SHUBHAPRADA CHIT FUNDS PRIVATE LIMITED,ZAHEERABAD V. ITO., WARD-1, SANGAREDDY

ITA 805/HYD/2025

AI Insights

The case involves Shubhaprada Chit Funds P Ltd, which appealed against the orders of the CIT (A) NFAC, Delhi, concerning additions made by the Assessing Officer under section 69A of the Income Tax Act, 1961, for the Assessment Years 2017-18 and 2018-19. The primary issue for 2017-18 was the addition of Rs.3,75,000 as unexplained money due to cash deposits during the demonetization period. The Tribunal found that the assessee had sufficient cash balance as per their books to explain the deposits. For 2018-19, the issue was the disallowance of Rs.6,74,550 as director's remuneration, which was paid to third parties instead of directly to the directors. The Tribunal remanded the matter for fresh adjudication, allowing the assessee to submit additional evidence.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 717454 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2017-2018
• Appeal Filed On: 09-05-2025
• Other Referred Cases: Smt. Teena Bethala vs Income Tax Officer, Dy. CIT vs. Karthik Construction Co, Munireddy Prakashreddy vs. Income Tax Officer
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K. A SAI PRASAD
• Keywords: Set aside; Additional evidence; Corroborative evidences
• Section: 40A(3)

Judgement Text

" ITA Nos 805 and 806 of 2025Shubhaprada Chit Funds P Ltd Page 1 of 14 आयकर अपीलȣय अͬधकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘SM-A‘ Bench, Hyderabad Before Shri Vijay Pal Rao, Vice-President AND Shri Manjunagha, G. Accountant Member आ.अपी.सं /ITA Nos.805 & 806 /HYD/2025 (Ǔनधा[रण वष[/Assessment Years:2017-18 & 2018-19) Shubhaprada Chit Funds (P) Ltd ZAHEERABAD PAN:AAWCS8445G Vs. Income Tax Officer Ward – 1 Sangareddy (Appellant) (Respondent) िनधाŊįरती Ȫारा/Assessee by: Shri K.A Sai Prasad, CA राज̾ व Ȫारा/Revenue by:: Shri Vinodh Kannan, Sr.AR सुनवाई की तारीख/Date of hearing: 07/08/2025 घोषणा की तारीख/Pronouncement: 13/08/2025 आदेश/ORDER Per Vijay Pal Rao, Vice-President These two appeals by the assessee are directed against two separate orders of the learned CIT (A) NFAC, Delhi dated, 17/04/2025 and 01/04/2025 for the A.Ys 2017-18 & 2018-19 respectively. 2. For the A.Y 2017-18, the assessee has raised the following grounds of appeal: “1. The order of the learned CIT (A) NFAC Delhi is not correct either on facts or in law and in both. Printed from counselvise.com ITA Nos 805 and 806 of 2025Shubhaprada Chit Funds P Ltd Page 2 of 14 2. The learned CIT (A) NFAC Delhi erred in law and on facts in confirming the addition of Rs.3,75,000/- u/s 69A of the Act as unexplained money, without appreciating the fact that the cash deposits made during the demonetization period were out of cash balance available with the Appellant as on 08/11/2016, duly supported by its books of account and in the regular course of business of chit funds. 3. The learned CIT (A) NFAC Delhi failed to appreciate that the Appellant had maintained regular books of account and the cash balance on the date of demonetization was reflected therein and the rejection of the explanation solely on the ground that the deposits were made between 11/11/2016 and 02/12/2-016 without finding any defect in the books as arbitrary and untenable in law. 4. The appellant craves leave to add, amend, modify, rescind, supplement or alter any or more grounds of appeal stated herein above either before or at the time of hearing of this appeal”. 3. The solitary issue that arises in this appeal of the assessee is “whether in the facts and circumstances of the case, the learned CIT (A) has erred in law as well as on facts in confirming the addition of Rs.3,75,000/- made by the Assessing Officer on account of cash deposits during the demonetization period”. The learned Counsel for the assessee has submitted that the assessee company is engaged in the Chit Fund business and was having sufficient cash in the books of the assessee which was deposited during the demonetization period. He has referred to the cash book as well as bank statements which were produced before the learned CIT (A) and submitted that as on 08/11/2016, the assessee was having cash balance of Rs.23,85,139/-. The Assessing Officer has not rejected the books of account of the assessee and therefore, the cash balance available with the assessee as per the books of account and particularly, the cash book filed by the assessee is more than sufficient to explain the deposits made in question during the demonetization period. The Printed from counselvise.com ITA Nos 805 and 806 of 2025Shubhaprada Chit Funds P Ltd Page 3 of 14 learned Counsel