Expenditure Incurred for Trust Out of Its Collected Funds Cannot Be Added as Unexplained Investment Under Section 69

ORDER

1. These four appeals have been filed by Sh. Mahesh Chandra Sharma and Smt. Usha Sharma, who are husband and wife, against the separate orders for the assessment years 2018-19 and 2019-20 of the ld. CIT(A)-4, Kanpur who has dismissed the appeals of these assessees that were filed against assessment orders passed by the Assessing Officer under section 143(3) and 153A for the assessment years 2019-20 (in the case of Smt. Usha Sharma) and under section 143(3) in the cases of both assessees for the assessment year 2018-19. The ld. CIT(A) has also partly allowed appeals of Sh. Mahesh Chandra Sharma for the assessment year 2019-20, with which the assessee is aggrieved. Hence, these four appeals have been filed before us. As all these appeals revolve around a common issue, the appeals are taken up together for the sake of convenience and disposed of by way of common order. The grounds of appeal are as under:-

“1 . That on the facts and circumstances of the case and in law, the order dated 14-03-2024 passed by the Learned Commissioner of Income-tax Appeals (“Ld. CIT(A)”] is erroneous and bad in law.

2. That the Ld. CIT(A) has erred in confirming the addition of Rs. 4,34,831/-made by the Assessing Officer (“Ld. AO”) on account of unexplained investment u/s 69 of the Act, alleged that the appellant had given cash loan of Rs. 4,34,831/ during the year to Shri Kanchi Lal Shastri Smarak Sansthan and the source of which could not be explained by the appellant.

3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate the documentary evidences and detailed explanations submitted during the course of first appeal proceedings.

4. That the appellant reserve the right to add to, alter or modify the above grounds before or during the hearing before the Hon’ble Tribunal so as to enable the Hon’ble Tribunal to decide on the grounds raised by the appellant as per Law.

5. Any other relief which Hon’ble Tribunal may deem fit in the case.

“1. That the Ld. CIT(A) has erred in confirming the addition of Rs. 3,385,611/-made by the Assessing Officer (“Ld. AO”) on account of unexplained investment u/s 69 of the Act, alleged that the appellant had given cash loan of Rs. 3,385,611/- during the year to Shri Kanchi Lal Shastri Smarak Sansthan and the source of which could not be explained by the appellant.

2. That the Ld. CIT(A) has erred in confirming the addition of Rs. 200,000/-made by the Assessing Officer (“Ld. AO”) on account of unexplained money u/s 69A of the Act.

3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate the documentary evidences and detailed explanations submitted during the course of first appeal proceedings.

4. That the appellant reserve the right to add to, alter or modify the above grounds before or during the hearing before the Hon’ble Tribunal so as to enable the Hon’ble Tribunal to decide on the grounds raised by the appellant as per Law.

5. Any other relief which Hon’ble Tribunal may deem fit in the case.

“1. That on the facts and circumstances of the case and in law, the order dated 14-03-2024 passed by the Learned Commissioner of Income-tax Appeals (“Ld. CIT(A)”] is erroneous and bad in law.

2. That the Ld. CIT(A) has erred in confirming the addition of Rs. 18,84,410/-made by the Assessing Officer (“Ld. AO”) on account of unexplained investment u/s 69 of the Act, alleged that the appellant had given cash loan of Rs. 18,84,410/- during the year to Shri Kanchi Lal Shastri Smarak Sansthan and the source of which could not be explained by the appellant.

3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate the documentary evidences and detailed explanations submitted during the course of first appeal proceedings.

4. That the appellant reserve the right to add to, alter or modify the abov grounds before or during the hearing before the Hon’ble Tribunal so as enable the Hon’ble Tribunal to decide on the grounds raised by the appellant as per Law.

5. Any other relief which Hon’ble Tribunal may deem fit in the case.

“1. That on the facts and circumstances of the case and in law, the order dated 14-03-2024 passed by the Learned Commissioner of Income-tax Appeals (“Ld. CIT(A)”] is erroneous and bad in law.

2. That the Ld. CIT(A) has erred in confirming the addition of Rs. 22,03,480/-made by the Assessing Officer (“Ld. AO”) on account of unexplained investment u/s 69 of the Act, alleged that the appellant had given cash loan of Rs. 22,03,480/- during the year to Shri Kanchi Lal Shastri Smarak Sansthan and the source of which could not be explained by the appellant.

3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate the documentary evidences and detailed explanations submitted during the course of first appeal proceedings.

4. That the appellant reserve the right to add to, alter or modify the above grounds before or during the hearing before the Hon’ble Tribunal so as to enable the Hon’ble Tribunal to decide on the grounds raised by the appellant as per Law.

5. Any other relief which Hon’ble Tribunal may deem fit in the case.”

2. Sh. Akshay Gupta, C.A. ld. AR and Sh. Atesham Ansari, ld. CIT DR agreed that the facts of these cases being similar, the case of Shri Mahesh Chandra Sharma for the assessment year 2018-19 could be taken up as the lead case and the findings recorded in the same could be applied mutatis mutandis to the other assessments on those issues.

