se of assessee firm and managing partner, Mr. Suraj Alawandi. Before us the ld. DR submitted that the ld. CIT(A) failed to appreciate the fact that the assessee has not submitted any explanation with supporting evidences to prove and reconcile the discrepancy of Rs. 88,18,148/-noticed in the account balances of the assessee firm and Sri Suraj Alawandi.

16.1 The ld. AR of the assessee vehemently submitted that the assessee had furnished the books of account, ledger copies and bank account statements of the assessee firm as well as Mr. Suraj Alawandi during the course of assessment proceedings. The ld. CIT(A) also noted that the net difference in the accounts, on verification was only Rs.39,683/- which could be rectified by passing relevant entries and accordingly, prayed that the deletion of Rs. 88,18,148/- may be sustained.

16.2 We have heard the rival submissions and perused the materials available on record. It was submitted by the AR of the assessee that the difference in account balances were subjected to the reconciliation. The assessee had furnished the books of account, ledger copies and bank account statements of the assessee firm as well as Mr. Suraj Alawandi during the course of assessment proceedings. The ld. CIT(A) had noted that the net difference in the accounts, on verification was only Rs.39,683/- which could be rectified by passing relevant entries. The ld. CIT(A) also noted that this discrepancy could only be considered as errors to be rectified and as such, will not have any revenue impact. We are in complete agreement with the observations as noted by ld. CIT(A) in deleting the addition of Rs. 88,18,148/- and accordingly, we upheld the order of ld. CIT(A) and dismiss this ground of Revenue.

17. The ground no. 4 & the ground no. 5 raised by the revenue relates to the addition with respect to sundry creditor balances. Before us the ld. DR submitted that the ld. CIT (A) failed to appreciate the fact that the addition of Rs. 22,88,227/- was made on account of unproved sundry creditors as the assessee had not furnished any confirmation letter or any information such as name, address of the persons to whom payments are to be made. Further, ld. DR also submitted that ld. CIT(A) grossed erred in appreciating the fact that the addition of Rs. 22,88,227/- was made on account of unproved sundry creditors u/s. 41(1) of the Act.

17.1 Before us the ld. AR of the assessee submitted that the balances appearing in the books were cumulative figures and pertained to several assessment years. The AR of the assessee submitted that the assessee had filed confirmation letters in respect of few creditors during the course of assessment proceedings. Since all confirmation letters were not filed, the AO disallowed 20% of the closing balance of Rs. 1,14,41,137/- i.e., Rs. 22,88,227/- by treating this as unproved creditors. Further, the AR of the assessee also submitted that the AO made a random enquiry regarding the genuineness of the creditors and that no effort was made to identify specific cases where the explanation of the credits was not satisfactory.

17.2 We have heard the rival submission and perused the materials available on record. During the course of assessment proceeding, the AO had asked the assessee to file the confirmation letters of all the parties shown as sundry creditors. The assessee furnished confirmation letters from 8 of these creditors and stated that most of them were running accounts for purchases. The AO had found discrepancies in the balance shown in respect of four creditors for which the assessee stated that these differences were subjected to reconciliation as these were running accounts. It is contended by the AR of the assessee that no inquiries were conducted by the AO and AO had also not pointed out specific discrepancies. Further, AR of the assessee submitted that most of these creditors were either repaid in subsequent years or offered to tax the outstanding credits as extinguishment of liability u/s. 41(1) of the Act. We are of the considered opinion that the estimated addition @ 20% of the outstanding creditors is highly unjustifiable especially when some of the confirmation letters were not filed by the Assessee. We also agree with the contention of the ld. CIT(A) that the AO had not made any independent verification nor considered the argument of the assessee that these were running accounts and required reconciliation. Thus, the action of the ld. CIT(A) in deleting the said addition is justified and the same is being upheld. In the result, this ground of the Revenue is also dismissed.

