2024 (4) TMI 1188 - AT - Income Tax

Addition of cash deposits in bank account during the demonetization period - case was selected for scrutiny u/s 143(3) of the Act by CASS and type of scrutiny was limited and the issues identified for examination was per notice u/s 143(2) were cash deposit during demonetization period . HELD THAT - When the assessee has demonstrated that she is regularly filling the income and having the income in cash and there by holding opening cash of Rs. 9,50,597/- along with that the assessee has deposited cash into her bank account for an amount of Rs. 11,00,000/- cannot be added as unexplained income under section 68 of the Act for the year under consideration and therefore, we direct to delete the addition made in hands of the assessee. In terms of this observation the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Legitimacy of cash deposits during the demonetization period.
3. Rejection of books of accounts under Section 145(3) of the Income Tax Act.
4. Applicability of Section 68 of the Income Tax Act regarding unexplained cash credits.
5. Application of tax under Section 115BBE of the Income Tax Act.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The assessee filed an appeal with a delay of 37 days, citing personal disturbances, including the death of her husband and the arrest of her son, as reasons beyond her control. The tribunal noted the explanation provided by the assessee and referenced the Supreme Court's decision in the case of Collector, Land Acquisition vs. Mst. Katiji & Others, which advocates a liberal approach towards condonation of delay. The tribunal found merit in the assessee's plea and condoned the delay, allowing the appeal to proceed.

2. Legitimacy of Cash Deposits During the Demonetization Period:
The primary issue was the deposit of Rs. 11,00,000 during the demonetization period, which the Assessing Officer (AO) treated as unexplained income. The assessee claimed the source of these funds was from cash in hand accumulated over the years from tailoring and other small-scale activities. The AO rejected this explanation, doubting the plausibility of such savings from these activities and questioning why the cash was not deposited in a bank earlier to earn interest. The tribunal, however, noted that the assessee had been filing returns since 1998, consistently showing income from tailoring, and held that the opening cash balance could not be added as income for the current year.

3. Rejection of Books of Accounts Under Section 145(3):
The AO invoked Section 145(3) to reject the assessee's books of accounts, claiming they were not satisfactorily maintained. The assessee argued that complete books, including cash books and ledgers, were submitted, and no specific defects were pointed out by the AO. The tribunal observed that the AO's rejection was not based on any concrete evidence of discrepancies in the books and thus deemed the rejection under Section 145(3) unjustified.

4. Applicability of Section 68 Regarding Unexplained Cash Credits:
The AO applied Section 68, treating the cash deposit as unexplained. The tribunal, however, found that the assessee had demonstrated a consistent pattern of income and cash handling over the years, supported by historical income tax returns. Citing the Rajasthan High Court's decision in Commissioner of Income-tax v. Parmeshwar Bohra, the tribunal held that opening balances carried forward from previous years could not be treated as unexplained income for the current year. Consequently, the tribunal directed the deletion of the addition of Rs. 11,00,000 as unexplained income.

5. Application of Tax Under Section 115BBE:
The AO had charged tax under Section 115BBE, which applies to income deemed under Section 68. Since the tribunal found that the cash deposits were not unexplained under Section 68, the application of Section 115BBE was also deemed inappropriate. The tribunal concluded that the income had already been accounted for in the assessee's returns and could not be taxed again under Section 68, thus preventing double taxation.

Conclusion:
The tribunal allowed the appeal, condoning the delay and ruling that the cash deposits during the demonetization period were not unexplained. It directed the deletion of the addition made by the AO under Section 68, and found the rejection of the books of accounts under Section 145(3) unjustified. The appeal was allowed in favor of the assessee, with the tribunal emphasizing the importance of historical consistency in the assessee's financial records.