3. The facts of the case in assessment year 2018-19 in the case of Shri Mahesh Chandra Sharma, (ITA No. 300/Lkw/2024), are that a search and seizure operation under section 132 of the Income Tax Act, 1961 was carried out on 17-1-2019 in the Dr. M.C. Sharma, S.P.M. Hospital & Trauma Centre Group of cases. Alongwith the search operations, a survey was also conducted at KLS, Nursing College, IIM Road, Muttakipur, Lucknow during which certain hard disks were impounded. KLS, Nursing College was being run by Sh. Kanchi Lal Shastri Smarak Sansthan and Smt. Usha Sharma was the Trustee and Secretary of Sh. Kanchi Lal Shastri Smarak Sansthan. A Tally printout was extracted from these hard disks. From the extracted books, it was observed by the ld. AO that unsecured loans had been given in both in cash and through cheque by the assessee year after year, but these loans were not reflected in the books of Sh. Kanchi Lal Shastri Smarak Sansthan maintained at its registered office in any of those years. In the year under consideration, the AO computed that loans worth Rs. 4,34,831/- had been given by the assessee to Sh. Kanchi Lal Shastri Smarak Sansthan. Accordingly, the assessee was required to explain the source of cash loan and was also required to show cause as to why the above said cash loan should not be treated to be an undisclosed investment of the assessee and added back to his income. In response to the said show-cause notice, the assessee submitted that during the entire financial year of 2017-18, fees of Rs. 2,33,41,450/- was received from the students of KLS Nursing College, Lucknow. Since there was no safe vault in the nursing college and there was no security at night, therefore, the case received from the students was brought from the college to the assessee’s residence on a daily basis and cash was sent back to the nursing college regularly for deposit in the bank or for making payments to vendors / staff. Some of the cash was sent to KLS Nursing College through Shri Sunil Srivastava, Office Assistant, which he had recorded in the tally for some learning or other purposes. The assessee submitted that Shri Sunil Srivastava could be examined in this regard. The learned AO did not find the said reply of the assessee to be acceptable. He held that, on perusal of the printouts of tally data, it was found that two tally accounts were being prepared in the name of Shri Kanchi Lal Shastri Smarak Sansthan and KLS Nursing College and there was no connection between the two. The books purporting to be the books of KLS Nursing College revealed that unsecured loans had been raised from Shri M.C. Sharma and Smt. Usha Sharma in both cash and cheque, year to year. Shri Sunil Srivastava, accountant at KLS Nursing College, had not disowned these books. Scanned copies of his statement recorded during the survey proceedings were pasted in the assessment order. In the said statement, he had said that the books recovered from him had been made by one Shri Anant Kumar, who happened to be his staff member and a tally learner, and the entries had been made for learning purposes and had no relation with the books of accounts kept at the head office of the Trust. Pasting a copy of the statement of Shri Sunil Srivastava, he came to the conclusion that

In view of the same, the Assessing Officer came to a conclusion that the assessee had given cash loan of Rs. 4,34,831/- during the year to Sri Kanchi Lal Smarak Sansthan, the source of which could not be explained by the assessee. Therefore, the said unexplained investment was added back under section 69 of the Income Tax Act.

4. In the assessment year 2019-20, the facts remained the same except for the quantum of amounts stated to be given by way of loan, which was Rs. 33,35,611/- and hence, in this year, addition of Rs. 33,85,611/- was made under section 69. Similarly, in the case of Smt. Usha Sharma, for the assessment year 2018-19, the unexplained investment on account of loans given to the Kanchi Lal Smarak Sansthan was computed at Rs. 18,84,410/-and the same was added back under section 69. In the assessment year 2019-20, in the case of Smt. Usha Sharma, the amount of unexplained loans to Sri Kanchi Lal Smarak Sansthan were determined to be Rs. 22,03,480/-and the same was added back to the income of that assessee under section 69 of the Income Tax Act.

