ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, TRICHY, TRICHY V. V N S FINANCE, KARUR

ITA 2292/CHNY/2024

AI Insights

The case involves an appeal by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-19, Chennai, which had granted partial relief to the assessee, V N S Finance, by deleting a significant portion of the addition made by the Assessing Officer. The original assessment followed a search operation under section 132 of the Income-tax Act, 1961, which uncovered unaccounted cash. The Tribunal noted that the same income had been assessed substantively in the hands of the Managing Partner, Shri K.Natrayan, and emphasized that the same income cannot be assessed in more than one hand. The Tribunal's decision to remand the case for a fresh assessment was based on the need to ensure that the principles of natural justice were upheld and that the correct person was held liable for the tax.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 789502 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: misc
• Appeal Filed On: 29-08-2024
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PUSHPA HEMACHAND; J. C.I.T
• Assessee Lawyers: N. ARJUN RAJ; CONFIRMING AN AMOUNT OF
• Keywords: Set aside; Business income; Opportunity of being heard; Principle of natural justice; Assessment record

Judgement Text

" आयकर अपील य अ धकरण, ‘ए’ \u000eयायपीठ, चे\u000eनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI \u0015ी एबी ट वक\u0019, \u000eया\u001aयक सद य एवं \u0015ी एस. आर. रघुनाथा, लेखा सद य क े सम$ BEFORE SHRI ABY T VARKEY, JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.:2292/Chny/2024 \u001aनधा%रण वष% / Assessment Year: 2020-21 ACIT, Central Circle -2, Trichy. vs. V N S Finance, S. F.No.2228/A, Ramanujam Nagar South, Near DVN Coach, Andankoil East, Karur – 639 002. (अपीलाथ'/Appellant) [PAN:AAJFV-8349-Q] (()यथ'/Respondent) अपीलाथ' क* ओर से/Appellant by : Ms. Pushpa Hemachand, J.C.I.T. ()यथ' क* ओर से/Respondent by : Shri. N. Arjun Raj, Advocate सुनवाई क* तार ख/Date of Hearing : 01.09.2025 घोषणा क* तार ख/Date of Pronouncement : 25.11.2025 आदेश /O R D E R PER S. R. RAGHUNATHA, AM : The present appeal filed by the Revenue is directed against the order dated 03.07.2024 passed by the Learned Commissioner of Income Tax (Appeals)-19, Chennai (hereinafter referred to as “Ld.CIT(A)”). The impugned order arises from the assessment order dated 30.09.2022 passed u/s.143(3) of the Income-tax Act, 1961 (“the Act”) by the Deputy Commissioner of Income Tax, Central Circle-2, Trichy (hereinafter referred to as “the Assessing Officer” or “AO”), pertaining to the Assessment Year 2020-21 (hereinafter referred to as “AY”). Printed from counselvise.com :-2-: ITA. No:2292/Chny/2024 2. The Revenue has raised the following grounds of appeal before us: - 1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case an in law. 2. The Ld.CIT(Appeals) erred in deleting the addition of (i) Rs.40,80,991/- being cash balance as on 11-04-2019 in respect of five firms; (ii)Rs.36,00,000/- being additional capital investment of 12 partners of 5 firms; (iii) Rs.1,27,169/- being personal cash of Shri.K.Natrayan without considering the fact that the assessee took various stands to explain source and the explanation offered by the assessee are in cash transactions and as such, devoid of any proof. 3. The Ld.CIT(A) erred in deleting the addition made by the Assessing Officer without considering the fact that, during the course of search, Shri.K.Natrayan vide statement recorded u/s.131 dated 11-04-2019, accepted the explanation given by the Accountant that Rs.85,00,000/- was unaccounted cash of M/s.V.N.S.Finance; Rs.6,53,051/- was the closing cash balance of M/s.VNS Finance as on 11-04-2019; and the assessee had not furnished the primary evidences, original receipts , etc for the claims of cash balances and additional capital introduced by partners. 4. The Ld.CIT(A) erred to consider that the assessment completed with a substantive addition of Rs.92,80,220/- in hands of Shri.K.Natrayan for the Asst.Year 2019-20 was deleted by the Ld.CIT(A) and not by deleting the protective assessment in the present case of M/s.VNS Finance, the Ld.CIT(A) has failed to appreciate the fact that the entire undisclosed cash found of Rs.92,80,220/-, during the course of search has been allowed to escape from the ambit of taxation altogether. 5. