2017 (8) TMI 914 - AT - Income Tax

Unexplained cash deposits in bank account - Held that - All the deposits totaling Rs. 91, 89, 000/- are fully explained and hence the addition confirmed by the CIT(A) deserve to be deleted. Rectification of mistake - invoking the section 154 - addition on deposits in the bank account with Axis Bank Gurgaon - Held that - The impugned issue was thoroughly examined during the remand proceedings and earlier appellate proceedings before the Ld. CIT(A). Therefore the assessment order to the extent of impugned issue gets merged in the order of the Ld. CIT(A) and hence the AO was not competent to invoke section 154 of the I.T. Act 1961. Therefore the AO s order passed u/s. 154 of the Act as well as order of the Ld. CIT(A) are hereby cancelled and accordingly ground no. 1 & 2 stand rejected.

Issues Involved:
1. Legality of the appellate order passed by the CIT(A) and the principles of natural justice.
2. Addition of Rs. 91,89,000/- on account of cash deposited in the State Bank of Hyderabad.
3. Legality of the order passed under Section 154 by the AO and the principles of natural justice.
4. Addition of Rs. 59,50,000/- on account of cash deposited in Axis Bank.

Issue-wise Detailed Analysis:

1. Legality of the Appellate Order and Principles of Natural Justice:
The assessee contended that the appellate order passed by the CIT(A) was illegal and against the principles of natural justice and the provisions of the Income Tax Act, 1961. The Tribunal noted that the CIT(A) had partly allowed the appeal by confirming the addition of Rs. 91,89,000/- and providing relief of Rs. 20,00,000/- out of the total addition of Rs. 1,11,89,000/-. The Tribunal found that the CIT(A) had admitted additional evidence and considered the remand report before making the decision. Hence, the appellate order was not found to be in violation of natural justice principles.

2. Addition of Rs. 91,89,000/- on Account of Cash Deposited in State Bank of Hyderabad:
The AO added Rs. 1,11,89,000/- as income from undisclosed sources based on cash deposits in the assessee's bank account. The CIT(A) confirmed Rs. 91,89,000/- of this addition. The Tribunal examined various documents, including remand reports, bank statements, and agreements, and found that the deposits were satisfactorily explained. Specifically:
- Rs. 5,00,000/- received by cheque, not cash.
- Rs. 67,00,000/- received from Sh. Bhism Kumar Gupta for a property deal, which was later canceled and repaid.
- Other amounts were explained through cash withdrawals and deposits, supported by cash flow statements and confirmations from relevant parties.
The Tribunal concluded that the addition of Rs. 91,89,000/- was fully explained and deleted the addition, allowing the appeal of the assessee.

3. Legality of the Order Passed Under Section 154 by the AO:
The AO passed an order under Section 154 to add Rs. 59,50,000/- which was allegedly left out in the original assessment. The assessee argued that the original assessment order had merged with the appellate order, and the AO was not competent to invoke Section 154. The Tribunal noted that the AO did not mention the addition of Rs. 59,50,000/- in the original assessment order and that the issue had been examined during remand proceedings. The AO's satisfaction with the deposits was evident as no adverse comments were made, and the issue was considered debatable. The Tribunal held that Section 154 could not be invoked on debatable issues and canceled the AO's order under Section 154, as well as the CIT(A)'s order confirming it.

4. Addition of Rs. 59,50,000/- on Account of Cash Deposited in Axis Bank:
The AO added Rs. 59,50,000/- under Section 154, which was confirmed by the CIT(A). The Tribunal found that the issue was thoroughly examined during remand proceedings, and the AO was satisfied with the genuineness of the deposits. The Tribunal reiterated that Section 154 could not be invoked on debatable issues and that the assessment order had merged with the appellate order. Therefore, the addition of Rs. 59,50,000/- was not justified, and the Tribunal canceled the AO's order under Section 154 and the CIT(A)'s order, allowing the appeal of the assessee.

Conclusion:
Both appeals of the assessee were allowed, and the additions of Rs. 91,89,000/- and Rs. 59,50,000/- were deleted. The Tribunal found that the assessee had satisfactorily explained the deposits, and the orders passed by the AO under Section 154 were not justified. The appellate orders were upheld as not being in violation of natural justice principles.

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