18. The ground no. 6 as raised by the revenue relates to the addition of Rs. 22,99,970/- being the amount related to the capital introduced by Sri Suraj Alawandi. Before us, the ld. DR submitted that, the ld. CIT(A) failed to appreciate the fact that the addition of Rs. 22,99,970/- was made in absence of confirmation letters and supporting documentary evidences and accordingly prayed to allow this ground.

18.1 Before us, the ld. AR of the assessee submitted that during the year under consideration, two partners, namely Mr. Suraj Alawandi and Mr. Satish Davalgi had introduced Rs. 22,99,970/-and Rs. 33,00,000/- respectively in the assessee firm. Since the credits were not satisfactorily explained, the AO made an addition of Rs.55,99,970/- u/s.68 of the Act. Further the ld. AR submitted that, the assessee had furnished a copy of the bank account statement where the credits were reflected along with ledger but the AO was not satisfied due to absence of confirmation letters and accordingly prayed to delete the entire addition.

18.2 We have heard the rival submission and perused the materials available on record. During the year under consideration, two partners, namely Mr. Suraj Alawandi and Mr. Satish Davalgi had introduced Rs. 22,99,970/- and Rs. 33,00,000/- respectively in the assessee firm. Since the credits were not satisfactorily explained, the AO made an addition of Rs.55,99,970/- u/s.68 of the Act. The assessee had produced the copy of Bank statement along with ledger account copy however, in the absence of confirmation letter, along with documentary evidences, the AO had treated the same as unexplained cash credit and added u/s 68 of the Act. We are of the considered opinion that during the course of assessment proceeding, the assessee had submitted the ledger along with the books of accounts. Further, the assessee had also submitted the bank statements where the credits were reflected. Further, since search was conducted in the case of Mr. Suraj Alawandi also, the AO was aware of his existence and the return and books of account were available with the AO for verification. In view of the above, we are of the considered opinion that the addition on this count is not justified merely because confirmation letters could not be furnished. Accordingly, we upheld the order of the ld. CIT(A) in deleting the addition of Rs. 22,99,970/- to the extent of the capital introduced by Mr. Suraj Alawandi, the managing partner. In the result, this ground of the Revenue is also dismissed.

19. In the result, the appeal filed by the Revenue in ITA No. 2034/Bang/2024 for AY 2019 – 20 is dismissed.

20. Now we take up the Assessee’s appeal in ITA No. 2086/BANG
/2024 for AY 2019 – 20 for adjudication.

21. The assessee has raised ground no. 9 with regard to capital introduction of Rs. 33,00,000/- by the partner Sri Satish Davalgi treated as unexplained credit, the ld. AR of the assessee vehemently submitted that the addition was made by the AO solely on the ground of non submission of confirmation letter and accordingly prayed that one more opportunity may be granted to the assessee to furnish all the relevant details before the AO in order to explain the source of funds of Mr. Satish Davalgi to introduce capital in the assessee firm.

21.1 The ld. CIT(A) has stated that the details relating to Satish Davalgi were not available with the AO and assessee was required to file details requested by the AO and hence confirmed the said addition.

21.2 Before us, it was submitted by the AR of the assessee that Mr. Satish Davalgi is also an assessee and is filing his returns regularly although he was not covered by the search. Further, the ld. AR submitted that due to paucity of time and lack of coordination between the partners during the relevant time, the confirmation also could not be furnished during the stage of first appeal proceedings. This being so, in the interest of justice and equity and as requested by the ld. AR of the assessee, we deem it fit and proper to remit this issue to the file of AO to decide afresh in accordance with law. Needless to say, a reasonable opportunity of being heard must be granted to the assessee. In the result, this ground of appeal of the assessee is partly allowed for statistical purposes.

