SUJATHA KANCHARLA,HYDERABAD V. DCIT., CIRCLE 6(1), HYDERABAD

ITA 1233/HYD/2024

AI Insights

The case revolves around the scrutiny assessment of Sujatha Kancharla's income tax return for the assessment year 2017-18, where significant cash deposits were made during the demonetization period. The Assessing Officer (A.O.) added Rs.76.50 lacs as unexplained money and disallowed certain expenses and sundry creditors due to insufficient documentation and explanations provided by the assessee. The Commissioner of Income-Tax (Appeals) upheld these additions and disallowances. However, the Tribunal found that the A.O. and CIT(A) had not adequately considered the explanations and documents provided by the assessee, leading to the decision to vacate the additions and remand the matter for re-assessment of the disallowed expenses and creditors.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312064 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Assessment Year: 2017-2018
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Principle of natural justice; TDS
• Section: 143(3); 68; 234B; 37(1)

Judgement Text

"आयकर अपीलीय न्यायाधिकरण में, हैदराबाद ‘बी’ बेंच, हैदराबाद IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ B ‘ Bench, Hyderabad श्री रवीश सूद, माननीय न्याययक सदस्य एवं श्री मिुसूदन सावडिया, माननीय लेखा सदस्य SHRI RAVISH SOOD, HON’BLE JUDICIAL MEMBER AND SHRI MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER आयकरअपीलसं./I.T.A.No.1233/Hyd/2024 (निर्धारण वर्ा/ Assessment Year:2017-18) Sujatha Kancharla, R/o. Ameerpet, Hyderabad. PAN : AHEPK5314J The Deputy Commissioner of Income Tax, Circle 6(1), Hyderabad. (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) करदाता का प्रतततितित्व/ Assessee Represented by : Shri Pawan Kumar Charapani, CA and Shri Santi Pavan Kumar, Advocate. राजस्व का प्रतततितित्व/ Department Represented by : Dr.Sachin Kumar, Sr.DR सुिवाई समाप्त होिे की ततति/ Date of Conclusion of Hearing : 15.04.2025 घोर्णध की तधरीख/Date of Pronouncement : 29.04.2025 O R D E R प्रनत रवीश सूद, जे.एम./PER RAVISH SOOD, J.M. The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income-Tax (Appeals), 2 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 National Faceless Appeal Center (NFAC), Delhi, dated 18.11.2024, which in turn arises from the order passed by the Assessing Officer (for short “A.O.”) under Section 143(3) of the Income Tax Act, 1961 (for short “the Act”) dated 29.12.2019 for A.Y. 2017-18. The assessee has assailed the impugned order on the following grounds of appeal before us: “1. The impugned order of the learned Authorities below in so far as it is against the Appellant is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant's case. 2. The Appellant denies herself liable to be assessed on a total income of Rs. 12,66,88,152/-, as against the returned income of Rs. 11,35,81,251/-, under the facts and circumstances of the case. 3. Whether the learned Authorities below are justified in making of addition of an amount being Rs. 76,50,000/-as unexplained money under section 69A of the Act, under the facts and circumstance of case. 4. Whether the learned Authorities below are justified in disallowing the expenditure amounting being Rs. 17,90,629/-, on adhoc basis at 10%, under the facts and circumstances of the case. 5. Whether the learned Authorities below are not justified in disallowing sundry creditors of an amount being of Rs.38,29,272/-, at 10%, under the facts and circumstances of the case. 6. The Appellant denies herself liable to be charged to interest under section 234B of the Income-Tax Act, 1961, under the facts and circumstances of the case.” 2. Succinctly stated, the assessee had filed her return of income for A.Y. 2017-18 on 17-08-2017, declaring an income of Rs. 11,34,16,250/-. Subsequently, the case of the assessee was 3 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 selected for scrutiny assessment under Computer Aided Scrutiny Selection (CASS) for complete scrutiny under Section 143(2) of the Act. 3. During the course of assessment proceedings, the A.O. observed that the assessee had, during the demonetization period, made cash deposits aggregating to Rs.96 lacs in her bank account No.064225600001820 maintained with HDFC Bank, Branch: Sanjeev Reddy Nagar. On being queried, the assessee claimed that the subject cash deposits were sourced from the cash withdrawals that were made by her from the very same bank account. However, the A.O. did not find favor with the explanation of the assessee. It was observed by him that a perusal of the cash holding pattern of the assessee for the last few years and the nature of her business did not support her explanation. The A.O. observed that the assessee unlike the cash balance available with her as on 01-04- 2014 of Rs.14,754/-; as on 31-03-2015 of Rs.1,66,700/-; and as on 31-03-2016 of Rs.23,747/- had claimed to have a cash balance of Rs.1,23,26,465/- on the midnight of 08-11-2016. The A.O. referring to the distorted cash holding pattern of the assessee, held 4 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 a conviction that the assessee had come up with a concocted story to explain the source of the cash deposits made in her bank account during the demonetization period. 