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored. 3. The brief facts of the case are that the assessee is a partnership firm engaged in the business of money lending and is stated to be operating from the first floor of the residential premises of Shri K. Natrayan, situated at Karur. It is noted that Shri K.Natrayan is stated to be working as a Manager in various finance concerns. One among such concerns is M/s.VNS Finance and the other entities are M/s.VNS Auto Finance, M/s.VNS Credits, M/s.VNS Enterprises and M/s.VNS Investments. The family members of Shri K. Natrayan are stated to be partners in all the aforesaid entities, each firm consisting of twelve partners. It is further noted that Shri K.Natrayan is managing the business affairs of these firms under a Power of Attorney duly executed by the respective partners. Printed from counselvise.com :-3-: ITA. No:2292/Chny/2024 4. A search action u/s.132 of the Act was conducted at the premises of the assessee on 11.04.2019 in connection with the General Elections to the Lok Sabha, 2019. During the course of the said search, physical cash amounting to Rs.92,80,220/- was found from the premises. The Authorized Officer recorded a statement from Shri Karthik T.Kalimuthu, Accountant of M/s.VNS Finance. In the said statement, he admitted that out of the cash found, a sum of Rs.6,53,051/- pertained to the closing cash balance of M/s.VNS Finance and Rs.1,27,169/- represented the personal savings of Shri K.Natrayan. Consequently, a balance amount of Rs.85,00,000/- was seized by the Authorized Officer. 5. The assessee filed its return of income for the A.Y.2020-21 declaring a total income of Rs.2,11,280/- on 01.12.2020. The case was selected for scrutiny and notice u/s.143(2) of the Act was issued on 30.06.2021. 6. During the assessment proceedings, the AO noted that the opening cash balance of the assessee-firm as on 01.04.2019 was Rs.6,52,748/-. It was further observed that during the course of post-search proceedings, Shri K.Natrayan submitted that the combined cash balance of all five concerns amounted to Rs.40,80,991/-. 7. Subsequently, during the assessment proceedings, the assessee furnished another report stating that the consolidated cash balance of all the five firms was Rs.91,52,777/-, which included capital contribution received in cash from partners aggregating to Rs.36,00,000/-. In the said report, the opening cash balance of the assessee firm as on 01.04.2019 was shown at Rs.8,46,248/- and the cash balance as on the date of search i.e., 11.04.2019, was declared at Rs.18,87,748/-. Printed from counselvise.com :-4-: ITA. No:2292/Chny/2024 8. The AO, however, did not accept the explanation of the assessee and proceeded to complete the assessment u/s.143(3) of the Act on 30.09.2022. The entire amount of Rs.92,80,220/- found during the course of search was treated as unexplained money u/s.69A of the Act and assessed protectively in the hands of the assessee-firm. 9. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). The Ld.CIT(A), vide impugned appellate order dated 03.07.2024, granted partial relief to the assessee by confirming an amount of Rs.14,72,660/- as unaccounted business income of the assessee, out of the total amount of Rs. 92,80,820/- which had been added by the AO on a protective basis u/s.69A of the Act. Consequently, the Ld.CIT(A) deleted the balance amount of Rs.78,08,160/- from the protective addition made by the AO. 10. Being aggrieved of the relief granted by the Ld.CIT(A), the Revenue has preferred the present appeal before this Tribunal. 11. At the outset, the Ld.AR appearing on behalf of the assessee, by placing reliance on Rule 27 of the Income Tax Appellate Tribunal Rules, 1963, submitted that the Revenue had simultaneously initiated assessment proceedings in the case of the Managing Partner, Shri K.Natrayan, for the A.Y.2019-20 and had brought to tax the impugned amount as income in his hands on a substantive basis. It was pointed out that the said substantive addition made in the hands of Shri K.Natrayan stood deleted in entirety by the Ld.CIT(A) while disposing of the corresponding appeal for A.Y.2019-20. 12. It was thus contended by the Ld.AR that, consequent to such deletion in the hands of the Managing Partner, the Ld.CIT(A) in the impugned order relating to the assessee-firm had treated the addition substantively and granted partial relief. The Ld.AR further submitted that subsequent to the aforesaid appellate order, proceedings u/s.263 of the Act were initiated by the Ld.PCIT for the Printed from counselvise.com :-5-: ITA. No:2292/Chny/2024 A.Y.2020-21 in the case of the Manging Partner Shri K.Natrayan, whereby the assessment order was set aside with certain directions. Pursuant thereto, while giving effect, the AO again made a substantive addition of Rs.92,80,220/- in the hands of the Managing Partner, Shri K.Natrayan. 