22. Further, with regard to grounds of appeal numbers 2, 3, 4, 5, 7 and 8, the AR of the assessee vehemently submitted that the assessee could not produce any counter evidence or cogent argument to claim any relief. It was humbly submitted that since there were multiple issues involved in these appeals, the details relating to the above grounds could not be collated due to paucity of time. This being so, in the interest of justice and equity and as requested by the ld. AR of the assessee, we deem it fit and proper to remit this issue to the file of AO to decide afresh in accordance with law. Needless to say, a reasonable opportunity of being heard must be granted to the assessee. In the result, this ground of appeal of the assessee is partly allowed for statistical purposes.

23. In the result, the appeal filed by the assessee in ITA No. 2086/Bang/2024 for AY 2019 – 20 is partly allowed for statistical purposes.

ASSESSMENT YEAR 2017 – 18

24. The assessee has raised the following grounds of appeal in ITA No.2084/Bang/2024 for the AY 2017-18:

25. Brief fact of the case is that, a search and seizure action u/s.132 of the Act was conducted in the case of the assessee firm on 16.08.2018. Pursuant to the search, notice u/s.153A of the Act was issued on 28.08.2020 for the impugned assessment year. In response to notice u/s.153A of the Act, the assessee firm filed its return of income on 21.09.2020 admitting a total income of Rs.10,09,280/-. Subsequently, assessment was completed u/s. 143(3) r.w.s 153A of the Act vide order dated 17.08.2021 assessing the total income of the assessee firm at Rs.1,50,66,841/- as detailed below:

25.1 With regard to Ground No. 2 & 5 of the table above related to Estimated disallowance (20%) of Sundry Creditors and Addition on account of alleged on-money receipts respectively, the findings and ratio as decided for AY 2019 – 20 shall mutatis mutandis apply to the present appeal also as the evidences relied upon and the arguments put forth by the assessee are exactly similar to that of AY 2019 – 20. In the result, these two grounds of the assessee are allowed.

25.2 Further with regard to Ground Nos. 1, 3, 4 & 6 of the table as above, the ld. AR of the assessee vehemently submitted before us that the details relating to the above grounds could not be collated due to paucity of time. This being so, in the interest of justice and equity and as requested by the ld. AR of the assessee, we deem it fit and proper to remit these issue to the file of AO to decide afresh in accordance with law. Needless to say, a reasonable opportunity of being heard must be granted to the assessee. In the result, these grounds of appeal of the assessee are partly allowed for statistical purposes.

26. In the result, the appeal filed by the assessee in ITA No. 2084/Bang/2024 for the AY 2017-18 is partly allowed for statistical purposes.

ASSESSMENT YEAR 2018 – 19

27. The assessee has raised the following grounds of appeal in ITA No.2085/Bang/2024 for the AY 2018-19:

28. With regard to on-money receipt for AY 2018 – 19, the ld. CIT(A) held that as the incriminating evidence found in respect of Rs. 3,00,000/- is sustainable and accordingly held that on-money of Rs. 3,00,000/- is to be taxed in the hand of the assessee and directed the AO to delete the estimated addition of Rs. 62,86,400/-

28.1 We on the similar findings for AY 2019 – 20 also uphold the decision of ld. CIT(A) and direct the AO to delete the estimated addition of Rs. 62,86,400/- and treat only Rs. 3,00,000/- as additional income in the hands of the Assessee.

28.2 Further, with regard to other grounds, total amounting to Rs. 57,67,278/-, the ld. CIT (A) for want of any counter evidence produced by the assessee or cogent arguments made to claim any relief sustained the additions and accordingly dismissed all other grounds. Before us, the ld. AR of the assessee vehemently submitted that the details relating to the above grounds could not be collated due to paucity of time. This being so, in the interest of justice and equity and as requested by the ld. AR of the assessee, we deem it fit and proper to remit these issue to the file of AO to decide afresh in accordance with law. Needless to say, a reasonable opportunity of being heard must be granted to the assessee. In the result, these grounds of appeal of the assessee are partly allowed for statistical purposes.

29. In the result, the appeal filed by the assessee in ITA No. 2085/Bang/2024 for the AY 2018 – 19 is partly allowed for statistical purposes.

Order pronounced in the open court on 25^th May, 2026