4. Elaborating further on his observation, the A.O. had taken note of the fact that the cash balance of Rs.1.23 crores (approx.) in comparison to the meager balance of Rs. 23,747/- on 31.03.2016, revealed that the assessee had claimed to have a cash holding that was 519 times of what was usually declared by her. Apart from that, the A.O. observed that as the assessee was a wholesaler of medicines and medical equipment wherein both the purchases and sales were carried out exclusively through the banking channel, therefore, it was incomprehensible that she would have a cash balance of Rs.1.23 crore (supra) as on 08.11.2016. Also, the A.O. was of the view that even if it was to be assumed that all the expenses other than the purchases were incurred by the assessee in cash, then considering the fact that she had during the subject year incurred a total expenditure of Rs.2.34 crores (approx.) an amount of Rs.19.5 lacs of cash in hand would have been required by her to incur the said expenses at the 5 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 end of every month. The A.O. based on his aforesaid deliberations accepted the assessee’s explanation regarding the source of cash deposits only to the extent of Rs. 19.50 lacs (supra) and held the balance amount of Rs.76.50 lacs [Rs.96 lacs (–) Rs.19.50 lacs] as having been sourced out of her unexplained money u/s 69A of the Act. 5. Also, the A.O. while framing the assessment called upon the assessee to provide the ledger extracts of the expenditure that were claimed to have been incurred by her aggregating to Rs.1,79,26,292/- viz., (i) Employees cost: Rs.1,33,33,281/-; (ii) Business promotion expenses: Rs.11,77,811/-; and (iii) Travelling expenses: Rs.34,15,200/-. Ostensibly, as the assessee failed to furnish the requisite details, therefore, the A.O. called upon her to explain that as to why 10% of the said expenditure may not be disallowed. However, as the assessee failed to come forth with any explanation, therefore, the A.O. worked out a disallowance of Rs.17,92,629/- (10% of Rs.1,79,26,292/-.) 6 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 6. Further, the A.O. while framing the assessment called upon the assessee to furnish the details of the “Sundry creditors” aggregating to Rs.3,82,92,725/- i.e. names, addresses, PAN and their ledger confirmations. As the assessee failed to provide the confirmations of the aforementioned creditors, therefore, the A.O. disallowed 10% of the outstanding liabilities with an observation that purchases to the said extent were being disallowed by him. Accordingly, the A.O. based on his aforesaid deliberations worked out a disallowance of Rs.38,29,272/- in the hands of the assessee. 7. The A.O. based on the aforesaid observations, vide his order passed u/s 143(3), dated 29.12.2019 determined the income of the assessee at Rs.12,68,53,152/-. 8. Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without any success on either of the aforementioned issues. 9. The assessee, being aggrieved with the order of CIT(A), has carried the matter in appeal before us. 7 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 10. Shri Pawan Chakrapani, C.A., the learned Authorized Representative (for short the “Ld. AR”) for the assessee, at the threshold of hearing of the appeal, submitted that both the lower authorities had based on perverse and pre-mature observations drawn adverse inferences and made the impugned additions in the hands of the assessee. Elaborating on his contention, ld.AR submitted that the cash deposits of Rs.96 lacs that were made by the assessee during the demonetization period in her bank account maintained with HDFC Bank Limited, Branch: Sanjeev Reddy Nagar, Hyderabad in three tranches viz., (i) on 11.11.2016: Rs.35 lacs; (ii) on 12.11.2016: Rs.40 lacs; and (iii) on 15.11.2016: Rs.21 lacs, were sourced out of the cash withdrawals made by her during the pre-demonetization period i.e 02.04.2016 to 02.11.2016 from her bank accounts, viz. (i). bank account no. 06422560001820 with HDFC Bank Limited, Branch: Sanjeev Reddy Nagar, Hyderabad; and (ii). bank account no. 56146000328 with State Bank of India, Branch: Nampally. The ld. AR to buttress his aforesaid claim had taken us through a “Chart” which revealed the factual position of cash deposits/withdrawals made in the 8 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 aforementioned bank accounts, Page 106 of the APB. Carrying his contention further, the ld.AR had drawn our attention to the cash book (relevant extract) which revealed the aforesaid bank transactions i.e. cash withdrawals/deposits made by the assessee during the subject year, Pages 107 and 108 of APB. Also, the ld.AR had taken us through the cash book of the assessee for the subject year that was filed before the CIT(A), Pages 109 to 285 of the APB. Further, the ld.AR had taken us through the “Schedule of cash and bank balances” forming part of the assessee’s “balance sheet” on 31.03.2017, which revealed that the aforementioned bank accounts were duly accounted for in the books of accounts of the assessee for the subject year, Page 6 of the APB. The ld.AR submitted that now when the subject cash deposits of Rs.96 lacs (supra) were beyond doubt sourced from the accumulated cash in hand available with the assessee on 08.11.2016, which in turn was sourced out of the cash withdrawals made from her aforesaid bank accounts, therefore, there was no justification for the A.O. to have held any part of the same as having been sourced out of the unexplained money of the assessee. 