2017 (3) TMI 972 - AT - Income Tax

Unexplained cash deposit in banks - Held that - Assessing Officer has failed to appreciate that when two parties had confirmed the transactions with the assessee, the same could not be rejected for petty reasons like unsigned return of income, PAN card etc which could have been got signed from them by issuing notice or making cross verification with their concerned ITO. Form the record, it is clear that the Assessing Officer had neither issued deficiency notice to them/the assessee nor issued any show cause on this ground. Thus, no opportunity was allowed to the assessee to substantiate his claim. As for the rest of the parties the assessee had already submitted reply mentioning his inability to produce them. The Assessing Officer has also not disputed the sales declared by the assessee, so the corresponding purchases should have been accepted. In the alternative, the assessee submitted that, if the Assessing Officer had held the assessee as entry provider, the entire cash deposits in said Bank a/c could not belong to the assessee. It is contradiction in terms to treat entry provider and owner of the cash deposits made in bank account. After hearing both the parties and the rival submissions, in the interest of justice, we set aside the appeal and remit the issue back to the file of the Assessing Officer to check entries - Appeal of the assessee allowed for statistical purposes.

Issues:
1. Appeal against CIT(A) order upholding addition of unexplained cash deposits.
2. CIT(A) upholding addition of unexplained cash deposits.
3. CIT(A) upholding appellant as an entry provider.
4. Treatment of entire cash deposits as unaccounted income.
5. Restriction of addition to peak credit.

Issue 1: Appeal against CIT(A) order upholding addition of unexplained cash deposits

The appeal was directed against the CIT(A) order dated 17.09.2013 for Assessment Year 2005-06, upholding the addition of ?16,55,000 as unexplained cash deposits in the bank account. The appellant contended that the order was illegal, unlawful, and against natural justice as it was passed ex-parte without adequate hearing. The appellant argued that the CIT(A) failed to provide a reasonable opportunity for compliance with the notice of hearing. Additionally, it was claimed that the AO made the addition without giving sufficient opportunity to the appellant to present evidence regarding the purchases, including recorded statements. The appellant requested to produce additional evidence during the appellate proceedings. The Tribunal set aside the appeal and remitted the issue back to the Assessing Officer for further examination to determine if the appellant was indeed an entry provider and to verify the entries related to the cash deposits in the bank account.

Issue 2: CIT(A) upholding addition of unexplained cash deposits

The CIT(A) upheld the addition of ?16,55,000 as unexplained cash deposits. The Assessing Officer (AO) based this addition on information received regarding gifts given by the appellant to certain individuals and cash deposits made in the bank account. The CIT(A) concluded that the transactions were suspicious and needed further examination. Despite the appellant's explanations and attempts to verify the transactions, the CIT(A) confirmed the addition. However, the Tribunal found that the AO failed to issue deficiency notices or allow the appellant to substantiate the transactions properly. The Tribunal emphasized the importance of providing the appellant with a fair opportunity to present evidence and remanded the issue back to the AO for reevaluation.

Issue 3: CIT(A) upholding appellant as an entry provider

The CIT(A) upheld the view that the appellant was an entry provider based on the suspicion surrounding the transactions and the inability to verify certain parties involved. The AO treated the appellant as an entry provider and deemed the entire cash deposits in the bank account as unexplained income. The appellant argued that the transactions with two parties were confirmed and should not have been rejected without proper verification. The Tribunal found that the AO did not provide adequate opportunity for the appellant to address the concerns raised and remanded the issue back for reevaluation, emphasizing the need for a fair hearing.

Issue 4: Treatment of entire cash deposits as unaccounted income

The AO treated the entire cash deposits in the bank account as unexplained income of the appellant under Section 69 of the Income Tax Act. The appellant's explanations and attempts to verify the transactions were not accepted by the AO, leading to the addition of ?16,55,000. The Tribunal found that the AO did not provide sufficient opportunity for the appellant to clarify the transactions and remitted the issue back for proper examination to determine the appellant's role in the transactions and the source of the cash deposits.

Issue 5: Restriction of addition to peak credit

The appellant argued that if considered an entry provider, the entire cash deposits in the bank account could not be attributed to them. The Tribunal noted the contradiction in treating the appellant as an entry provider and the owner of the cash deposits. The Tribunal remanded the issue back to the AO to verify the entries related to the cash deposits and determine the appellant's actual involvement, emphasizing the need for a fair hearing and proper examination of the transactions.

The Tribunal allowed the appeal for statistical purposes, emphasizing the importance of providing a fair opportunity for the appellant to address the concerns raised and present evidence regarding the transactions in question.

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