2024 (2) TMI 1405 - AT - Income Tax

Addition of undisclosed income u/s 69A or 68 - Onus to prove - deposit of SBN during demonetization period added on the ground that there is no reason for assessee to hold such huge cash and that the assessee ought to have incurred expenses in cash HELD THAT - The amount of sales which is not disputed is already offered to tax by the assessee by reflecting the same in the trading / P L Account which fact is not doubted by the lower authorities and that the AO/CIT(A) have accepted the income offered by the assessee under the head Profits and Gains from Business or Profession. In that case, if the cash deposits are added under section 68 of the Act, then it would result in taxing the impugned amount twice, once as a sales income and secondly as an addition under section 68 of the Act. Further the addition under section 68 of the Act is contradictory to the stand taken while accepting the business income offered to tax by the assessee. Assessee has discharged the onus of substantiating the source for the deposits made in SBN during demonetisation period and that the addition made by the revenue without disputing the business income of the assessee is not tenable. In view of the above discussion, we are of the considered view that the addition made under section 68 of the Act cannot be sustained and is therefore deleted. Assessee appeal allowed.

Summary

Issues Involved:
1. Addition of Rs. 33,84,000/- as undisclosed income under Section 69A and/or Section 68 of the Income Tax Act.
2. Charging of interest under Section 234B of the Income Tax Act.
3. Initiation of penalty under Section 271AAC of the Income Tax Act.

Detailed Analysis:

1. Addition of Rs. 33,84,000/- as Undisclosed Income:
The Assessee, engaged in wholesale and retail trading of cloth, declared an income of Rs. 3,31,710/- for AY 2017-18. During scrutiny, the Assessing Officer (AO) noticed a cash deposit of Rs. 39,34,000/- in the Assessee's Axis Bank account during the demonetization period. The AO questioned the source of these deposits. The Assessee provided details including cash in hand, cash sales, cash withdrawals, stock register, and purchase bills. However, the AO found discrepancies, particularly the variation between cash deposits during demonetization and the previous financial year. The AO concluded that Rs. 33,84,000/- remained unexplained and treated it as undisclosed income under Section 69A and/or Section 68.

The Assessee argued that the cash deposits were from legitimate business activities, including cash sales, and provided supporting documents like the cash book, sales register, and purchase register. The AO did not dispute the sales figures or reject the Assessee's books of accounts but questioned the holding of large cash amounts without incurring expenses. The Tribunal noted that the AO and the Commissioner of Income Tax (Appeals) [CIT(A)] did not record any adverse findings against the Assessee's evidence. The Tribunal emphasized that adding the cash deposits as unexplained income would result in double taxation, as the sales income was already offered to tax.

The Tribunal referenced similar cases, including ITO vs. Swarnsarita Jewellers, CIT vs. Vishal Export Overseas Ltd., and CIT vs. Kailash Jewellery House, where it was held that taxing the same amount twice is improper. The Tribunal concluded that the Assessee had substantiated the source of the deposits and deleted the addition of Rs. 33,40,327/- under Section 68.

2. Charging of Interest under Section 234B:
The issue of charging interest under Section 234B was not separately addressed in detail in the judgment. However, given that the primary addition under Section 68 was deleted, the consequential interest charged under Section 234B would also be impacted. The deletion of the addition implies that the Assessee's tax liability for the relevant assessment year would be recalculated, potentially reducing or nullifying the interest charged under Section 234B.

3. Initiation of Penalty under Section 271AAC:
The initiation of penalty under Section 271AAC was also not separately detailed in the judgment. However, since the Tribunal deleted the addition of Rs. 33,40,327/- under Section 68, the basis for initiating the penalty under Section 271AAC would no longer exist. Penalties under this section are typically contingent on the existence of undisclosed income, which the Tribunal has now ruled out.

Conclusion:
The Tribunal allowed the Assessee's appeal, deleting the addition of Rs. 33,40,327/- under Section 68, which in turn affects the associated interest under Section 234B and the initiation of penalty under Section 271AAC. The decision underscores the principle against double taxation and the importance of substantiating the source of income with credible evidence. The order was pronounced in the open court on 26-02-2024.