2018 (2) TMI 345 - AT - Income Tax

Unexplained cash deposits in the assessee s bank account with ICICI Bank - Held that - (a) AO shall vet the cash flow statement (summarized at PB page 10) for f.y. 2007-08 for the veracity of the various figures (with reference to the records, viz bank statement, assessed income), as well as its calculation. Needless to all, the CFS shall be for all the bank accounts of the assessee; (b) the opening cash balance as on 01.04.2007 shall, instead of an arbitrary figure of ₹ 1.60 lacs, be adopted at 1/3 of the business income for the immediately preceding year (AY 2007-08) as returned or, as the case may be, assessed. The household expenses for f.y. 2007-08, in line with that for the current year, be taken at ₹ 1,80,000/-, as fairly agreed to by the counsel during hearing; (c) the closing cash balance for A.Y. 2008-09, i.e., as on 31.03.2008, so arrived at, shall be the opening cash balance for the current year; (d) the A.O. shall verify the CFS for the current year, prepared, similarly, aggregating all the bank accounts of the assessee, adopting the correct figures; (e) the cash flow statement for the current year (AY 2009-10) be redrawn accordingly; and (f) the shortfall in cash as at the year-end (31.03.2009), if any, would stand to be confirmed, instead of ₹ 4.67 lacs, and the cash balance as on 01/04/2009 be taken at nil. Where positive, the entire addition would stand deleted, and the cash balance arrived at shall be the cash available with the assessee as on 01.04.2009.

Summary

Issues:
Appeal against CIT(A)'s order sustaining addition of unexplained cash deposits in bank account.

Analysis:
1. Single Issue: The primary issue in this case pertains to the validity of an addition of ?4,66,610 out of a total addition of ?14,45,800 made by the Assessing Officer (AO) on account of unexplained cash deposits in the assessee's bank account with ICICI Bank.

2. Assessment by AO: The AO treated the entire cash deposit in the bank account as unexplained income under sections 69/69A of the Income Tax Act as the assessee failed to substantiate her claim of running a paying guest house business. The AO also disregarded the opening cash balance, leading to a shortfall in cash at the year-end, which was confirmed by the CIT(A).

3. Cash Flow Statement: The appellant presented a cash flow statement showing various transactions, including cash withdrawals and deposits. However, the AO and CIT(A) did not thoroughly verify the statement, leading to discrepancies and unexplained cash deposits.

4. Judicial Observations: The tribunal noted that the appellant did not provide evidence of the paying guest house business during the first appellate stage. The validity of cash withdrawals forming the basis for deposits was questioned, especially for minor amounts used for household purposes. The tribunal also highlighted the lack of clarity regarding cash transfers between bank accounts in the cash flow statement.

5. Revised Assessment: The tribunal directed the AO to reevaluate the cash flow statement for the preceding year, adjust the opening cash balance based on business income, and verify all bank accounts' transactions. The tribunal instructed a revised cash flow statement for the current year and addressed the shortfall in cash balance at year-end.

6. Final Decision: The tribunal disposed of the appeal by providing detailed instructions for reassessment and verification of cash flow statements, aiming to address discrepancies and ensure accurate calculation of cash balances.

This judgment emphasizes the importance of substantiating income sources, verifying cash transactions, and maintaining accurate financial records to avoid additions of unexplained income.