for the assessee has further submitted that the assessee has duly explained before the Assessing Officer as well as the learned CIT (A) that these cash balances were available with the assessee and the source was from the Chit Fund collection receipts from the subscribers of the chit which is duly recorded in the books of account. However, the learned CIT (A) has confirmed the addition made by the Assessing Officer only on the ground that these deposits was not made in one go but the assessee has made the deposits from time to time from 11/11/2016 to 02/12/2016. The learned Counsel for the assessee has submitted that the assessee has also explained the reasons for multiple deposits made during the demonetization period in the bank account because the Govt. of India allowed the cash deposits over a period of time. Further, considering the mad rush at the Banks during the demonetization period, the periodic deposits could not be avoided. Thus, the learned Counsel for the assessee has submitted that once the assessee has established the fact that the assessee was having sufficient cash as on 08/11/2016, then the deposits made in the bank account of Rs.3,75,000/- on multiple occasions cannot be a reason for disallowance. He has relied upon the decision of the Bangalore Benches of the Tribunal in the case of Smt. Teena Bethala vs Income Tax Officer in ITA Nos.1383 and 1384/Ban/2019 as well as the decision of the Mumbai Bench of the Tribunal in the case of Dy. CIT vs. Karthik Construction Co in ITA No.2292/Mum/2016. Thus, the learned Counsel for the assessee has submitted that the addition made by the Assessing Officer and confirmed by the learned CIT (A) is unjustified and liable to be deleted. Printed from counselvise.com ITA Nos 805 and 806 of 2025Shubhaprada Chit Funds P Ltd Page 4 of 14 4. On the other hand, the learned DR has submitted that the Assessing Officer has given the finding that the assessee has not produced any evidence to explain the source of the cash deposits during the demonetization period. Even the learned CIT (A) has given the finding in para 7.3 of the impugned order that no evidence is produced by the assessee in support of the claim. He has relied upon the orders of the authorities below. 5. We have heard the rival submission as well as the relevant material available on record. The Assessing Officer has made an addition of Rs.3,75,000/- on account of cash deposits during the demonetization period for want of supporting evidence to explain the source of the said cash in Para 3 & 4 of the assessment order as under: “3. Unexplained money credited in the bank account of the assessee, addition u/s 69A of the I.T. Act, 1961: On perusal of the information furnished, it is noticed that during the period of demonetization the assessee deposited cash in the bank account held by the assessee with Bank of Baroda, Zaheerabad Branch vide Account Bearing No.49660200000088 on several occasions. It is also noticed that the assessee deposited an amount of Rs.4,75,000/- in demonetized currency during the period 11.11.2016 to 02.12.2016. During the course of assessment proceedings the assessee has been required to furnish the details of sources of funds for the deposits made it has been stated by the assessee that the sources are out of the subscriptions received from the customers/ subscribers and the deposits have been made out of the cash balances available as on 08.11.2016. When asked to explain why the cash deposits have been made up to 02.12.2016 if the cash balances are available as on 08.11.2016, the assessee could not offer proper explanation. 4. In view of the assessee's failure in offering satisfactory explanation with regard to the sources of funds for the cash deposits made in demonetized currency during the period 11.11.2016 to 02.12.2016, during the hearing held on 21.06.2019, vide order sheet notings at Page-4, the Managing Partner and the Authorized Representative of Printed from counselvise.com ITA Nos 805 and 806 of 2025Shubhaprada Chit Funds P Ltd Page 5 of 14 the assessee company have been required to show cause as to why the amount of Rs.4,75,000/- should not be treated as unexplained money. In response to the same it has been stated that the amounts are out of the subscriptions received prior to 08.11.2016, however, they are not in a position to substantiate the same. They further stated that the assessee company also opted for Pradhan Mantri Garib Kalyan Yojna [PMGKY] for Rs.1,00,000/- and paid the taxes there on and deposited an amount of Rs.25,000/-. In view of the assessee's failure in furnishing satisfactory explanation with regard to deposits made after 11.11.2016 to 02.12.2016 and considering the fact that the assessee company offered an amount of Rs.1,00,000/- under PMGKY, the difference amount of Rs.3,75,000 Rs.4,75,000- Rs.1,00,000 = Rs.3,75,000] is brought to tax as Unexplained Money U/s 69A of the I.T.Act,1961 which attracts tax rates as per the Provisions of Section 115BBE of the I.T Act, 1961. Addition: Rs.3,75,000/-.” 