9 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 11. Apropos the disallowance of the assessee’s claim of expenses aggregating to Rs.1,79,26,292/- viz., (i) Employees cost: Rs.1,33,33,281/-;(ii). Business promotion expenses: Rs.11,77,811/-; and (iii) Travelling expenses: Rs.34,15,200/-, the ld.AR submitted that the A.O. had wrongly observed that the assessee despite having been called upon to provide the ledger extracts of the above said expenses had failed to submit the same. Rebutting the aforesaid observation of the A.O., ld.AR submitted that the assessee had vide her reply that was uploaded with the A.O. on 11.10.2019 placed on his record all the requisite details of the aforesaid expenses that were called for by him vide his notice dated 23.09.2019. The ld. AR to buttress his aforesaid claim had drawn our attention to the reply that was filed/uploaded by the assessee with the A.O. on 11.10.2019 which revealed that the requisite details regarding the aforesaid expenditure were placed on the record of the A.O., Page 360 of APB. The ld.AR submitted that it was incorrect on the part of the A.O. to observe that the assessee had failed to submit the details that were called for by him regarding the aforesaid expenses. Carrying his contention 10 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 further, the ld.AR submitted that though the A.O. had called for the ledger extracts of the aforesaid expenses which were duly filed/uploaded by the assessee with the A.O., but the CIT(A) had sustained the addition on the ground that the supporting bills and vouchers were not filed before the A.O. The ld.AR submitted that as the A.O. had at no stage of the assessment proceedings directed the assessee to produce the bills and vouchers supporting the aforesaid expenses, therefore, the CIT(A) had most arbitrarily based on misconceived observations approved the disallowance of the assessee’s claim for deduction of the subject expenditure. 12. Apropos the disallowance of the 10% of the sundry creditors of Rs.3,82,92,725/-, the ld.AR submitted that the same was comprised of two parts viz., (i). Sundry creditors: Rs.3,58,79,288/- and ;(ii). Other liabilities: Rs.24,13,437/-, Page 7 of APB. The ld. A.R submitted that in so far as the “Other liabilities” of Rs. 24,13,437/- are concerned the same pertains to the amounts which were on 31/03/2017 payable by the assessee to Government Authorities/expenses viz., VAT payable, CST payable, TDS payable, Audit Fee payable, etc. The ld.AR submitted that 11 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 there was no justification for the A.O. to have disallowed any part of the aforesaid outstanding liabilities. Elaborating further on his contention, the ld.AR submitted that the sundry creditors of Rs.3,58,79,288/- comprised of only two fresh creditors viz., (i) M/s. DHR Holding India Pvt. Limited: Rs.3,56,61,945/-; and (ii) Sundry creditors (less than Rs.10,000/-): Rs.12,682/-. The ld.AR submitted that all the other creditors were brought forward “Opening balances” of the preceding year. The ld.AR submitted that confirmation of M/s. DHR Holding India Pvt. Limited (supra) though could not be obtained and filed by the assessee in the course of the assessment proceedings but the needful was done by her during the course of the proceedings before the CIT(A) and was filed/uploaded with him on 01.09.2022, Page 96-97 of APB. The ld.AR submitted that now when the assessee had placed on record the confirmation of afore mentioned creditor viz., M/s. DHR Holding India Pvt. Limited (supra), therefore, there was no justification for the CIT(A) to have brushed aside the same and sustained the 10% disallowance of the said liability. Alternatively, the ld.AR submitted that the very basis for disallowance by the A.O 12 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 of 10% of the aforementioned liabilities was beyond comprehension. 13. Per contra, the learned Departmental Representative (for short (ld. DR”) relied on the orders of the lower authorities. It was submitted by him that in the totality of the facts and circumstances of the case, as there was no justification for the assessee to have made substantial cash withdrawal aggregating to Rs. 1,23,26,465/- (supra) and without any purpose retain the same with her as of 08-11-2016, i.e., during the pre- demonetization period, therefore, the lower authorities had rightly observed that the cash deposits made in her bank accounts during the demonetization period were sourced out of her unexplained money under Section 69A of the Act. The Ld. DR to buttress his aforesaid contention, had drawn support from the observations recorded by the CIT(A) at Pages 27-29 of the his order. Apart from that, the Ld. D.R. vehemently submitted that as