2014 (6) TMI 220 - AT - Income Tax

Addition u/s 69 of the Act Held that - The assessee has explained the ostensible sources for all the deposits aggregating to Rs.29.70,000 made into bank account, the AO disbelieved the explanation of the assessee in its entirety, and added the entire amount u/s 69 of the Act - the assessee claimed that an amount of Rs.10,04,700 deposited into the bank account was made out of earlier withdrawals - this aspect has not been properly examined either by the CIT(A) or by the AO, so as to arrive at a definite conclusion that the sum withdrawn earlier would not have been available to the assessee to deposit the same back into bank account - The AO ought to have examined the withdrawals made by the assessee during the relevant period, the time gap between the withdrawal made and the deposit made, and in the process, the possible nexus between the withdrawal made earlier and the redeposit made by the assessee, instead of brushing aside the explanation of the assessee in that behalf, in a summary manner thus, the matter is remitted back to the AO for examination of the source explained by the assessee with regard to the source for the deposits - Decided partly in favour of Assessee.

Issues:
1. Addition under Section 69 of the Income Tax Act.
2. Assessment of unexplained credits in the bank account.
3. Examination of cash withdrawals and deposits.
4. Discrepancy in opening and closing cash balances.
5. Adequacy of explanation provided by the assessee for deposits.

Analysis:

Issue 1: Addition under Section 69 of the Income Tax Act
The appeal was against the addition under Section 69 of the Income Tax Act, concerning an amount of Rs.16,92,176 sustained by the Commissioner of Income-tax (Appeals) for the assessment year 2009-10. The assessee's grievance primarily revolved around this addition.

Issue 2: Assessment of unexplained credits in the bank account
The Assessing Officer observed credits amounting to Rs.29,70,000 in the bank account of the assessee and his mother but found a lack of substantiating details regarding the sources of these credits. Consequently, the entire sum was treated as unexplained, leading to the addition under Section 69.

Issue 3: Examination of cash withdrawals and deposits
The CIT(A) allowed the assessee an opportunity to present additional evidence related to the credits. The assessee explained the sources of the credits, including business receipts, credit card payments, and cash balances. However, discrepancies in the cash balances and the explanation for withdrawals led to the sustained addition.

Issue 4: Discrepancy in opening and closing cash balances
The CIT(A) noted a significant difference between the opening and closing cash balances claimed by the assessee, raising doubts about the verifiability and reliability of the cash statement provided. This discrepancy influenced the assessment of the unexplained balance and the subsequent addition.

Issue 5: Adequacy of explanation provided by the assessee for deposits
The CIT(A) partially accepted the assessee's explanations for the credits but found a portion of the deposits unexplained. The appellate tribunal acknowledged the need for a detailed examination of the withdrawals made by the assessee to determine the availability of funds for redepositing into the bank account, directing the Assessing Officer to reevaluate this specific aspect.

In conclusion, the tribunal partially allowed the appeal for statistical purposes, emphasizing the necessity for a thorough assessment of the sources of deposits, particularly regarding the withdrawals and redeposits made by the assessee. The decision highlighted the importance of substantiating explanations for financial transactions to avoid additions under Section 69 of the Income Tax Act.

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