6. The Assessing Officer has not disputed the fact that the assessee is engaged in the business of Chit Funds and therefore, the assessee is regularly receiving the cash from the chit subscribers and also disbursing the cash. Before the learned CIT (A) the assessee filed the submissions explaining the source of cash deposits in the bank account along with the cash book as well as bank account statements in support of his claim of availability of cash as on 08/11/2016. We find from the cash book of the assessee that the assessee has shown the cash balance of Rs.23,85,139/- as on 08/11/2016. Further, the transactions are duly recorded in the books of account and also reflected in the bank account statement of the assessee. Once the assessee has brought on record this fact that as per the books of account as well as the bank account, the cash of Rs.23,85,139/- was available with the assessee as on 08/11/2016, then without rejecting the books of account, the source explained by the assessee based on the cash available in the books of account Printed from counselvise.com ITA Nos 805 and 806 of 2025Shubhaprada Chit Funds P Ltd Page 6 of 14 cannot be rejected. The learned CIT (A) has confirmed the addition made by the Assessing Officer on the reasoning that the assessee has not deposited this amount in one go but it has been deposited over a period from 11/11/2016 to 02/12/2016. The relevant finding of the learned CIT (A) in para 7.3 is as under: 7. Thus, without disputing the availability of the cash in the books of the assessee as on 08/11/2016, the learned CIT (A) Printed from counselvise.com ITA Nos 805 and 806 of 2025Shubhaprada Chit Funds P Ltd Page 7 of 14 has confirmed the addition made by the Assessing Officer on the reason of depositing the cash periodically instead of one go. It is pertinent to note that when the Govt. has allowed the citizens to remit the specified bank notes by depositing in the bank account during the period as specified in the notification dated 08/11/2016, then the deposits made by the assessee during the said period on multiple occasions cannot be a reason for not accepting the source of the said deposits being the cash balance available in the books of the assessee. Accordingly, in the facts and circumstances of the case, the addition made by the Assessing Officer of Rs.3,75,000/- is deleted. 8. For the A.Y 2018-19, the assessee has raised the following grounds of appeal: “1. The Order of the learned Commissioner of Income Tax (A), NFAC Delhi is Correct cither on facts or in law and in both. 2. The learned CIT{A), NFAC Delhi erred in confirming the disallowance of Rs.13,35,883/- towards director's remuneration by rejecting crucial evidences furnished during appellate proceedings solely for want of a Rule 46A petition, especially when such evidences were essential to establish the genuineness of the expenditure and ought to have been admitted in the interest of justice. 3. On the facts and circumstances of the case and in law also Learned Lower authorities grossly erred in making the addition of Rs. 4,09,000/- by making disallowances u/s 40A(3) of the income tax act 1961. 4. The appellant craves leave to add, amend, modify, rescind, supplement or alter any or Imore grounds of appeal stated herein above either before or at the time of hearing of this appeal.” 9. The learned Counsel for the assessee has submitted that since there is a typographical mistake in Ground No.2, the assessee has filed the modified/amended Ground No.2 as under: Printed from counselvise.com ITA Nos 805 and 806 of 2025Shubhaprada Chit Funds P Ltd Page 8 of 14 “The learned CIT (A) NFAC erred in confirming the disallowance of Rs.6,74,550/- towards director’s remuneration by rejecting crucial evidences furnished during appellate proceedings solely for want of a Rue 46A petition, especially when such evidences were essential to establish the genuineness of the expenditure and ought to have been admitted in the interest of justice. “ 10. Ground No.1 is general in nature and does not require any specific adjudication. 