5. Aggrieved with the additions, in the A.Y. 2018-19, the assessee, Shri. Mahesh Chandra Sharma, filed an appeal before the learned CIT(A). Before the ld. CIT(A), it was submitted that the assessee was the husband of Smt. Usha Sharma, who was the Trustee and Secretary of Sh. Kanchi Lal Shastri Smarak Sansthan, which was engaged in educational activities and was running a nursing college at Kanpur and Lucknow. On the same date as the search i.e., 17.01.2019, a survey took place at KLS Pharmacy College, Lucknow and during the course of survey, one pen drive was impounded from the possession of Shri Sunil Srivastava, an Accountant, and his statement was recorded. From the said seized pen drive, one ledger account in the name of the assessee, alleged to be extracted from the tally data prepared in the name of KL Shastri Smarak Nursing College, was recovered and based upon the same, it was alleged that the assessee had given a cash loan of Rs. 4,34,831/- to Shri Kanchi Lal Shastri Smarak Sansthan, the source of which could not be explained by the assessee and it was, therefore, added to the income of the assessee under section 69 of the Act. It was submitted that the learned Assessing Officer had erred in law because, during the course of survey, Shri Sunil Srivastava in his statement had stated that the books of the Trust were maintained at Kanpur and the tally data was not maintained by him for the purposes of maintaining the books of account. They just recorded the amounts informed by the assessee that were paid on behalf of the Trust. Furthermore, Shri Sunil Srivastava had duly affirmed that the fees were normally collected by him and the Principal, and the surplus cash available with him after incurring the expenses of the day were handed over to the assessee, M.C. Sharma, or Usha Sharma or Sudhir Sharma for safe keeping at their home and for expenses relating to the Trust, as they were managing the affairs of the Trust. It was further affirmed by him that they made payments for construction and other expenditure of the Trust and handed over the details along with bills and vouchers to him, or his Office Assistant, or to the Kanpur Office, where the regular books of accounts of the Trust were maintained. In case of requirement of cash for expenditures by the Cashier or by the Principal and other staff, they handed over the required cash out of the cash of the Trust lying at their home. During the course of the assessment proceedings, these facts had been submitted to the learned AO and it had been explained that from a perusal of LP-8, page 223 and 224, it was apparent that the tally data from where these papers were extracted could not be said to be a parallel regular books of accounts which was apparent from the trial balance extracted as there was appearing a drawing account under the head, “capital” which was not possible in the case of a Trust and this data did not contain all the transactions relating to the operation of Lucknow college but only a few transactions and that too in a haphazard manner, which were entered into the tally data by the accounts assistant as per his knowledge for tally learning purposes. Furthermore, during the assessment of the Trust under section 153A, the ld. AO had accepted the above explanation and not raised further queries with regard to entries made in the aforesaid tally data or made any disallowance based on the entries of the aforesaid data. But the loan accounts in the name of Dr. M.C. Sharma (Cash) and Dr. M.C. Sharma (Cheque) and loan balance in the name of Mrs. Usha Sharma, as appearing in the trial balances and ledger accounts extracted from the aforesaid tally data, was held to be genuine and representative of actual transactions on the basis of which penalty proceedings were initiated under section 271D after concluding that the increase in the aforesaid loan accounts represented the receipt of loan in cash, by the Trust from the respective persons. The assessee submitted that other than these no other entries were considered to be genuine, as they did not form the subject matter of disallowances or additions. During the course of assessment proceedings, the assessee had explained the modus operandi of holding of cash as well as expenditures incurred for operation and capital expenditure of the Trust and during survey and post survey proceedings, Sh. Sunil Srivastava had affirmed that cash collected from operations of the Trust was only deposited in bank account, as per fund required for making payments through banks and the balance cash was kept at the office, or at home with Dr. M.C. Sharma, Dr. Usha Sharma and Dr. Sudhir Sharma, who incurred expenditure on behalf of the Trust and gave him details of expenditure / deposits in the bank account, based on which the transactions were entered into the regular books of accounts maintained at Kanpur. It was submitted that since the assessee was managing the affairs of the Lucknow College, he was making payments to various persons on behalf of the Trust, which were periodically informed to the accounts department for accounting purposes. It appears that amounts informed to Sh. Sunil Srivastava or amounts handed over to him for deposit in bank accounts and payments to be made by him, were recorded by him by crediting the assessee account in the impounded material which he was recording for his own purposes. It was further submitted that, on perusal of the impounded tally data, it could be seen that there were no entry which could be said to be in the nature of acceptance of loans in cash by the Trust from the assessee. Normally the receipt of loan in cash was entered into tally data through receipt voucher but, in the present case, the majority of entries were entered into tally data through general voucher, which were normally used for passing adjustment entries where there were no involvement of cash and bank account. Furthermore, there were various pointers to the fact that the person maintaining the account did not have a good knowledge of tally and instances were cited to demonstrate this. It was submitted that the ld. AO without making any enquiry and verification with regard to the credits in the ledger accounts proceeded to make addition under section 69 on the basis of suspicion, surmises and wrong presumptions/assumptions, that the increase in balance in ledger account represented receipt of loan in cash, by Trust from assessee. It was submitted that had the transactions of the impounded ledger been perused, it would have been clear that the increase in balances were not due to acceptance of any loan from the assessee, but due to incurring of certain expenditure and making of payments for the Trust which were made out of the funds of the Trust, kept in the home of the assessee. It was further submitted that all the expenditures recorded in the said ledgers had been duly recorded in the regular books of the Trust for the year under consideration and the Trust had accounted for these transactions in the regular cash book at the fag end of the year. These facts had been noticed by the Department during the post search investigations on examination of books of accounts of the Trust where expenses were posted through single voucher at the end of the year. Statement of Sh. Sudhir Sharma had also been recorded on the above matter and in response, he had submitted that all these expenditures have actually been incurred during the year, but recorded in the cash book at the fag end of the year. Thus, the aforesaid facts showed that expenditure / payment recorded in the ledger accounts of the assessee in the impounded tally data during survey, were incurred by the assessee for and on behalf of the Trust and that too out of cash belonging to the Trust, which were handed over for safe custody and for incurring the said expenditures out of fees collected by the Accountant and the Principal of the KLS Nursing College. It was therefore, submitted that the assessee had not provided any loan in cash from undisclosed sources to the Trust as alleged by the ld. AO. Attention of the ld. CIT(A) were invited to the expenditures incurred on behalf of the Trust to electricians, suppliers of building materials, plumbers, canteen supervisors and contractors as proof of credits in the said ledger being made out of the cash of the Trust, which were kept in the home of the assessee as an imprest account. Furthermore, it was submitted that since the documents had been impounded at the premises of a third party, the presumptions under section 292C could not be held against the assessee. It was further submitted that neither had the assessee given any loan to the Trust nor ever made any claim that such money was recoverable by him from the Trust. Therefore, the transactions recorded in the incomplete tally software by any stretch of imagination could not be said to be the investment of the assessee which had not been recorded in the books of account maintained by the assessee. Therefore, the provisions of section 69 could not be applied against the assessee.

