ITAT Chennai Ruling in the Case of Smt. Jayanthi Seeman Vs ITO: Key Findings Across Four Assessment Years

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT Chennai) delivered a composite order on 28/02/2025 in the case of Smt. Jayanthi Seeman Vs ITO, concerning Assessment Years (AY) 2010-11, 2011-12, 2012-13 and 2013-14. All four appeals arose from reassessment orders passed under Section 143(3) read with Section 147 of the Income Tax Act 1961, following a search under Section 132 in the case of her husband, Mr. P. Seeman, on 23/08/2014.

The reassessments primarily focussed on:

  • Cash deposits in bank accounts,
  • Capital gains on sale of immovable property at T. Nagar, Chennai,
  • Agricultural income,
  • Interest expenditure on a loan from GE Money Financial Services Ltd., and
  • Certain rent and fee receipts connected with the hostel business.

The Tribunal ultimately partly allowed all four appeals, granting substantial relief on several additions while sustaining some portions where evidence was not found adequate.

Background of the Assessee and the Proceedings

  • The assessee is engaged in:

    • Running a ladies’ hostel under the name “Saraswathi Bhavanam”, and
    • Agricultural operations over family-owned lands.

  • Her husband, Mr. P. Seeman, runs M/s Seeman Entrance Coaching Centre in Chennai.

  • A search under Section 132 was conducted in the case of Mr. P. Seeman on 23/08/2014.

  • Based on information from the Investigation Wing regarding:

    • Cash deposits in Bank of India, T. Nagar Branch, and
    • Capital gains from sale of an immovable property at T. Nagar,

    the assessments of the assessee for AYs 2010-11 to 2013-14 were reopened under Section 147.

AY 2010-11 – Cash Flow Mismatch, Cash Deposits and Interest on Loan

1. Issues Considered for AY 2010-11

The reassessment for AY 2010-11 culminated in the following key additions:

  • Disallowance of rent payment: Rs.18,00,000/-
  • Difference in cash-flow statement treated as unexplained: Rs.1,01,59,959/-
  • Disallowance of interest on loan from GE Money Financial Services Ltd.: Rs.7,48,842/-

Income originally admitted was Rs.2,08,400/-, and the assessed income was computed at Rs.1,29,17,201/-.

2. Rent Payment Disallowance – Not Pressed

Before the CIT(A) the assessee furnished supporting details regarding rent payments. The CIT(A) directed the Assessing Officer (AO) to verify the genuineness of rent payments and to allow them if found correct. After verification, the AO accepted the rent claim in an order dated 07/07/2021. Accordingly, at the Tribunal stage, the assessee did not press this ground, and it was treated as withdrawn.

3. Unexplained Cash Inflow under Section 69 – Cash Flow Differences

After CIT(A) had already allowed Rs.9,30,450/- towards agricultural income, the balance difference of Rs.92,29,509/- in the cash-flow statement remained in dispute. The assessee explained that this cash inflow was sourced from:

  1. Refund of rent advances from landlords
  2. Withdrawals from the bank account of the hostel business
  3. Cash withdrawals by hostel staff through bearer cheques
  4. Capital contribution/gift from husband

3.1 Refund of Rent Advances from Landlords – Rs.41,15,000/-

The assessee claimed to have received back rent advances aggregating to Rs.41,15,000/- from:

    1. Saroja – Rs.10,00,000/- (cash)
    1. Malathy – Rs.15,00,000/- (partly by cheques and partly in cash)
  • Sathurappan & Rukmani – Rs.10,00,000/- (partly by cheques and partly in cash)
    1. Balaraman – Rs.6,11,500/- (cash)

The explanation was that these refunds, especially the cash component, formed part of the cash inflow available for subsequent deposits and application.

The Tribunal noted:

  • There was documentary support in the form of confirmations and bank statements.
  • Certain amounts were clearly refunded through banking channels and thus did not form cash inflow for purposes of explaining cash deposits.
  • The cash portion of rent advances refunded was substantiated and could not be ignored once the AO had accepted that substantial caution deposits to hostel occupants were repaid in cash.