11. Ground No.2 is regarding the addition made by the Assessing Officer on account of disallowance of Rs.6,74,550/- claimed as Director’s remuneration. During the scrutiny assessment, the Assessing Officer noted that the assessee has claimed deduction of Rs.6,74,550/- under the head remuneration paid to the Directors. On verification, the Assessing Officer noted from the bank account statement that the amount was actually paid to Trawell View Holidays and Wall Street Finance Ltd and not to the Directors. The assessee explained before the Assessing Officer that the total salary payable to 2 Directors amounting to Rs.6,74,550/-. However, instead of directly paying/transferring the amount to the Bank Account, the company has cleared the outstanding payable by the Directors to the 3rd party i.e. Trawell View Holidays and Wall Street Finance Ltd. The Assessing Officer did not accept this explanation of the assessee for want of the documentary evidence to establish the nexus between the Directors and the above 2 parties to whom the assessee has paid Rs.6,74,550/-. The Assessing Officer has pointed out that the assessee has not submitted the financials of these directors reflecting the above 2 parties, as outstanding payable nor had the assessee filed any bills or invoice in the name of the Directors which could support the contention of the assessee. Accordingly, Printed from counselvise.com ITA Nos 805 and 806 of 2025Shubhaprada Chit Funds P Ltd Page 9 of 14 the Assessing Officer has disallowed this claim and made the addition to the income of the assessee. 12. On appeal, the learned CIT (A) has confirmed the addition made by the Assessing Officer. 13. Before the Tribunal, the learned Counsel for the assessee has submitted that the assessee has produced the acknowledgement of the return of income of the Directors wherein the remuneration was admitted as income as well as the 3rd party confirmation whereby these travel companies have confirmed the receipt of the amounts from the assessee towards the tour arrangements expenses in respect of the Directors of the assessee company. The learned Counsel for the assessee has also referred to the bank account statement and submitted that the payments were made through banking channels. Thus, he has submitted that the assessee has not claimed any other deduction on account of Directors remuneration except this amount of Rs.6,74,550/-. Thus, merely because the payment was made for clearing the outstanding bills of the Directors towards tour and travel expenses cannot be a reason for disallowance of claim of the assessee. He has further submitted that the additional evidence filed before the learned CIT (A) were rejected on the ground that the assessee has not filed the petition under Rule 46A of the I.T. Rules, 1962. In support of his contention, he has relied upon the decision of the Chennai Bench of the Tribunal in ITA No.450/Chny/2025, dated 30/04/2025 in case of Munireddy Prakashreddy vs. Income Tax Officer. Printed from counselvise.com ITA Nos 805 and 806 of 2025Shubhaprada Chit Funds P Ltd Page 10 of 14 14. On the other hand, the learned DR has submitted that the Assessing Officer has given a finding that the assessee has failed to produce any supporting evidence in the nature of bills/ vouchers or to establish any connection between the said payment and the outstanding payables of the Directors of the assessee company. He has relied upon the orders of the authorities below. 15. I have considered the rival submission as well as the relevant material available on record. There is no dispute that the assessee has claimed deduction of Rs.6,74,550/- as remuneration paid to the Directors of the assessee company. The Assessing Officer has disallowed the said claim when it was found from the record that the payment was not made to the Directors but to the companies namely Trawell View Holidays and Wall Street Finance Ltd. Thereafter, the assessee explained that these payments were made to these companies instead of directly paying to the Directors as the assessee company has cleared the outstanding payable by the Directors to the 3rd party. The Assessing Officer has not accepted this explanation of the assessee and disallowed the claim of the assessee in para 12 as under : Printed from counselvise.com ITA Nos 805 and 806 of 2025Shubhaprada Chit Funds P Ltd Page 11 of 14 16. On appeal, the assessee filed the supporting evidence in the shape of acknowledgement of the return of income filed by the Directors and 3rd party confirmation to whom the payment was made. However, the learned CIT (A) has declined to admit these supporting evidences in para 8.3 and 8.3.2 as under: “8.3 Having considered the factual matrix of the case, I find that during the assessment proceedings, the assessee did not submit necessary documents before the AO proving