2019 (7) TMI 872 - AT - Income Tax

Unexplained cash deposits - assessee claimed that partly deposit are from earlier withdrawal - AO alleged that withdrawal from the Bank for the purpose of construction of a bar hotel at Thodupuzha and no cash was available with assessee to deposit - HELD THAT - Admittedly, the assessee had introduced ₹ 6,44,55,000/- into cash book for the assessment year 2012-13 as per the narration written on the back side of the cheque. Out of the above amount, ₹ 3,17,00,000/- was withdrawn by the assessee from the Bank account for the purpose of construction of bar/hotel in Thodupuzha. This was evidenced by copies of cheques obtained from the Bank by the AO. As such, AO observed that the sum of ₹ 3.17 crores which was introduced into the cash book was not at all available with the assessee as it was used for the construction of bar/hotel. To support this, the AO relied on the sworn statement recorded from Shri Rajendra Babu K.V. in whose name the bearer cheque was issued in most of the cases who admitted that the signature on the back side of the cheque belonged to him and money was withdrawn as per the instructions of the assessee, Shri Jayakrishnan. AO observed that construction of hotel was going at Hotel Vysali in Thodupuzha and construction was managed by one Shri Abhilash. However, contrary to this, the CIT(A) observed that there was no construction activity with regard to Hotel Vysali in Thodupuzha and the said hotel was owned by the assessee and two more partners and not by the assessee himself. The building was taken on rent and no construction work has been carried out at the said hotel. For this purpose, he relied on the certificate issued by Secretary, Thodupuzha Municipality. Each entry in the cash book for introduction of cash was not at all explained by the assessee. The assessee made a general statement that there was no construction activity at Hotel Vysali and the amount was available for introduction into the cash book. The assessee has to explain each entry in the cash book. AO has to prove that if there is construction activity, how much amount has been spent for construction activity at the said hotel after providing opportunity of cross-examination of the person whose statement was relied on by the AO for making such additions for these assessment years under consideration. With this observation, we remit the entire issue in dispute in all these appeals to the file of the AO for fresh consideration. This ground of appeals of the Revenue is partly allowed for statistical purposes.

Summary

Issues Involved:
1. Deletion of additions made on account of unexplained cash credits.
2. Acceptance of a certificate from Thodupuzha Municipality without verification.
3. Treatment of cash withdrawals for hotel construction as unexplained income.

Detailed Analysis:

1. Deletion of Additions Made on Account of Unexplained Cash Credits:
The Revenue challenged the deletion of additions made by the Commissioner of Income Tax (Appeals) [CIT(A)] on account of unexplained cash credits. The Assessing Officer (AO) had identified large financial dealings between the assessee and Shri Sunil Kumar, resulting in significant loans and repayments. The AO noticed substantial cash deposits in the assessee's bank accounts, which were explained by the assessee through a cash book. However, the AO found that ?3.17 crores were withdrawn for hotel construction, as evidenced by the cheques and statements from Shri Rajendra Babu K.V., who confirmed the withdrawals were for hotel construction. The AO treated these withdrawals as unexplained income. The CIT(A) deleted these additions, stating that no specific mistakes were pointed out in the cash book, and no incriminating material was found during the search.

2. Acceptance of a Certificate from Thodupuzha Municipality Without Verification:
The CIT(A) accepted a certificate from the Thodupuzha Municipality stating no commercial building construction occurred during the relevant period. The AO argued that this certificate was not verified and suggested that there could have been an extension of existing structures. The CIT(A) relied on this certificate to conclude that the withdrawals were not for hotel construction, contrary to the AO's findings based on the cheques and statements.

3. Treatment of Cash Withdrawals for Hotel Construction as Unexplained Income:
The AO treated the cash withdrawals for hotel construction as unexplained income since the withdrawals were recorded as being for hotel construction on the cheques, and this was confirmed by the individual who withdrew the cash. The CIT(A) disagreed, stating that the withdrawals were from the assessee's own bank account and could not be treated as income. The CIT(A) also noted that the AO did not provide evidence of other sources of cash generation.

Judgment:
The Tribunal found that the assessee did not adequately explain each cash book entry and that the AO needed to prove the construction activity and the amount spent. The Tribunal remitted the issue back to the AO for fresh consideration, requiring a detailed examination and cross-examination of the statements relied upon by the AO.

Conclusion:
The appeals of the Revenue were partly allowed for statistical purposes, with the matter remitted back to the AO for further investigation and verification. This decision underscores the need for thorough verification and substantiation of claims regarding unexplained cash credits and the importance of cross-examination in such cases.