2019 (12) TMI 1257 - AT - Income Tax

Addition on account of cash deposits in the personal saving bank account of the shareholder of the company - Addition u/s 2(22)(e) or 68 - HELD THAT - We find that it is not the case of the AO that cash deposits in saving bank account with Axis Bank has been not made out of cash in hand balance available with M/s. Orthonovo Joint Trauma Hospital Pvt. Ltd. in which the assessee was director. We find that the cash book of the company is reflecting day to day cash receipts, out of said cash balance, the cash deposits were made in the impugned bank account. This view is also supported by the facts that the AO has without prejudice, also observed that the addition should be considered u/s. 2(22)(e) of the Act as the assessee has received cash loan from the company in which he had substantial interest and shareholding CIT (A) was not justified in sustaining the addition, when the AO was not certain under which head the addition should be made. This means to the AO was some what agreed that cash deposits in said bank account are out of cash in hand available with the said company. AO did accept that the bank opened in pertained to M/s. Orthonovo Joint Trauma Hospital Pvt. Ltd. On careful consideration of facts, we are of the view that cash deposits in bank account are out of cash in hand belonging to M/s. Orthonovo Joint Trauma Hospital Pvt. Ltd. hence, source of cash deposits are duly explained and same pertained to the company as as the source of cash deposits are from cash in hand of the impugned company.in such circumstances, we are of the view that the AO was not justified in making addition without bringing on record to establish that there was no cash in hand balance was available with said company. Therefore, having not done so the AO cannot added the sum belonging to company. Therefore, we hold that the addition made by the AO and sustained by the CIT (A) by invoking section 69 is not tenable in law, hence, same is deleted. - Decided in favour of assessee.

Issues Involved:
1. Confirmation of addition of ?33,71,720 made on account of cash deposits in a savings bank account.
2. Addition of ?12,528 being interest earned on the said deposits.
3. Applicability of Section 68 vs. Section 69 of the Income Tax Act.
4. Consideration of deemed dividend under Section 2(22)(e) of the Act.
5. Procedural fairness and opportunity of being heard.

Issue-wise Detailed Analysis:

1. Confirmation of Addition of ?33,71,720:
The primary issue was the confirmation of the addition of ?33,71,720 made on account of cash deposits in the assessee's savings bank account. The Assessing Officer (AO) treated the cash deposits as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The assessee argued that the cash deposits were out of cash in hand of M/s. Orthonovo Joint & Trauma Hospital Pvt. Ltd., a company where the assessee and his wife were majority shareholders. The AO, however, observed that the bank account was not reflected in the company's balance sheet, leading to the addition being confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] under Section 69 of the Act.

2. Addition of ?12,528 as Interest Earned:
The AO also added ?12,528 as interest earned on the said cash deposits, which was not reflected in the return of income either by the assessee or the company. The CIT(A) upheld this addition as well, citing the same reasons for the unexplained cash deposits.

3. Applicability of Section 68 vs. Section 69:
The assessee contended that the addition under Section 68 was not justified as the savings bank account is not a book of accounts of the assessee but of the bank. The CIT(A) changed the addition to Section 69 without giving a show-cause notice to the assessee, which was argued to be procedurally unfair. The Tribunal noted that the CIT(A)'s action amounted to an enhancement of income without providing an opportunity for the assessee to be heard, rendering the addition illegal and bad in law.

4. Consideration of Deemed Dividend under Section 2(22)(e):
The AO, without prejudice, suggested that if higher judicial authorities deemed the cash deposits as explained, the amount should be considered as deemed dividend under Section 2(22)(e) of the Act, as the assessee was a substantial shareholder in the company. However, the CIT(A) dismissed this observation, stating that such an exercise by the AO was of no consequence and beyond his powers to pre-empt decisions of higher judicial authorities.

5. Procedural Fairness and Opportunity of Being Heard:
The Tribunal emphasized the importance of procedural fairness, noting that the CIT(A) confirmed the addition under Section 69 without giving the assessee a due opportunity of being heard. This act was considered an enhancement of income without proper notice, making the addition confirmed as illegal and bad in law.

Conclusion:
The Tribunal concluded that the AO was not justified in making the addition without establishing that there was no cash in hand balance available with the company. The cash deposits in the bank account were found to be out of cash in hand belonging to M/s. Orthonovo Joint & Trauma Hospital Pvt. Ltd., thus duly explaining the source. Consequently, the addition made by the AO and sustained by the CIT(A) under Section 69 was deemed not tenable in law and was deleted. The appeal of the assessee was allowed, and the order was pronounced in open court on 19.12.2019.

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