6. The ld. CIT(A) called for a remand report from the Assessing Officer and, after considering the remand report, was not convinced with the submissions of the assessee. He observed that, from the ledger accounts, it was found that expenses had been made in cash as well as cash deposits had also been made in the banks by Smt. Usha Sharma and Shri M.C. Sharma year after year but the same had not been disclosed in the actual books of accounts of M/s Kanchi Lal Shastri Smarak Sansthan, whose actual books of accounts were maintained at Kanpur. He further observed that, from the extracted books, it was found that the cash expenses had been made by the assessee on behalf of the Trusts but these cash expenses were not reflected in the books of M/s Kanchi Lal Shastri Smarak Sansthan, that were maintained at Kanpur. He also noted that on careful perusal of ledger accounts of Dr. M.C. Sharma (Cash), it could be seen that the cash amount has been received by Dr. M.C. Sharma from Shri K.L. Shastri Smarak Nursing College separately, therefore, the plea of the assessee that the entire account was imprest account and concerned cash expenses were being made on behalf of the M/s K.L. Shastri Smarak Nursing College could not be true. He also considered the statement of Shri Sunil Srivastava, wherein he had stated that as per trial balance of F.Y. 2018-19, cash loan of Rs. 1,86,90,134/- had been given by Sh. M.C. Sharma to the Trust and the same did not appear in the actual books of the Trust. He had explained that from time-to-time Dr. M.C. Sharma, had told him that some money had been spent on some heads and thus he recorded the entries and therefore, the closing balance on 17.01.2019 became Rs. 1,86,90,134/-. He had explained that all the entries posted by him in the account of Sh. M.C. Sharma (cash) were the cash expenses incurred by Dr. M.C. Sharma for KL Shastri Smarak Nursing College, 334 Muttakipur, Lucknow. The ld. CIT(A) also pointed out that the statement of Sh. Sudhir Sharma S/o Sh. M.C. Sharma, was full of inconsistencies. The tally account found had been stated to be made by one Sh. Anant Kumar who happens to be his staff, however Sh. Anant Kumar had never been produced, from whom it could be conclusively ascertained that he had posted the entries for learning purposes. Furthermore, the ld. CIT(A) submitted that since the payments made by the assessee through the bank had also been found to be entered in the bank statement of M/s Kanchi Lal Shastri Smarak Sansthan therefore, ld. CIT(A) held that the assessee could not disown the remaining entries, which have been shown as cash loan to KLS Nursing College. He documented the cash amount that had been received by the assessee from KL Shastri Smarak Nursing College and after perusal of ledger accounts, he came to the conclusion that the assessee had been spending cash from his own sources on behalf of the KLS Shastri Smarak Nursing College and recording the same accordingly. The ld. CIT(A) pointed out that the source of cash appearing in the ledger accounts maintained by Sh. M.C. Sharma (Cash) could not be explained by any documentary evidences and the AO had made the addition in the hands of the assessee since the source of cash could not be explained and the assessee had failed to prove the assertion by furnishing any evidence that the cash in his hands was received from the Trust in its entirety. He had failed to give any reason for two sets of books of accounts of the Trust. He had not furnished the audited cash book of the Trust from which it could be conclusively established that the bank deposits in the bank account of the Trust was sourced from cash of the Trust which was received as fees. Furthermore, the impounded LP-08 was conclusive evidence that the source of these cash deposits was cash in the hands of the assessee and apart from a bald statement that these were fees handed over to him after collecting the same from students, no fund flow statement could be produced to conclusively prove this assertion. He held that the affidavits filed by Shri Sunil Shrivastava, Shri Anand Shrivastava, and Smt. Sherin P.K., in which they had stated that fees collected from students were handed over to Shri M.C. Sharma, Smt. Usha Sharma and Shri Sudhir Sharma, had no evidentiary value to conclusively prove the source of cash in the hands of Dr. M.C. Sharma. The fact was that the two sets of books of accounts of M/s Kanchilal Shastri Smarak Sansthan could not be reconciled, though the entire fees receipt was recorded in the disclosed books of accounts kept at registered office at C-46/250, Kalyanpur, Kanpur. Furthermore, specific cash receipts have been recorded in the name of the assessee in various assessment years, which would not have been necessary if the assessee was receiving the entire fees in cash from K.L. Shastri Smarak Nursing College. From all these facts, the learned CIT(A) came to the conclusion that the sources of cash were not explained in the hands of the assessee Shri M.C. Sharma and he accordingly confirmed the addition of Rs. 4,34,831/- made by the Assessing Officer under Section 69.

7. Similarly, in the Assessment Year 2019-20, the learned CIT(A) came to a similar conclusion with regard to additions of Rs. 33,85,611/- made under Section 69 and he sustained the same. In the case of Smt. Usha Sharma for the Assessment Year 2018-19, the learned CIT(A) recorded similar findings and sustained the addition of Rs. 18,84,410/- made under Section 69 of the Income Tax Act. In the assessment year 2019-20, he similarly sustained the addition of Rs. 22,03,480/- that was made under section 69 of the Act on similar facts. In addition to the aforesaid issue, in the assessment year 2019-20 in the matter of Shri Mahesh Chandra Sharma, the Assessing Officer had examined a loan ofRs. 2,00,000/- taken from Shri Jomet George and found that Shri Jomet George was an employee of M/s KLS Shastri Smarak Nursing College. He further observed that as on 23-6-2019, there was a credit balance of Rs. 35,940/- and cash of Rs. 1,80,000/- was deposited on 29-3-2019. On the same day, Rs. 2,00,000/- had been paid to the assessee, Shri Mahesh Chandra Sharma. In view of the same, he held that the assessee had failed to prove the creditworthiness of the lender and the genuineness of the transaction, and therefore, he added back a sum of Rs. 2,00,000/- that was so received by way of loan as unexplained money under section 69A of the Income Tax Act. Before the learned CIT(A), the assessee submitted that during the year, the assessee had received a loan of Rs. 2,00,000/- from Shri Jomet George, the husband of Smt. Sherin P.K., Principal of M/s KLS Shastri Smarak Nursing College. During the assessment proceedings, the assessee had submitted a confirmation from the party and his bank statement. However, the AO had added back the aforesaid deposits in the bank account stating that the creditworthiness had not been proved. It was submitted that no addition under section 69A could be made on the allegation of creditworthiness of the lender, as the requirement to prove creditworthiness was only under the provisions of section 68 of the Act and not under section 69A. It was submitted that it was undisputed that the assessee had received a loan of Rs. 2,00,000/- from Shri George, and the same was to be refunded by the assessee in future. The mere fact that Shri George had deposited cash in his bank account for making the payment of the aforesaid loan, could not be a ground for making the addition under section 69A. Furthermore, section 69A could only be applied when the assessee was found to be the owner of any money, bullion, jewellery or other valuable article, and such money, bullion, jewellery or other valuable article was not recorded in the books of accounts, if maintained by him for any source of income. In the present case, it was submitted that the money deposited in the bank account did not belong to the assessee but to Shri George, and the assessee had furnished confirmation in this regard. Thus, the ownership of the money was established and the mere fact that the lender could not explain the source of cash deposited in his own bank account could not be a ground for making an addition under section 69A in the hands of the assessee. The learned CIT(A) considered these submissions but was not convinced by the same. He held that the assessee had failed to furnish requisite evidences to prove that all the three limbs of a genuine cash credit relating to the loan amount of Rs. 2,00,000/- had been satisfied, and therefore, he upheld the addition under section 69A of the Act.

