2017 (5) TMI 159 - AT - Income Tax

Addition of unexplained income u/s 68 - amount received as cash deposits - assessee claims that it had received trading deposits - it was found by the AO that assessee is giving conflicting statements as some time the assessee is claiming to be sub-broker and while some time the assessee was claiming that he is not sub-broker but trader in shares - Held that - the confirmations from these creditors carrying name, address and PAN were filed but copies of tax-returns of these creditors were not filed by the assessee - all these confirmations from creditors filed by the assessee need verification by the authorities below so as to ensure that mandate of Section 68 of 1961 Act was fulfilled - appeal allowed by way of remand.

Summary

Issues:
1. Addition on account of cash deposits in the bank - Whether the cash deposits were adequately explained by the assessee?
2. Genuineness, creditworthiness, and identities of lenders - Whether the assessee proved the legitimacy of cash deposits?

Analysis:

Issue 1:
The appeal was filed against the appellate order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2009-10. The assessee contended that the cash deposits of ?3,63,500/- in the bank were received for trading purposes and provided a list of names, addresses, and PAN numbers of the persons who made the deposits. However, the Assessing Officer (AO) treated the amount as unexplained income under section 68 of the Income-tax Act, 1961. The AO rejected the explanation provided by the assessee, leading to the addition of the said amount to the assessee's income.

Issue 2:
The Commissioner of Income Tax (Appeals) doubted the genuineness of the cash transactions as the income tax returns of the lenders were not provided by the assessee. Additionally, the CIT(A) questioned why a trader in shares would receive cash deposits instead of cheques, and highlighted the lack of interest payments or explanations for the cash repayments. Consequently, the CIT(A) confirmed the addition made by the AO, emphasizing the failure of the assessee to explain the nature and source of the cash credits adequately.

The Income Tax Appellate Tribunal (ITAT) observed that the assessee was engaged in share and commodity trading during the relevant year and had received cash deposits from 19 persons. While the confirmations from creditors were submitted, the copies of tax returns were missing. The ITAT directed a de-novo determination of the issue by the AO to verify the genuineness, creditworthiness, and identities of the creditors. The assessee was instructed to provide all necessary evidence and explanations to substantiate their claims, ensuring compliance with Section 68 of the Act. The matter was remanded back to the AO to conduct a thorough examination and provide the assessee with a fair opportunity to present their case.

In conclusion, the ITAT allowed the appeal for statistical purposes, highlighting the need for a detailed verification of the cash deposits and the importance of following due process and principles of natural justice in tax assessments.