2024 (6) TMI 922 - AT - Income Tax

Validity of assessment u/s 147 - Cash deposits in the bank account as undisclosed income - HELD THAT - As cash deposit in the bank account of the assessee and the assessee has not filed any income-tax return under the provision of section 139(1) of the Act. Admittedly, the cash deposit in the bank account ipso-facto does not represent the income. There can be multiple reason for deposit of cash in a bank for example the money borrowed, sales of agricultural produce, sale proceeds of property, sale proceeds of household items or any other receipt which is not liable to tax. How to establish the fact that the cash deposited in the bank account does not represent the income of the assessee in the absence of any return of income filed by the assessee u/s 139(1) - We are of the opinion that the AO, in the absence of any return filed by the assessee, cannot draw any inference about the justification for the source of cash deposit based on documents. Regarding the transaction being cash deposits carried out by the assessee, there is no mechanism available with the AO except to initiate the proceeding u/s 147 of the Act. For initiating the proceedings u/s 147 AO has to form prima facie reason to believe that income of the assessee has escaped assessment which has been done, in out considered view, in the instant set of facts. The ground raised by the assessee challenging the validity of the assessment framed u/s 147 of the Act, is hereby dismissed. Cash deposits in the bank account treating the same as undisclosed income of the assessee - On perusal of the cash book and the bank statement available in paper book we note that there were sufficient withdrawals from the bank account in cash prior to the deposit of cash in the bank except the source of cash shown in the cash book - Revenue has not brought anything on record justifying that the withdrawal of cash from the bank account has been utilized by the assessee somewhere else either for making investment or incurring personal/ other expenditure. Accordingly, we can presume that the cash withdrawal from the bank has been used for the purpose of cash deposit in the bank. Accordingly, we hold that to that extent i.e. cash withdrawal claimed to be used for cash deposit, the addition is not warranted. AR at the time of hearing before us has not explained the source of cash therefore we hold that such cash deposits represent the income of the assessee. Thus, the addition of the same is liable to be sustained.

Summary

Issues Involved:
The issues involved in the judgment are the validity of assessment u/s 147 r.w.s. 143(3) of the Income Tax Act, 1961 and treatment of cash deposits in the bank account as undisclosed income.

Validity of Assessment u/s 147 r.w.s. 143(3):
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the assessment order passed u/s 147 r.w.s. 144 of the Act for the Assessment Year 2009-2010. The Assessee challenged the assessment stating that it was initiated based solely on cash deposits in the bank account, which may not necessarily represent income. The Assessee argued that the proceedings were based on incorrect assumptions. The Tribunal noted that the AO must have a prima facie belief that income has escaped assessment to initiate proceedings u/s 147. As the Assessee had not filed an original return u/s 139(1), the AO could not verify the source of the cash deposits. The Tribunal held that without a return filed by the Assessee, the AO could not draw inferences about the source of cash deposits based on documents. The Tribunal concluded that the AO had sufficient reason to believe income had escaped assessment, dismissing the Assessee's challenge.

Treatment of Cash Deposits as Undisclosed Income:
The Assessee contended that the CIT(A) erred in confirming the AO's order treating cash deposits of Rs. 15,23,106 as undisclosed income. The AO had added the cash deposits to the total income as the source was unexplained. The Assessee argued that the cash deposits were from sales and cash withdrawals. The Tribunal observed that there were withdrawals from the bank account prior to the cash deposits, except for Rs. 4,50,000. The revenue failed to justify that the withdrawn cash was used elsewhere. The Tribunal held that the withdrawals were likely used for the cash deposits, except for the unexplained Rs. 4,50,000. Therefore, the Tribunal partly allowed the appeal, sustaining the addition of Rs. 4,50,000 as undisclosed income. The appeal was partly allowed by the Tribunal.