8. The assessees are dissatisfied with all these orders passed by the learned CIT(A) and have, accordingly come in appeal before us. Arguing the matter, Shri Akshay Gupta, CA (hereinafter referred as “the learned AR”), submitted that during the course of a survey conducted under section 133A of the Income-tax Act, 1961, at the premises of Shri Kanchi Lal Smarak Sansthan, Lucknow on 17.01.2019, a pen drive containing tally data of the Sansthan was found and impounded. From the extracted tally data, the Assessing Officer observed that the assessee had allegedly advanced unsecured loans of Rs. 4,34,831/- to the Sansthan which was added to the income of the assessee under section 69. Similarly, in Assessment Year 201920, an addition of Rs.33,85,611/- was added whereas in the case of Smt. Usha Sharma, on the basis of the same material, sums of Rs. 18,84,410/- were added in the A.Y. 2018-19 and Rs. 22,03,480/- for AY 2019-20 were added in A.Y. 2019-20. The learned CIT(A) had confirmed these additions. It was submitted that the alleged trial balance reflected a credit balance of Rs. 1,53,04,523/- in the M.C. Sharma (Cash Account) with fresh credits of Rs. 18,85,831/- and debits of Rs. 14,51,000/- during the year. The trial balance also shows a drawings account with a debit balance of Rs. 3.04 Crores. It was contended that the credits in the said account were recorded as expenses in the regular cash book of the Trust maintained at Kanpur. It was further submitted that the details of transactions related to the bank deposits were recorded in the regular books of account maintained at Kanpur. During the course of survey, it had been explained that the tally data found in the pen drive, was not regular books of account of the Sansthan but that the regular books were kept and maintained at Kanpur. The person from whose possession the pen drive was found had explained in statement on oath that receipts towards fees were kept with the assessee and his wife, Smt. Usha Sharma, who incur expenses on behalf of the Sansthan and deposited the same into the bank account of the Sansthan. He had further clarified that the tally data was maintained by him for his own purposes of keeping account of the money handled through them. It was submitted that in his answer to question no. 5 of the said statement, Sh. Sunil Srivastava, the Clerk had stated that the books of accounts of the Trust were maintained at Kanpur. Further, in his answer to question no. 11 of the said statement, Shri Sunil Srivastava had pointed out that the closing balance as on 17.01.2019 was on account of cash expenses incurred by Sh. M.C. Sharma. The ld. AR then invited our attention to the answer given in response to question no. 13 of the said statement in which Sh. Sunil Srivastava had said that fees for the various courses were received by him or by the Principal and payments were made to persons with relation to construction on the instructions of Dr. M.C. Sharma, Dr. Sudhir Sharma and Dr. Usha Sharma. He then invited our attention to the answer given in response to question no. 15 of the said statement, wherein it had been submitted that the fees collected were either used for construction expenses or handed over to Sh. M.C. Sharma, Smt. Usha Sharma, and Sh. Sudhir Sharma and the fees collected by the Principal were directly handed over to Smt. Usha Sharma, Dr. M.C. Sharma, or Sh. Sudhir Sharma. Thereafter, the learned AR invited our attention to the statement of Sh. Sudhir Sharma, which had also been recorded on 21.02.2019. It was submitted that, in response to question no. 42, Sh. Sudhir Sharma had submitted that the books of accounts of Sh. K.L. Shastri Smarak Sansthan were maintained at the head office at Kanpur. In response to question nos. 45 and 46 also this had been reiterated. The ld. AR pointed out that in response to question no. 92, the said person had been confronted with the trial balance and the credit balance standing in the name of Sh. M.C. Sharma and had clearly pointed out that Sh. M.C. Sharma, had not given any loan to the Trust and any such indication was on account of an incorrect entry made by the accountant. The learned AR further submitted that, in the assessment proceedings of Sh. K.L. Shastri Smarak Sansthan, no adverse inference had been drawn with respect to the aforesaid trial balance, and no addition had been made in the case of the Trust. It was further explained that the trial balance contained capital account, a drawing account and entries were accounted for in a haphazard manner. There could not be any capital or drawing accounts in the books of the Trust. The assessment of the Trust had been completed on the basis of the regular books of accounts maintained at Kanpur. Since in the case of the Trust, the AO did not find any entries in the alleged tally accounts as part of or being of the parallel books of accounts of the Trust, no additions were made in this regard. Only the cash account of Sh. M.C. Sharma, were held to be correct for the purposes of initiating penalty under section 271D. However, the learned AR submitted that a perusal of the said ledger account would reveal that there was no entry in the nature of receipt of loan. All the entries were in the nature of expenses through general vouchers which are normally for expenses out of imprest account i.e. cash belonging to the Trust. Furthermore, no incriminating or corroborative material was found during the search or survey conducted on the entire group to support the contention of the