13. In view of the above factual matrix, the Ld.AR contended that the Revenue itself having treated the impugned amount as the income of the Managing Partner on a substantive basis, no addition can legally survive in the hands of the assessee-firm. Accordingly, it was prayed that the impugned addition in the hands of the firm deserves to be deleted in toto. 14. Per contra, the Ld.DR opposed the submissions advanced by the Ld.AR and placed strong reliance upon the findings and reasoning contained in the assessment order. The Ld.DR accordingly urged that the impugned order passed by the Ld.CIT(A) be set aside and the order of the AO be upheld. 15. We have heard the rival contentions and perused the relevant material available on record. The undisputed facts emerging from the assessment proceedings reveal that the assessee is a partnership firm engaged in the business of money lending and is operating from the first floor of the residential premises belonging to Shri K.Natrayan located at Karur. A search operation u/s.132 of the Act was conducted on 11.04.2019 in connection with the General Elections to the Lok Sabha, 2019. In the course of the said search, physical cash amounting to Rs.92,80,220/- was found from the aforementioned premises. Based upon the statement recorded from Shri Karthik T.Kalimuthu, Accountant of the assessee-firm, a sum of Rs. 85,00,000/- was seized. 16. During the assessment proceedings, the AO did not accept the explanation tendered by the assessee pertaining to the availability and source of the cash balance and consequently treated the entire amount of physical cash of Rs.92,80,220/- as unexplained money u/s.69A of the Act. The addition Printed from counselvise.com :-6-: ITA. No:2292/Chny/2024 was made on a protective basis in the hands of the assessee-firm. In the first appellate proceedings, the Ld.CIT(A) partly allowed the appeal and confirmed addition to the extent of Rs.14,72,660/- as undisclosed business income while deleting the remaining balance of Rs.78,08,160/-. 17. It is an admitted factual position that the above cash of Rs.92,80,220/- stands subjected to assessment proceedings in two different hands, namely, the assessee-firm and the Managing Partner, Shri K.Natrayan, under independent statutory proceedings. The well-settled legal position, supported by various judicial precedents, is that the same income cannot be assessed substantively in more than one hand. A protective assessment may continue to remain operative only until the substantive assessment reaches finality in the correct and appropriate hands. We further observe that the subsequent developments arising out of proceedings initiated u/s.263 of the Act and the consequential reassessment undertaken in the case of Shri K.Natrayan have a direct bearing on determining the taxability of the impugned cash in the present case. These aspects have not been examined or considered by the Ld.CIT(A) while passing the impugned order. 18. Considering the totality of facts, the principles of natural justice, and the legal requirement to determine the correct person liable for taxation of the impugned amount, we are of the considered view that the matter warrants fresh adjudication. Accordingly, we set aside the impugned appellate order of the Ld.CIT(A) and restore the matter to his file for denovo consideration. While doing so, the Ld.CIT(A) shall examine the outcome of the consequential assessment orders passed in the case of Shri K.Natrayan and ascertain whether substantive tax liability has crystallized in his hands. Adequate and reasonable opportunity of being heard shall be afforded to the assessee. The Revenue is at liberty to furnish the updated assessment records and relevant proceedings pertaining to Shri K.Natrayan. The assessee shall extend full cooperation to facilitate expeditious disposal of the matter. Printed from counselvise.com :-7-: ITA. No:2292/Chny/2024 19. In the result, the appeal of the Revenue stands allowed for statistical purposes. Order pronounced in the open court on 25th November, 2025 at Chennai. Sd/- Sd/- (एबी ट वक\u0019 ) (ABY T VARKEY) \u000eया\u001aयक सद य/Judicial Member (एस. आर. रघुनाथा) (S. R. RAGHUNATHA) लेखा सद य/Accountant Member चे\u000eनई/Chennai, /दनांक/Dated, the 25th November, 2025 SP आदेश क* (\u001aत1ल2प अ3े2षत/Copy to: 1. अपीलाथ'/Appellant 2. ()यथ'/Respondent 3.आयकर आयु4त/CIT– Chennai/Coimbatore/Madurai/Salem 4. 2वभागीय (\u001aत\u001aन ध/DR 5. गाड% फाईल/GF Printed from counselvise.com "