2023 (11) TMI 699 - AT - Income Tax

Unexplained cash credit/deposits u/s 68 - negative cash balance shown by assessee - assessee s case was selected for limited scrutiny under CASS on reason that there is large cash deposit during the year - HELD THAT - As assessee furnished the bank statement and the cash details before the Assessing Officer - certain cheques were dishonoured and there are some contra-entries in the bank statement, which were not considered by the Assessing Officer, for example in the bank statement of State Bank of India, there is a cash deposits to the tune of Rs. 1,01,500/- on 08.04.2016, such cash deposit has been reversed by the bank on 11.04.2016. Such contra-entries getting reflected in the bank statement of State Bank of India. Similarly other cheques deposited to the tune of Rs. 1,01,090/- has not been examined by the Assessing Officer, which is getting reflected on the bank statement. Besides, there is typographical error to the extent Rs. 60,000/-. Considering the above reconciliation, we find that assessee has explained the difference of Rs. 3,99,365/-, and just because the assessee made a wrong statement during the assessment proceedings, stating that the difference belongs to the gift received from his wife, does not mean that the assessee should be punished, particularly when the assessee has direct evidences to explain the difference . Thus addition should not have been made in the hands of the assessee. Hence, this ground of the assessee is allowed.

Summary

Issues Involved:
1. Consideration of cash deposit as unexplained cash credit.
2. Typographical error in the addition amount.
3. Justification of negative cash balance and its treatment under section 68 of the Income Tax Act.

Summary:

Issue 1: Consideration of cash deposit as unexplained cash credit
The assessee filed a return of income for AY 2017-18, declaring a total income of Rs. 3,17,960/-. The case was selected for limited scrutiny due to large cash deposits during the year. The assessee, a distributor of IDEA Cellular, claimed that cash deposits were from payments received on distribution of recharge balance. Despite partial compliance, the Assessing Officer (AO) found discrepancies in the cash balance figures provided by the assessee, leading to a show cause notice. The AO observed substantial cash deposits during the demonetization period and concluded that these deposits were business receipts, thus genuine.

Issue 2: Typographical error in the addition amount
The AO initially noted a negative cash balance of Rs. 3,39,365/- but made an addition of Rs. 3,99,365/-, resulting in a typographical error of Rs. 60,000/-. The assessee's counsel highlighted this error, arguing that the correct figure should be Rs. 3,39,365/-.

Issue 3: Justification of negative cash balance and its treatment under section 68
The AO treated the negative cash balance as unexplained under section 68 of the Act and added Rs. 3,99,365/- to the total income. The assessee claimed a cash gift of Rs. 2,77,120/- from his wife, which was unsupported by evidence. The CIT(A) upheld the AO's addition as the assessee did not appear during appellate proceedings. The Tribunal, however, noted that the assessee had provided sufficient evidence, including bank statements and reconciliation statements, explaining the discrepancies. The Tribunal found that certain contra-entries and dishonored cheques were not considered by the AO. Based on these reconciliations and direct evidence, the Tribunal deleted the addition of Rs. 3,99,365/-.

Conclusion:
The appeal filed by the assessee was allowed, and the addition made by the AO was deleted. The Tribunal emphasized the importance of direct evidence and reconciliations provided by the assessee, which justified the discrepancies in the cash deposits. The order was pronounced on 31/10/2023.