AO that the assessee had provided any loan to the Trust. Rather, from the statements that had been cited above, it was clear that the credits were in respect of expenses and payments made by M.C. Sharma and Usha Sharma out of cash held by them on account of receipts from the college in the form of fees from students. It was submitted that the cash fees receipts of Rs. 2,33,41,450/- during the year were all recorded in the regular books of accounts at Kanpur and the expenses incurred had also been accounted therein. The assessment of the Trust had been carried out on the basis of such regular books of accounts. There was no finding or material in the order of the Assessing Officer to suggest where the loans were utilised or spent by the Trust. No unaccounted asset was found during the search or survey. Furthermore, our attention was invited to a copy of the drawing account as contained on pages 2 and3 of the paper book which showed payments made to M.C. Sharma and Usha Sharma with closing balance of Rs. 3,04,43,354/-. It was submitted that withdrawals as per the drawing account were for in excess of alleged credit. Thus, the source of the credits were explained in the trial balance itself. Accordingly, it was submitted that there was no occasion to make any addition on this account. It was submitted that the entire expenditure incurred made by the Trust was more than what was recorded in these accounts. Furthermore, the fees received by the Trust was also more than what was recorded in these accounts. These accounts thus had to understood as a controlling account maintained by the person for funds being handled through him. The learned AR submitted that all the expenditures that had been incurred were out of the funds of the society and all the cash that had been deposited back were on account of fees received from the student given to the assessee for safe keeping and for utilisation in the construction activities of the society or for meeting other expenses. Then how could any amount be considered as loans given by the assessee to the society. Accordingly, it was prayed that since there was no evidence found during the course of the search and survey that the assessee had any unaccounted income which could have been utilized for making of these loans and since the statement of the person from whom the pen drive had been found itself indicated that these expenditures and deposits were out of the funds of the Trusts, held by the assessee in fiduciary capacity, there was no scope for making any addition under section 69 in the hands of the assessee. The ld. AR submitted that the facts of the assessee’s case in A.Y. 2018-19 were identical to the facts of the assessee’s case in A.Y. 2019-20 and to the cases of Smt. Usha Sharma in the A.Y. 2018-19 and 201920. With respect to the unsecured loan of Rs. 2,00,000/- taken from Ms. Jomet George, which had been added back under section 69A, our attention was invited to the submissions made before the learned Commissioner of Income-tax (Appeals). It was submitted that Shri Jomet George had deposited cash into his own bank account for making the payment of the aforesaid assessee. The mere fact that he had deposited cash in his own bank account for making payment of the aforesaid loan could not be a ground for making addition under section 69A of the Act. The provisions of section 69A were only applicable when the assessee was found to be the owner of the money. In the present case, the owner of the money deposited in the accounts of Mr. Jomet George was Mr. Jomet George himself. Our attention was further invited to the judgment of the Hon’ble Supreme Court in CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC), wherein the Hon’ble Court had held that a person could be held to be owner of a sum of money even though the explanation offered by him regarding the source of that money was found to be not correct and from the simple fact that the explanation regarding the source of money furnished by ‘A’ in whose name the money is lying in deposit had been found to have been false, it would be a remote and far-fetched conclusion to hold that the money belongs to ‘B’. Thus , it was submitted that the mere fact that the capacity to lend Rs. 200,000/- to Mr. George to the assessee has not been proved by the assessee by submitting the corroborative evidence, could not be ground to hold that the ownership of the said money belonged to the assessee and not to Shri George. Accordingly, it has been submitted that section 69A had no application to the facts of the case. Without prejudice to the above, our attention was also invited to page 165 of the paper book, which contained the ATM cash withdrawals made by Shri Jomet George from this bank account. It was pointed out that Shri Jomet George had withdrawn a total amount of Rs. 2,86,500/- from his bank account during the course of five months and it was this money that had been deposited back by Sh. George in his bank account before making the loans to the assessee. It was also submitted that Sh. George had withdrawn Rs. 2,00,000/- from his bank account on 31.07.2018. Thus, it was submitted that the cash deposited was the left-over cash from all these withdrawals that had been redeposited by Sh. George in his bank account and since the Department was not able to show that that money had been spent elsewhere, there was no reason to disallow the amount in the hands of the assessee. Accordingly, it was prayed that these additions may kindly be deleted.

