2020 (2) TMI 142 - AT - Income Tax

Addition on the basis of the crediting of cash in the bank account - assessee having deposited the amount out of the sale proceeds of the closing stock held by him and out of cash in hand - HELD THAT - Assessee has submitted to the AO that 8, 77, 100/- is the sale proceeds of the stock balance he was having as on 31.03.2009 and balance 1, 22, 900/- was deposited out of the cash balance available with him. In this regard the assessee has also filed the balance sheet with the AO which he has filed along with the return of income for preceding assessment year. Further note that as per the balance sheet as on 31.03.2009 the assessee was having closing stock of 9, 07, 250/- and cash in hand of 2, 30, 127/-. Thus the explanation of the assessee regarding this deposit of cash was correct. The Ld. CIT(A) was not justified in treating this explanation as contrary to the explanation given before her. The explanation given before AO as stated in the letter dated 23.11.2017 and the explanation given to the CIT(A) in its submissions is the same. The assessee having deposited the amount out of the sale proceeds of the closing stock held by him as on 31.03.2009 and out of the cash balance available with him as on 31.03.2009 there is no reason for sustaining this addition.

Summary

Issues:
1. Validity of the order passed by CIT(A)
2. Compliance with statutory conditions for reassessment under Section 147
3. Adequacy of reasons recorded for reopening assessment
4. Application of mind by AO during reopening and reassessment
5. Basis for assuming cash deposits as undisclosed income
6. Addition of cash deposits in bank account
7. Rejection of explanation and evidence provided by assessee
8. Grounds for appeal

Issue 1: Validity of the order passed by CIT(A)

The appeal was filed against the Order dated 17.12.2018 passed by the Ld. CIT(A)-20, New Delhi for Assessment Year 2010-11. The assessee challenged the validity of the order on both legal and factual grounds.

Issue 2: Compliance with statutory conditions for reassessment under Section 147

The appeal raised concerns about the AO's failure to comply with the statutory conditions prescribed under Section 147 while reopening the assessment. The appellant argued that the reassessment was invalid due to this non-compliance.

Issue 3: Adequacy of reasons recorded for reopening assessment

The appellant contended that the reasons recorded by the AO for reopening the assessment did not meet the requirements of Section 147 of the Act. This raised doubts about the justification for reopening the assessment in the first place.

Issue 4: Application of mind by AO during reopening and reassessment

The appellant alleged that both the reopening and reassessment were done without the application of mind by the AO. This lack of diligence was highlighted as a significant flaw in the assessment process.

Issue 5: Basis for assuming cash deposits as undisclosed income

The AO treated cash deposits of ?29 lakhs in the bank account as undisclosed income of the assessee. The appellant disputed this assumption, arguing that there was no basis in the reasons recorded by the AO for drawing such a conclusion.

Issue 6: Addition of cash deposits in bank account

The AO added ?10 lakhs to the total income of the assessee under Section 68 of the Act based on the cash deposits in the bank account. The validity of this addition was a key point of contention in the appeal.

Issue 7: Rejection of explanation and evidence provided by assessee

The appellant provided explanations and evidence to prove the source of cash deposits, but the CIT(A) rejected them. The appellant argued that the addition was made arbitrarily without proper consideration of the evidence presented.

Issue 8: Grounds for appeal

The appellant sought leave to add, amend, or alter any grounds of appeal. The appeal encompassed various grounds challenging the CIT(A)'s decision on different aspects of the assessment.

In the final judgment, the ITAT Delhi partially allowed the appeal filed by the assessee. The Tribunal noted discrepancies in the explanations provided by the assessee before the AO and the CIT(A) regarding the cash deposits. However, upon reviewing the documentary evidence and submissions, the Tribunal found that the explanation given by the assessee was consistent and valid. The Tribunal concluded that the addition of ?10 lakhs based on the cash deposits was unjustified, as the assessee had adequately established the source of the deposits. Therefore, the Tribunal deleted the addition of ?10 lakhs and allowed the appeal on grounds 5 to 7.