2015 (10) TMI 1465 - AT - Income Tax

Unexplained cash credit under section 68 - Held that - there is no material brought out by the Revenue to doubt the bonafides of explanation furnished by the assessee with regard to the build-up of cash in hand and the deposits in the bank account as and when assessee required certain cheques to be cleared in the bank. Moreover, factually speaking, whenever the impugned deposits were made by the assessee, there was a positive balance of cash in hand. There does not appear to be any negative balance in the cash flow statement. Considering the entirety of circumstances and the explanation furnished by the assessee, whose bonafides are not doubted, we deem it fit and proper to hold that the impugned cash deposits in the bank account cannot be construed as unexplained within the meaning of section 68 of the Act. Accordingly, we set aside the order of CIT(A) and direct the Assessing Officer to delete the addition - Decided in favour of assessee.

Summary

Issues:
1. Addition of unexplained cash credit under section 68 of the Income Tax Act.
2. Barred by limitation assessment order.

Analysis:

Issue 1: Addition of unexplained cash credit under section 68 of the Income Tax Act

The appeal was against the CIT(A)'s decision to sustain an addition of &8377; 19,39,790 as unexplained cash credit under section 68 of the Income Tax Act. The assessee, an individual with income from partnership firms, had deposited cash in three bank accounts. The Assessing Officer treated these deposits as unexplained due to lack of evidence. The CIT(A) rejected the explanation that the cash was withdrawn and redeposited for business reasons. The Tribunal noted the cash flow statements provided by the assessee, showing withdrawals and deposits, and the explanation for these transactions. The Tribunal found no reason to doubt the bonafides of the explanation given by the assessee. It observed that there was always a positive balance of cash in hand when deposits were made, supporting the explanation provided. Therefore, the Tribunal held that the cash deposits were not unexplained under section 68 of the Act and directed the Assessing Officer to delete the addition.

Issue 2: Barred by limitation assessment order

The assessee raised a ground that the assessment order was barred by limitation. However, since the Tribunal allowed relief on merits regarding the unexplained cash credit, it considered the limitation issue as academic and did not adjudicate on it. Consequently, the appeal was partly allowed, and the addition of &8377; 19,39,790 was directed to be deleted.

This judgment highlights the importance of substantiating cash transactions with valid explanations and supporting documentation to avoid additions under section 68 of the Income Tax Act. It also emphasizes the need for assessing officers to consider all relevant evidence before making additions to avoid unnecessary litigation.