9. On the other hand, Sh. Atesham Ansari, CIT DR (hereinafter referred to as the ld. DR) took us through the orders of the Assessing Officer and the orders of the ld. CIT(A). He pointed out that the assessee had not been able to show a co-relation between the money that was recorded in the ledger and the regular books of the assessee to demonstrate that the money reflected in the trial balance was actually money that have been received from the assessee Trust. Since the assessees had not been able to satisfactorily explain the source of the cash, it could not be held that the cash that was being deposited into the accounts of the Trust was the Trust’s own money and furthermore, since there were mis-matches between the amounts deposited and the amounts recorded in the books of the Trusts and amounts spent and expenditures recorded in the books of the Trust, the ld. AO was perfectly justified in treating the cash deposited as unexplained loans made by the assessee in cash from unexplained sources which merited disallowance under section 69. He pointed out that the ld. CIT(A) had discussed the matter very elaborately in his orders and he placed reliance upon the same.

10. We have duly considered the facts and circumstances of the case and the arguments advanced by both parties. The case of the assessee is that, Shri M.C. Sharma and Shrimati Usha Sharma, who is the Trustee of the Shri Kanchi Lal Shastri Smarak Sansthan were handling the funds of the Trust in the absence of any facility of safe deposit vault in the premises of the KL Shastri Smarak Nursing College. The cashier Sh. Sunil Srivastava and the Principal would collect the fees from the students and handover the fees to these persons. They would make the necessary expenditures out of the same thereafter the fees received at KLS Nursing College, Lucknow were deposited in the bank accounts of the Trust. The fees were entered in the regular books of the Sansthan maintained at Kanpur. The expenditures incurred out of the said fee collections were also recorded in the books of the Sansthan at Kanpur. At times, certain amounts were advanced to Shri Sunil Srivastava for meeting various expenses, as he was also looking after minor repair works and other related activities. Shri Sunil Srivastava and his assistant, Shri Anant Kumar, were maintaining an account of the amounts handed over to Shri M.C. Sharma and Shrimati Usha Sharma, the expenditures incurred out of such amounts, as well as the amounts received by them from Shri M.C. Sharma or Shrimati Usha Sharma. It was this account that was found in the pen drive of the assessees. The assessees contend that the said account was merely maintained by these persons as a controlling account and did not constitute parallel books of account of the Trust, as alleged. Furthermore, the amounts reflected therein as having been advanced to the Trust in cash were not loans but amounts given to Shri Sunil Srivastava for meeting expenditure out of the funds of the Trust and, therefore, could not be regarded as loans. The increase in the credit balance was mainly on account of expenditures incurred by them on behalf of the Trust, and nothing more ought to be read into it. On the other hand, it is the contention of the Department that the amounts stated to have been received in cash, as reflected in the Tally account, represent cash loans advanced by the assessees to the Trust, which have not been recorded in the books of the Trust. It is further contended that the expenditures recorded therein have also not been reflected in the books of the Trust. On this basis, although no additions have been made in the hands of the Trust, the cash loans have been held to have been advanced out of the assessees’ own funds and, since the assessees have been unable to explain the source of such funds with supporting evidence, the same have been treated as unexplained and added back. Consequently, penalty proceedings have also been initiated against the assessees under section 271D.

11. On an examination of these rival contentions, it is important to analyse the Tally account found during the course of the survey conducted at M/s KLS Nursing College, Lucknow, on 17.01.2019. The said Tally account contains a trial balance for the period from 1.04.2017 to 31.03.2018, wherein Dr. M.C. Sharma is shown to have given loans to the extent of Rs. 1,53,04,523/- by way of cash and Rs. 53,12,977/- by cheque and Smt. Usha Sharma is shown to have given loans of Rs. 2,83,20,720/- to Sh. K L Shastri Nursing Smarak College. However, perusal of the ledger accounts of Dr. M.C. Sharma (cash) and Smt. Usha Sharma, show that the figure of Rs. 1,53,04,523/- is arrived at by subtracting the debit balance of Rs. 14,51,000/- from the credit balance of Rs. 1,67,55,523/-. Further perusal of the credit balance shows that it primarily represents payments and general entries on account of purchase of construction material and on account of payment to contractor, electrician, labourer, tiles worker, plumber, accountant, labour mistri, canteen supplier etc. Thus, the credit balance is not arrived at by way of cash loans to the society but on the basis of cash payments made to various persons with relation to construction work and other matters pertaining to the affairs of the KL Shastri Smarak Nursing College. Similarly, a perusal of the ledger accounts of Smt. Usha Sharma, reveals that the credit balance of Rs. 43,23,454/- are almost entirely arrived at on the basis of payments and general entries for items relating to construction work which presumably are on account of the Trust. There is also a drawing’s account, in the said pen drive which shows cash payments of Rs. 3,04,43,354/- to the assessee during the course of the F.Y. 2017-18. Thus, a perusal of the ledger account makes it abundantly clear that the credit balance of Rs. 1,53,04,523/- standing in the name of Dr. M.C. Sharma in the trial balance ending on 31st March, 2018, is not on account of any loans advanced by him, but on accounts of expenditures incurred by him. The question, therefore, arises as to the source of these expenditures. It is not disputed in the assessment order that the expenditures that have been made that have been made on behalf of the Trust by Dr. M.C. Sharma, from the funds of the Trust being handled by him. If that is the case, it is not clear as to why the cash receipts shown to have been received have been separately regarded as funds not belonging to the Trust, but those which have been given as loans advanced by Dr. M.C. Sharma to the Trust. For a proper understanding of the entries recorded in the said tally accounts, the statement of Shri Sunil Srivastava recorded on 17.01.2019 is relevant. Sh. Sunil Srivastava stated that the books of the accounts of the assessee Trust are maintained at Kanpur but at Lucknow the receipts and payments made in respect of KL Shastri Smarak Nursing College from the F.Y. 2014-15 to 2018-19 can be found in tally software, which have been taken out and are presented before the survey team and the trial balance taken out from the tally software is being presented.