the assessee had, despite specific direction by the A.O., failed to produce her cash book in the course of the assessment proceedings, therefore, the A.O. had rightly observed that the subject cash deposits of Rs. 13 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 76.50 lacs (out of Rs.96 lacs) were sourced out of the assessee's unexplained money under Section 69A of the Act. The Ld. D.R further submitted that, as there was no evidence that the assessee had in the course of the assessment proceedings uploaded/filed the requisite details qua the subject expenditure, viz., (i) Employees cost: Rs.1,33,33,281/-; (ii) Business promotion expenses: Rs.11,77,811/-; and (iii) Travelling expenses: Rs.34,15,200/-, therefore, 10% of the same had rightly and in all fairness been disallowed by the A.O. Also, the Ld. D.R. submitted that as the assessee had failed to furnish the requisite details to support the genuineness and veracity of the creditors/ outstanding liabilities, therefore, both the lower authorities have rightly made/sustained the disallowance of the same to the extent of 10%. The Ld. D.R. submitted that as the present appeal filed by the assessee is devoid and bereft of any substance, therefore, the same is liable to be dismissed. 14. We have heard the learned Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record as well as considered the judicial 14 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 pronouncements that have been pressed into service by the ld. A.R. to drive home his contentions. 15. We shall first deal with the addition of Rs.76.50 lacs (supra) made by the A.O. under Section 68 of the Act. As observed hereinabove, the A.O. while making the assessment observed that the assessee during the demonetization period had made cash deposits of Rs. 96 lacs in her bank account no. 06422560001820 with HDFC Bank Limited, Branch: Sanjeev Reddy Nagar, Hyderabad. On being queried, the assessee had claimed that the cash deposits made in her bank account during the demonetization period were sourced from the cash balance of Rs.1.23 crore (supra) that was available with her on the midnight of 08.11.2016 i.e., during the pre-demonetization period. The assessee had claimed that the cash balance of Rs.1.23 crore (supra) was in turn sourced out of the cash withdrawals that were made by her during the pre-demonetization period i.e. 02.04.2016 to 02.11.2016 from her bank accounts, viz. (i). bank account No.064225600001820 maintained with HDFC Bank, Branch: Sanjeev Reddy Nagar; and (ii). bank account No. 56146000328 15 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 maintained with State Bank of India, Branch: Nampally. Apart from that, it was brought to the notice of the A.O. that out of the cash balance of Rs. 1.23 crores (supra) an amount aggregating to Rs. 81 lac was withdrawn by her in the immediately preceding period i.e. during the months of October, 2016 & November, 2016 from her bank account no. 06422560001820 with HDFC Bank Limited, Branch: Sanjeev Reddy Nagar, Hyderabad; and an amount of Rs. 21 lacs was withdrawn in the month of October, 2016 from her bank account no. 56146000328 with State Bank of India, Branch: Nampally. Accordingly, the assessee had tried to establish a clear nexus between the cash deposits of Rs. 96 lacs (supra) made in her bank account during the demonetization period i.e on 11/12 & 15.11.2016, and the availability of sufficient amount with her out of the cash withdrawals aggregating to Rs. 1.02 crores [Rs. 81 lac + Rs. 21 lac] made during the pre- demonetization period from her aforementioned bank accounts in October, 2016 & November, 2016. 16. Also, it transpires that the assessee to dispel all doubts as regards the reason for making substantial cash withdrawals from 16 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 her bank accounts, had come forth with an explanation for doing so. It was stated by her that she had carried out the aforesaid cash withdrawals because she was anticipating an order for supplying HbA1c analyzer and reagents from the Tamil Nadu Medical Service Corporation Limited, i.e., a Government of Tamil Nadu undertaking. Elaborating further on her contention, it was stated by the assessee that the rate contract for the supply of medical equipment/instruments by the Tamil Nadu Medical Service Corporation Limited was allotted to her vide letter dated 3/11/2014. It was further stated by the assessee that as anticipated she had received a contract to supply HbA1c analyzer and reagents to 112 Government hospitals in Tamil Nadu, vide letter dated 02/11/2016. The assessee as per the contract was to install testing kits and supply reagents for blood tests by Tamil Nadu Government, and the equipment had to be installed across the 112 Government hospitals in the State of Tamil Nadu and were to be tested by the assessee’s staff only. Carrying her contention further, the assessee had stated that in anticipation of the contract of installation of equipment and kits in 112 Government hospitals 17 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 in the month of November, 2016 she had withdrawn the amounts in cash as the same was required for incurring towards traveling, stay, other local purchases of consumables and other on-site expenses for installing testing kits in the 112 hospitals in the State of Tamil Nadu. The assessee had further stated that as the Government hospitals (i.e) 112 in number were located in various places in Tamil Nadu, therefore, the assessee being well aware of the fact that she would not get credit for services taken or goods purchased in the aforesaid area as she was new to the said place, therefore, she had made the cash withdrawals from the aforementioned bank accounts to facilitate incurring of the expenditure towards traveling and stay of the staff members, other local purchases of consumables and other on-site expenses. 