Tribunal’s finding:

The Tribunal accepted cash refunds from landlords to the extent of Rs.24,87,500/-, comprising:

    1. Saroja – Rs.10,00,000/-
    1. Malathy – Rs.7,50,000/-
  • Sathurappan & Rukmani – Rs.1,26,000/-
    1. Balaraman – Rs.6,11,500/-

The remaining amount of Rs.26,24,000/-, received through banking channels, was not treated as cash inflow for explaining cash deposits.

3.2 Cash Withdrawn by Son from Saraswathi Bhavanam Account – Rs.18,50,000/-

The assessee contended that her son, Mr. Bharath, who assisted in managing the hostel, withdrew Rs.18,50,000/- in cash through bearer/self cheques from Bank of India Account No. 80192010002063 in the name of Saraswathi Bhavanam on:

  • 02/04/2009 – Rs.2,50,000/-
  • 03/04/2009 – Rs.8,00,000/-
  • 08/04/2009 – Rs.8,00,000/-

A confirmation from the bank supported these withdrawals. The AO and CIT(A) had declined to treat these withdrawals as explained sources for cash deposits, primarily citing lack of nexus.

Tribunal’s finding:

The Tribunal held that:

  • The withdrawals were from the assessee’s own business bank account.
  • Documentary confirmation from the bank was on record.
  • The Revenue had not shown that these sums were applied elsewhere.

Accordingly, the Tribunal treated Rs.18,50,000/- as explained source, deleting the addition to that extent.

3.3 Cash Withdrawals by Hostel Staff – Rs.28,64,163/-

The assessee further demonstrated that hostel staff withdrew Rs.28,64,163/- in cash via bearer cheques from the same bank account for business-related payments, which was confirmed by Bank of India vide letter dated 02/01/2019. The AO had refused to consider these withdrawals as part of the cash inflow, despite accepting similar patterns of withdrawals elsewhere.

Tribunal’s finding:

The Tribunal observed that:

  • The withdrawals were clearly evidenced.
  • Staff had drawn these amounts under the assessee’s instructions.
  • There was no material suggesting diversion of these funds to non-business purposes.

In the factual matrix, the Tribunal accepted Rs.28,64,163/- as explained cash source and directed deletion of the corresponding part of the addition.

3.4 Capital Contribution/Gift from Husband – Rs.4,00,436/-

The assessee claimed that Rs.4,00,436/- was capital introduced out of:

  • Gifts from her husband, Mr. P. Seeman, and
  • Earlier savings (including so-called pin money).

However, no specific documents were produced to show actual transfer of funds, such as contemporaneous capital account entries or gift documentation beyond income-tax returns of the husband showing drawings in earlier years.

Tribunal’s finding:

  • The version of the source changed over time (from earlier savings to gift from husband).
  • No cogent evidence directly linking the alleged gift to the capital contribution was filed.

Hence, the Tribunal sustained the addition of Rs.4,00,436/- as unexplained.

3.5 Net Result on Cash-Flow Difference for AY 2010-11

The Tribunal tabulated the position as under:

  • Addition by AO on cash-flow difference: Rs.1,01,59,959/-
  • Already allowed by CIT(A) as agricultural income: Rs.9,30,450/-
  • Further relief allowed by the Tribunal (cash refunds, withdrawals, staff withdrawals): Rs.72,01,663/-

Accordingly, balance addition sustained: Rs.20,27,846/-.

4. Interest on Loan from GE Money Financial Services Ltd. – Rs.7,48,842/-

The assessee had availed a loan of Rs.52.50 lakh from GE Money Financial Services Ltd. in 2008. She claimed interest expenditure of Rs.7,48,842/- for AY 2010-11, contending that:

  • The loan was availed for business purposes (hostel building and operations).
  • The sanction letter showed an interest rate of 14.5% consistent with a mortgage-type business borrowing.
  • The funds were used for renovation and business-related purposes (including rental advances and refund of caution deposits).