12. In response to question no. 11, Shri. Sunil Srivastava states that Dr. M.C. Sharma, from time to time told him that he has made certain expenditures under certain heads and Sh. Sunil Srivasatava would make those entries in the accounts maintained by him under the head M.C. Sharma (Cash) and that the closing balance of Rs. 1,86,90,134/- was on account of such entries. He further elaborated that these entries were account of expenditures made by Dr. M.C. Sharma for K.L. Shastri Smarak Nursing College in cash. In response to question no. 13, Sh. Sunil Srivastava pointed out that he and the principal were collecting fees on behalf of the college for certain courses and when the principal was on leave or busy in other works, he would also collect fees for certain other courses and give receipts to the children for them. Furthermore, if any payments were required to be made to Ram Manohar Lohiya Awadh University, Faizabad or U.P. State Medical Faculty, he would make such payments but for construction work of KLS Shastri Smarak Nursing College, MSC Building and Resort (Girls Hostel) that was being undertaken, the majority payments would be made on the instructions of Dr. M.C. Sharma, Dr. Sudhir Sharma and Dr. Usha Sharma. In response to question no. 15, Sh. Sunil Srivastava stated that the fees that were deposited with him were kept with him and because construction work was going on much of the money was spent on the construction work. However, some amounts were handed over to Trustee, Director Dr. M.C. Sharma, Smt. Usha Sharma, and Dr. Sudhir Sharma, as per their requirements. The fees collected by the principal were given directly to Smt. Usha Sharma or Dr. M.C. Sharma or Dr. Sudhir Sharma. Thus it is quite apparent from a perusal of this statement that the fees of the nursing college were collected by Sh. Sunil Srivastava or the principal and were handed over to these two assessees. It is also apparent that expenditure was made from these funds for the construction activities of KLS Nursing College and at times deposits were also made into the bank of the Trust. It is also clear that the accounts in tally software represent the receipts and payment made on account of KLS Nursing College. There is also a drawing account which shows money being withdrawn from the Trust by these persons. In the circumstances, there does not appear to be any reason to assume that the cash receipts from Dr. M.C. Sharma or Dr. Usha Sharma were anything but the funds of the Trust that were being handled by them. We further observed from a perusal of page 144 of the paper book that a reconciliation statement has been filed of the impounded tally data in the names of Dr. M.C. Sharma, and Dr. Usha Sharma with the expenses recorded at the fag end of the year. It appears that the expenses which could not be recorded during the course of the year were recorded at the fag end of the year. Therefore, it becomes apparent that the assessee and Smt. Usha Sharma were handling the funds of the Trust and making payments from them on behalf of the Trust and later on these funds that were entrusted to them were reconciled with the regular accounts of the Trust. While there could be reasons to question the manner of the handling of the Trust funds by the Trustee and Dr. M.C. Sharma, there is in our opinion no reason or entry in the tally data to suggest that cash loans were being advanced to the Trust by the Trustees and Dr. M.C. Sharma out of their own unexplained funds. In fact the evidence collected seems to suggest that the Trustee and Dr. M.C. Sharma were handling the Trust funds and incurring expenditures out of the same. In the circumstances, there does not appear to be any reason to conclude that the cash receipt entered represent cash loans made by the Trustee or Dr. M.C. Sharma from their own funds to the Trust and that being the case the addition under section 69 for the purported loan of Rs. 4,34,831/- is unexplained under section 69. Therefore, in view of the aforesaid findings, the addition made by the AO of Rs. 4,34,831/- in the A.Y. 2018-19 is held to be unsustainable and is accordingly deleted. Similarly, when looking at the ledger and trial balance of Dr. M.C. Sharma for the A.Y. 2019-20, it is observed that the closing balance of Rs. 1,86,90,134/- is almost entirely on account of payments made for construction work on behalf of the Trust. Similarly, examination of ledgers of Smt. Usha Sharma for the said period also revealed payments being made for the construction activities of the Trust, which would lead us to conclude that all these accounts are reflective of funds of the Trust being handled by Dr. Usha Sharma and Dr. M.C. Sharma which were later brought into the accounts of the Trust. Furthermore, no corroborative material has been brought on record to suggest unaccounted income of Dr. M.C. Sharma or Dr. Usha Sharma being advanced as unexplained cash loans and nothing has been found to suggest that the Trust had accepted any liability for repayment of any amount to either of the assessees. Therefore, there does not appear to be any reason to sustain the theory of cash loans being advanced to the Trust by the assessees out of their own resources which are unexplained and therefore, the additions made by the ld. AO and sustained by the ld. CIT(A) by holding them to be cash loans advanced to the assessee Trust are unproved and therefore, not sustainable. Accordingly, in view of our findings as above, the addition of Rs. 4,34,831/- in the hands of Mahesh Chandra Sharma in A.Y. 2018-19, the addition of Rs. 33,35,611/- in the hands of Mahesh Chandra Sharma for the A.Y. 2009-10, the addition of Rs. 18,84,410/- in the hands of Smt. Usha Sharma for A.Y. 2018-19 and the addition of Rs. 22,03,480/- in the hands of Smt. Usha Sharma for A.Y. 201920 made as unexplained investment under section 69 are all deleted as unsustainable.

13. With regard to the addition of Rs. 200,000/- in the hands of Dr. Mahesh Chandra on account of loan from Sh. Jomet George, we are not inclined to accept the explanation of the assessee that the assessee was not the owner of unexplained money and therefore, could not be taxed under section 69A. The money was credited to the assessees bank account and therefore, he was the owner of it and it was his job to satisfactorily explain the same. The explanation that Sh. Jomet George made periodic withdrawals through his debit card only to accumulate and redeposit the same is far fetched and goes against the realm of human probability. While a single withdrawal might indicate withdrawal for a purpose that when not utilized could be deposited back, periodic withdrawals are suggestive of continuous requirement. Therefore, merely because the Department cannot point out how those periodic withdrawals were spent will not give rise to an inference that they remained in possession of the lender for the purpose of redeposit. Accordingly, we hold that the assessee Dr. M.C. Sharma has not satisfactorily explained the creditworthiness of Sh. Jomet George and therefore, the deposit in his bank account is not satisfactorily explained. The addition of Rs. 2 lakhs made under section 69A in his assessment for A.Y. 2019-20 is accordingly confirmed.

14. Accordingly, while ground nos. 1, 2 & 3 are held to be allowed in IT(SS)A No. 300/LKW/2024, IT(SS)A No.317/LKW/2024 and IT(SS)A No. 318/LKW/2024, Ground nos. 1 & 3 are held to be allowed in IT(SS)A No.301/LKW/2024, while ground no. 2 is dismissed. Ground nos. 4 & 5 in all the appeals have not been pressed and are accordingly dismissed as such.

15. In the result, all the appeals are held to be partly allowed.