17. However, the aforesaid explanation of the assessee did not find favor with the A.O. The A.O., observed that both the purchases and sales were exclusively carried out by the assessee through banking channels. Also, the A.O taking note of the fact that the assessee had during the subject year incurred other expenses aggregating to Rs. 2.34 crore (approx.), therefore, 18 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 observed that on average, she would have incurred an expenditure of Rs.19.50 lacs every month. It was observed by him that even if it was to be presumed that the assessee would have incurred the aforesaid other expenditure in cash, then, to meet out the same she would have remained in possession of cash in hand of only Rs.19.50 lacs every month. Accordingly, the A.O. based on his aforesaid deliberations accepted the assessee’s claim regarding the availability of cash in hand to source the cash deposits only to the extent of Rs. 19.50 lacs on 08.11.2016 i.e. during the pre- demonetization period. 18. We have thoughtfully considered the aforesaid issue in the backdrop of the observations of the lower authorities, and the contentions advanced by the learned Authorized Representatives of both the parties. Although the assessee on being queried regarding the source of cash deposits of Rs.96 lacs (supra) made in her bank accounts during the demonetization period, had claimed that the same was sourced out of the cash balance that was available with her on 08.11.2016 i.e during the pre- demonetization period, but we find that her said claim without any 19 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 cogent reason was rejected by the A.O. Admittedly, it is a matter of fact borne from the record that the assessee during the pre- demonetization period i.e., 02.04.2016 to 02.11.2016 had made cash withdrawals of Rs.1.23 crore (supra). Although, the assessee had claimed that the cash deposits of Rs.96 lacs (supra) made in her bank account during the demonetization period were sourced out of the aforesaid cash balance that was available with her on 08.11.2016 i.e during the pre-demonetization period, which in turn was sourced from the cash withdrawals made from her bank accounts over the period 02.04.2016 to 02.11.2016, but we find that the A.O. without placing on record any material which would irrefutably dislodge and disprove the veracity of the said claim of the assessee had rejected the same. Rather, it transpires that though the CIT(A) had categorically observed that out of the cash withdrawals of Rs. 1.23 crores (supra) an amount aggregating to Rs. 81 lac was withdrawn by the assessee during the months of October, 2016 & November, 2016 from her bank account no. 06422560001820 with HDFC Bank Limited, Branch: Sanjeev Reddy Nagar, Hyderabad; and an amount of Rs. 21 lacs was 20 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 withdrawn by her in the month of October, 2016 from her bank account no. 56146000328 with State Bank of India, Branch: Nampally and thus, there was a proximity between the cash deposits of Rs. 96 lacs (supra) made in three tranches in her bank account during the demonetization period i.e 11/12 & 15.11.2016, and the availability of sufficient amount with her out of the aforesaid cash withdrawals made by her during October, 2016 & November, 2016, but he had without giving any cogent reason brushed aside the said material aspect which fortified the explanation of the assessee regarding the availability of sufficient cash with her to source the subject cash deposits in her bank account during the demonetization period. 19. Apart from that, we find that though the CIT(A) had observed that there was no purpose or justification for the assessee to have carried out substantial cash withdrawals of Rs. 1.23 crores (supra) during the pre-demonetization period from her bank accounts, but while arriving at such adverse inferences he had most casually brushed aside the explanation of the assessee regarding the reason as to why the said amounts were so withdrawn by her bank 21 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 accounts. As is discernible from the record, the assessee had claimed that she had in the month of November, 2016 in anticipation of a contract to supply HbA1c analyzer and reagents, equipment and kits in 112 Government hospitals in Tamil Nadu, had made cash withdrawals from her bank accounts as the said amount would be required for incurring expenses towards traveling, stay, other local purchases of consumables and other on-site expenses for installing testing kits in various places located in Tamil Nadu, being well aware of the fact that she would not get credit for services taken or goods purchased in the aforesaid area which was a new place. 