2021 (7) TMI 1412 - AT - Income Tax

Addition u/s 68 - Cash deposits in bank account unexplained - non rejection of books of accounts - HELD THAT - As not disputed that the cash deposits made out of book balance should be considered as explained when the books of accounts of the assessee were not rejected. As notice that neither the AO nor CIT(A) has examined the cash book of the assessee. We notice that both the authorities have rejected the claim of the assessee that the cash deposits have been made out of earlier cash withdrawals made from the bank account on the reasoning that the earlier cash withdrawal has not been proved. Cash withdrawal could have very much been verified from the bank account of the assessee as well as from the entries made in the books of account. In the instant case, the books of account maintained by the assessee have not been rejected and it is the submission of the assessee that the cash withdrawals have been recorded in the books of account. In that case, if the cash has been deposited into the bank account from the cash balance available in the books of account, then it should be held that the cash deposits have been explained. However, as noticed earlier, the tax authorities have not examined books of account also. This issue needs to be set aside to the file of the AO for the limited purpose of examining as to whether the impugned cash deposits have been made out of cash balance available in the books of account. Accordingly, I set aside the order passed by Learned CIT(A) on this issue and restore the same to the file of the AO for the limited purpose of examining as to whether the impugned cash deposits have been made out of cash balance available in the books of account. Decided in favour of assessee for statistical purposes

Summary

Issues:
Challenge to addition under section 68 of the Income Tax Act for cash deposits made in bank account.

Analysis:
The appellant contested the addition of Rs.35,32,500 under section 68 of the Income Tax Act, relating to the assessment year 2015-16. The appellant explained that the cash deposits were made from cash balances available in the books of account, including opening cash balance, cash withdrawals from banks, and other receipts. However, the Assessing Officer (AO) added back the amount, stating the appellant failed to provide evidence of cash withdrawals or explain the reason for holding such significant cash balances. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition, questioning the genuineness of the transaction. The appellant appealed to the Tribunal against these decisions.

During the proceedings, the appellant presented documents to support the claim that the cash deposits were from book balances, including the balance sheet and bank statements. The appellant argued that when books of accounts are not rejected, cash deposits from book balances should be considered explained. The Tribunal noted that neither the AO nor the CIT(A) examined the cash book of the appellant. It was highlighted that if cash withdrawals were recorded in the books of account and deposited into the bank account, the cash deposits should be considered explained. As the tax authorities did not examine the books of account, the Tribunal set aside the decision and directed the AO to verify if the cash deposits were made from available book balances. The AO was instructed to delete the addition if sufficient cash balance was available before the deposits, allowing for any shortfall.

In conclusion, the Tribunal allowed the appeal for statistical purposes, setting aside the addition under section 68 of the Income Tax Act and remanding the issue to the AO for further examination based on the directions provided.