2023 (2) TMI 1164 - AT - Income Tax

Unexplained cash deposits - Sufficiency of own funds - HELD THAT - The assessee has placed cash flow statement to buttress the contention that the assessee was having sufficient reason for earning and making deposits in cash. A bare perusal of cash flow statement so submitted goes to prove that the assessee was having sufficient funds to make deposits. Therefore, considering the same, authorities below are not justified in making and sustaining the impugned addition. Hence, AO is hereby directed to delete the addition. The grounds raised by the assessee in this appeal are allowed.

Summary

Issues:
1. Assessment order passed without providing reasonable opportunity to the assessee.
2. Addition of Rs.564,500 out of total cash deposit.
3. Confirmation of arbitrary proceedings regarding cash deposits.

Issue 1 - Assessment Order:
The appeal challenged the assessment order under section 144 of the Income Tax Act, 1961, contending that the Assessing Officer did not provide a reasonable opportunity to explain objections raised in the order. The appellant argued that no notice under section 142(1) was served for the initiation of assessment proceedings. The Tribunal noted that the only effective ground in the appeal was against the addition of Rs.5,64,500.

Issue 2 - Addition of Cash Deposit:
The Assessing Officer made additions on account of salary and unexplained cash deposits after finding that the assessee had deposited Rs.12,64,500 in old currency notes. The CIT(A) dismissed the appeal, leading the assessee to approach the Tribunal. During the hearing, the authorized representative submitted a cash flow statement showing sufficient funds for the deposits made. The Tribunal found that the authorities below did not consider the availability of funds and sustained the addition arbitrarily. Upon reviewing the cash flow statement, the Tribunal concluded that the assessee had enough funds to make the deposits, directing the AO to delete the addition.

Issue 3 - Arbitrary Proceedings:
The CIT(A) confirmed the arbitrary proceedings regarding the cash deposits, assuming them to be undisclosed income. The Tribunal, after examining the cash flow statement and finding sufficient funds available to the assessee, held that the authorities were unjustified in making and sustaining the addition. Consequently, the Tribunal allowed the appeal, directing the deletion of the addition of Rs.564,500.

In conclusion, the Tribunal allowed the appeal, ruling in favor of the assessee based on the availability of funds demonstrated in the cash flow statement and the unjustified nature of the addition made by the authorities without proper consideration of the financial evidence presented.