that the remuneration had been paid to the third party on behalf of directors. Confirmations of the directors and their I.T returns showing the salary in their returns were not filed before the AO. 8.3.1 Further, I find that the assessee had not submitted any documents before the AO and thus tried to escape scrutiny by the AO. 8.3.2 The appellant has filed written submissions during the course of appellate proceedings along with certain documents as mentioned above which is essentially an additional evidence not submitted before the A0. In form No.35, row no.12, against \" whether any documentary evidence other than the evidence produced during the course of proceedings before Income-tax Authority has been filed in terms of Rule 46A\" the assessee has mentioned \"No. The additional evidence filed is incomplete and haphazard. The assessee has filed additional evidence during the course of appellate proceedings which does not explain the case of the assessee. However, no petition has been filed by the assessee for admission of additional evidence justifying and explaining as to under which Clause of Rule 46A(1), the Printed from counselvise.com ITA Nos 805 and 806 of 2025Shubhaprada Chit Funds P Ltd Page 12 of 14 assessee's case is covered and as to why the additional evidence should be admitted. Therefore, I am of the considered view that the additional evidence filed by the assessee is not admissible. Accordingly, the same is not admitted. Moreover, the additional evidence filed is incomplete and does not in way buttress the grounds of appeal filed by the assessee. In the circumstances, I do not see any reason to interfere with the well-reasoned and speaking order of the AO. Therefore, the additions of Rs.13,35,883/- is confirmed. Hence, the ground of appeal No.3 is Dismissed.” 17. Thus, for want of an application under Rule 46A of the I.T. Rules, 1962 for admission of the additional evidence, the learned CIT (A) has rejected the claim. It is pertinent to note that the payment in question is made by the assessee to these 2 companies namely; Trawell View Holidays and Wall Street Finance Ltd, which is also reflected in the bank account of the assessee and based on which the Assessing Officer has proposed to disallow this sum not found on account of remuneration paid to the Directors of the assessee company as claimed in the return of income and profit and loss account of the assessee. The Assessing Officer has made the addition on the ground that the assessee has not produced any documentary evidence to prove the nexus between the payment and outstanding payables against the Directors. Before the learned CIT (A) the assessee produced the confirmations from these 2 companies as well as acknowledgement of the return of income filed by the Directors which was not accepted by the learned CIT (A) only on technical ground. 18. Thus, in the facts and circumstances of the case and in the interest of justice, we are of the considered view that the learned CIT (A) would have given an opportunity to the assessee Printed from counselvise.com ITA Nos 805 and 806 of 2025Shubhaprada Chit Funds P Ltd Page 13 of 14 to file the appropriate application for admission of the additional ground before passing the impugned order. Hence, the impugned order of the learned CIT (A) is set aside, and the matter is remanded to the record of the learned CIT (A) for fresh adjudication after considering the additional evidence to be filed by the assessee in support of the claim. 19. Ground No.3 is regarding the disallowance made u/s 40A(3) of the Act. At the time of hearing, the learned Counsel for the assessee has stated at Bar that the assessee does not press this ground. The learned DR has raised no objection if Ground No.3 of the assessee is dismissed as not pressed. Thus, ground No.3 is dismissed as not pressed. 20. In the result, appeal of the assessee for the A.Y 2017- 18 is allowed and the appeal of the assessee for the A.Y 2018-19 is partly allowed for statistical purposes. Order pronounced in the Open Court on 13th August, 2025. Sd/- Sd/- (MANJUNATHA, G.) ACCOUNTANT MEMBER (VIJAY PAL RAO) VICE-PRESIDENT Hyderabad, dated 13th August, 2025 Vinodan/sps Printed from counselvise.com ITA Nos 805 and 806 of 2025Shubhaprada Chit Funds P Ltd Page 14 of 14 Copy to: S.No Addresses 1 Shubhaprada Chit Funds (P) Ltd c/o Katrapati & Associates, 1-1- 298/2/B/3 Sowbhagya Avenue Apts, 1st Floor, Ashok Nagar, Street No.1 Hyderabad 500020 2 Income Tax Officer Ward-1 Veera Bhadra Nagar, New Bus Stand, Sangareddy 502001 3 Pr. CIT - Hyderabad 4 DR, ITAT Hyderabad Benches 5 Guard File By Order Printed from counselvise.com "