20. Apart from that, we find that the “books of accounts” of the assessee which supported her aforesaid explanation that the subject cash deposits made during the demonetization period in her bank account were sourced from the cash withdrawals made from her bank accounts during the pre-demonetization period, had not been rejected. Also, it has not been the case of the A.O. that he was able to prove that the cash amounting to Rs.1.23 crore (supra) that the assessee had claimed to be available with her on 22 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 08.11.2016, which in turn was sourced from the cash withdrawals made from her bank accounts during the pre-demonetization period, was either invested or utilized somewhere else, and thus, was not available with the assessee on the relevant dates of deposits made during the demonetization period. Rather, the primary aspect that had weighed in the A.O’s mind for rejecting the explanation of the assessee regarding the source of the cash deposits made in her bank account during the demonetization period was that her claim of having a substantial cash balance of Rs.1.23 crore (supra) on 08.11.2016, as per him, was not as per her cash holding pattern for the last few years and also the nature of her business. We are of the firm conviction that the aforesaid reason given by the A.O. for disbelieving the assessee’s explanation regarding the availability of the substantial cash balance of Rs.1.23 crore (supra) with her on 08.11.2016, would though suffice to raise certain doubts as regards the veracity of her claim, but the same on the said standalone basis in absence of any supporting material cannot justify the rejection of the same. Apart from that, we are unable to fathom the very basis adopted by the 23 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 A.O. for concluding that the assessee could only be held to have possessed a cash balance of Rs. 19.50 lacs (supra) on 08.11.2016. We are of the firm conviction that not only the “books of accounts” of the assessee which fortified her aforesaid claim regarding the availability of sufficient cash balance to source the cash deposits of Rs. 96 lacs (supra) made in her bank accounts during the demonetization period had not been rejected by the lower authorities, but even otherwise, no material had been placed on record which would irrefutably disprove the authenticity of the claim of the assessee that the subject cash deposits made in her bank accounts during the demonetization period were sourced out of the cash balance of Rs. 1.23 crore (supra) available with her on the midnight of 08.11.2016, which in turn was sourced from the cash withdrawals made by her during the pre-demonetization period i.e 02.04.2016 to 02.11.2016. As observed hereinabove, the A.O. had failed to place on record any material that would prove that the cash withdrawals to the tune of Rs. 1.23 crores (supra) made by the assessee from her bank accounts during the pre- demonetization period, had either been utilized or invested by her 24 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 somewhere else and thus, was not available to source the cash deposits made in her bank account during the demonetization period. Rather, the only reason given by the A.O. for rejecting the assessee’s explanation was that her claim of having cash in hand of Rs. 1.23 crores (supra) on 08.11.2016, was as per him not as per her past cash-holding pattern and nature of business. 21. We thus, in terms of our aforesaid observations are of a firm conviction that as the A.O. had failed to lead any evidence that would reveal beyond doubt that the cash balance of Rs.1.23 crore (supra), which in turn was sourced out of the cash withdrawals made by her in tranches during the subject year i.e, from 02.04.2016 to 02.11.2016 was already utilized or invested by her, therefore, there could have been no justification for him to have rejected her explanation that the subject cash deposits made in three tranches in her bank account during the demonetization period were sourced from the accumulated cash balance available with her. 25 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 22. Apropos the observation of the CIT(A) that as there was a conspicuous absence of the narrations in the debit side of the assessee’s “cash book” mentioning the purpose for which cash withdrawals were made from the bank accounts during the pre- demonetization period, therefore, it proves that the amount so withdrawn from the bank accounts were not utilized for business purposes, we are unable to persuade ourselves to concur with the same. We are unable to comprehend that as to how the mere absence of narrations mentioning the purpose for which cash was withdrawn from the bank accounts in the “cash book” can justifiably form a basis for rejecting the claim of the assessee that the said amount was thereafter utilized for making cash