Sections 68 and 69A additions deleted where assessee provided farmer confirmation letters and cash book entries for advance recoveries

ITAT Chennai held that additions under sections 68 and 69A were unjustified where assessee claimed cash receipts from recovery of farmer advances. AO made additions based on non-appearance of some farmers during verification. However, assessee discharged primary onus by providing requisite details and confirmation letters. AO conducted no independent enquiries to controvert assessee's evidence. In sample verification of 48 farmers, 21 provided confirmations matching assessee's records. Non-appearance of remaining farmers insufficient for adverse inference. Cash deposits were properly supported by cash book entries and used for legitimate purposes including bank loan settlement. AO's approach of accepting partial explanation while rejecting remainder was artificial and unjustified. Additions deleted in assessee's favor.

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Issues Involved:
1. Erroneous order of the CIT(A) on facts and in law.
2. Deletion of addition towards unexplained credits under Section 68.
3. Failure to appreciate the lack of evidence for cash collection from farmers.
4. Delayed filing of ITRs and annual returns as an afterthought.

Summary:

Issue 1: Erroneous Order of CIT(A)
The sole substantive issue for consideration is the addition made by the Assessing Officer (AO) under Section 68 for Rs. 1922.37 Lacs. The Revenue argues that the CIT(A)'s order is erroneous on facts and in law.

Issue 2: Deletion of Addition Towards Unexplained Credits Under Section 68
The AO made deposits of Rs. 3978.23 Lacs in demonetized specified bank notes during the demonetization period. The assessee claimed the cash was sourced from farmers' advances granted earlier. The AO, however, found discrepancies and concluded that the genuineness of the transaction was not explained by the assessee, leading to the addition of Rs. 2502.32 Lacs under Section 68.

Issue 3: Failure to Appreciate Lack of Evidence for Cash Collection from Farmers
The AO noted that the assessee did not provide PAN, address, land holding pattern, or proof of possession of land for the farmers. Statements from directors indicated no material evidence to prove the cash received was from trade receivables from farmers. The AO thus considered the transaction as unexplained.

Issue 4: Delayed Filing of ITRs and Annual Returns as an Afterthought
The AO observed that the assessee filed ITRs and annual returns only after demonetization and an enquiry by the Investigation Wing, suggesting it was an afterthought to accommodate unexplained cash.

Appellate Proceedings:
The CIT(A) noted that advancing money to farmers was a regular feature in the assessee's business. The total outstanding balance from farmers as on 31.03.2014 amounted to Rs. 4299.63 Lacs. The assessee received back advances during FYs 2014-15 to 2016-17, which were reflected in the cash book. The CIT(A) found the addition under Section 68 for AY 2016-17 and under Section 69A for AY 2017-18 unjustified. The CIT(A) emphasized that the recovery of farmers' advances should be examined in AY 2017-18, not in earlier years.

Findings and Adjudication:
The Tribunal concurred with the CIT(A), noting that the assessee's advances to farmers were reflected in the financial statements and the cash received was used to settle bank loans. The AO did not make independent enquiries to support the addition under Section 68 for AY 2016-17. The Tribunal also found the addition for AY 2016-17 to be a double addition, as the same amount was considered again in AY 2017-18. The Tribunal dismissed the appeals, upholding the CIT(A)'s order.

Conclusion:
Both appeals were dismissed, and the order pronounced on 30th January 2024.

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