deposits in her bank account during the demonetization period. As the department had not placed on record any material that would conclusively dislodge and disprove the claim of the assessee that the cash deposits of Rs. 96 lacs (supra) made in her bank account during the demonetization period was sourced from the cash balance of Rs. 1.23 crore (supra) that was available with her on 08.11.2016 i.e during the pre-demonetization period, therefore, we 26 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 do not find any substance in the aforesaid observation of the CIT(A). Also, the CIT(A)’s observation that the assessee had during the pre-demonetization period made the subject cash withdrawals in Tamil Nadu, which, thereafter were claimed by her to be deposited during the demonetization period in her bank account at Hyderabad is not only based on facts which are not discernible from the record but is rather based on his misconceived observations. The assessee had though stated that the cash withdrawals were made from her bank accounts as the same was required for incurring expenses towards traveling, stay, other local purchases of consumables and other on-site expenses that would be involved in execution of the contract for installation of equipment and kits in 112 hospitals in the State of Tamil Nadu in November, 2016, but had nowhere stated that the cash was withdrawn by her in Tamil Nadu. The Ld. D.R on being confronted by the aforesaid infirmity in the observation of the CIT(A), failed to rebut the same. We thus, vacate the adverse inference drawn by the CIT(A) based on the aforesaid misconceive facts. Accordingly, in terms of our observations we vacate the addition of Rs.76.50 27 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 lacs (supra) that had been sustained by the CIT(A). The Ground of appeal No.3 is allowed in terms of our aforesaid observations. 23. Apropos the disallowance of the assessee’s claim for deduction of certain expenditure aggregating to Rs.1,79,26,292/- viz., (i) Employees cost: Rs.1,33,33,281/-; (ii) Business promotion expenses: Rs.11,77,811/-; and (iii) Travelling expenses: Rs.34,15,200/-, we find that the same was primarily based for the reason that the assessee had failed to submit any material to substantiate her said claim of deduction. As observed by us hereinabove, the ld.AR had rebutted the aforesaid observation of the A.O., on the ground, that she had in the course of the assessment proceedings, vide her reply dated 11.10.2019 furnished the requisite details supporting her aforesaid claim of expenditure, Page 360 of APB. The ld.AR based on his aforesaid contention had stated that it was incorrect on the part of the A.O. to observe that the assessee had failed to submit the details as were called for by him regarding the aforesaid expenditure. Apart from that, we find that the ld.AR has assailed the order of CIT(A), wherein the addition/disallowance made by the A.O. was approved 28 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 by him, for the reason, that the assessee had failed to place on record certain bills and vouchers supporting her aforesaid claim for deduction of expenses. It is claimed before us that as the A.O. had at no stage of the assessment proceedings directed the assessee to produce bills and vouchers supporting her claim for deduction of the aforesaid expenses, and had only called for the ledger extracts, therefore, the CIT(A) based on misconceived observations had approved the disallowance of the assessee’s claim for deduction of the said respective expenses. 24. We have thoughtfully considered the contentions advanced by the learned Authorized Representatives of both parties on the aforesaid issue i.e. 10% of disallowance of the subject expenditure. Ostensibly, a perusal of the reply filed/uploaded by the assessee in the course of the assessment proceedings on 11.10.2019, prima facie, reveals that she had filed certain documents supporting her aforesaid claim for deduction of expenses viz., traveling expenses, employees cost, business promotion expenses, etc., Page 360 of APB. At the same time, as the details of the expenses that were filed by the assessee along with her reply dated 11.10.2019 (supra) 29 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 are not discernible from the record available before us, therefore, we deem it fit to restore the matter to the file of the A.O. with a direction to re-adjudicate the aforesaid issue in the backdrop of the reply/details that were filed by the assessee along with her reply that was uploaded in the course of the assessment proceedings on 11.10.2019. Also, we are of the view that as it is the assessee’s claim before us that the A.O. had in the course of the assessment proceedings never called upon her to produce the bills and vouchers for the aforesaid expenses, therefore, the CIT(A) had based on his misconceived observations approved the disallowance of expenditure made by the A.O., therefore, the A.O. is directed to look into the said aspect in the course of the set- aside proceedings. As it has been the assessee’s claim before the CIT(A) as well as before us that the subject expenses were incurred wholly and exclusively in the course of her business, therefore, the A.O. is directed to verify the same in the backdrop of the mandate of Section 37(1) of the Act. Needless to say, the A.O. shall in the course of the set-aside proceedings while considering the assessee’s claim for deduction of the subject expenditure afford a 30 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 reasonable opportunity of being heard to the assessee. The Ground of appeal No.4 is allowed for statistical purposes in terms of our aforesaid observations. 25. Apropos the disallowance of 10% of sundry creditors/outstanding liabilities of Rs.38,29,272/-, we find that the same comprises of two parts viz., (i) Sundry creditors: Rs.3,58,79,288/-; and (ii) Other liabilities: Rs.24,13,437/-, Page 7 of APB. 26. Ostensibly, in so far the “Other liabilities” of Rs.24,13,437/- are concerned, we are of the view that as the same pertains to amounts which were payable by the assessee to the Government Authorities/Expenses viz. VAT payable, CST payable, TDS payable, Audit Fee payable etc., therefore, there was no justification for the A.O to have disallowed on an ad hoc basis i.e. 10% of the abovementioned amount of outstanding liabilities. We, thus, not being able to persuade ourselves to concur with the ad hoc disallowance of the aforementioned “Other liabilities”, vacate the same. 31 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 27. As regards the disallowance of 10% of the sundry creditors Rs.3,58,79,288/-, it is the Ld. AR’s claim that the same comprises of only two fresh creditors viz., (i) M/s. DHR Holdings India Pvt. Ltd: Rs.3,56,61,945/-; and (ii) Sundry creditors (less than Rs.10,000/-): Rs.12,682/-, while for all the other creditors were the brought forward opening balances of the preceding year. As observed by us hereinabove, the assessee though on the course of the assessment proceedings could not obtain a copy of the confirmation of the aforesaid creditor viz. M/s. DHR Holdings India Pvt. Ltd (supra), but had thereafter procured the same in the course of the proceedings before the CIT(A) and uploaded/filed it on 01.09.2022 i.e during the appellate proceedings with the first appellate authority, Pages 96 and 97 of APB. However, we find that there is no whisper in the order of the CIT(A) about the aforesaid confirmation of M/s. DHR Holdings India Pvt. Ltd (supra) that was filed/uploaded by the assessee in the course of the proceedings before him. We are of the view that as the confirmation of the aforesaid creditor viz., M/s. DHR Holdings India Pvt. Ltd (supra) has a strong bearing on verifying the authenticity of the 32 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 said creditor, therefore, the CIT(A) ought to have taken cognizance of the same. Be that as it may, we are of the view that the matter in all fairness requires to be restored to the file of A.O. with a direction to re-adjudicate the issue after considering the confirmation of the aforementioned creditor viz., M/s. DHR Holdings India Pvt. Ltd (supra). Needless to say, the A.O. shall in the course of the set-aside proceedings afford a reasonable opportunity of being heard to the assessee and shall remain at liberty to carry out any further verification, as he may deem fit. 28. Apropos the disallowance of 10% of sundry creditors (less than Rs.10,000/-) of Rs.12,682/-, we would mince no words in observing that we are unable to fathom that as to on what basis an ad hoc disallowance of the aforesaid sundry creditors has been carried out by the A.O. As there is no basis for the aforesaid disallowance/addition, therefore, we are constrained to vacate the same. 29. Apropos the part disallowance i.e 10% of the opening balances of the sundry creditors that have been brought forward from the 33 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 preceding year, we are of the view that no disallowance of any part of the said brought forward balances could have been made by the A.O during the year under consideration. Accordingly, the disallowance to the said extent is vacated. The Ground of appeal No.5 is partly allowed/allowed for statistical purposes in terms of our aforesaid observations. 30. Grounds of appeal Nos.1, 2, 6, 7 and 8 being general are dismissed as not pressed. 31. Resultantly, the appeal filed by the assessee is partly allowed/allowed for statistical purposes in terms of our aforesaid observations. Order pronounced in the Open Court on 29th April, 2025. Sd/- (श्री मिुसूदन सावडिया) (MADHUSUDAN SAWDIA) लेखा सदस्य/ACCOUNTANT MEMBER Sd/- (श्री रवीश सूद) (RAVISH SOOD) न्यायिक सदस्य/JUDICIAL MEMBER Sd/- Hyderabad, dated 29.04.2025. #*TYNM/sps 34 Sujatha Kancharla, Hyderabad. ITA No.1233/Hyd/2024 आदेशकी प्रनतनलनप अग्रेनर्त/ Copy of the order forwarded to:- 1. निर्धाररती/The Assessee : Sujatha Kancharla, H.No.6-3-855/10/A/1A, Sampathji Apartment, Opp. Green Park Hotel Lane, Ameerpet, Hyderabad – 500016, Telangana. 2. रधजस्व/ The Revenue : The Deputy Commissioner of Income Tax, Circle 6(1), Hyderabad. 3. The Principal Commissioner of Income Tax, Hyderabad. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file आदेशधिुसधर / BY ORDER Sr. Private Secretary ITAT, Hyderabad "