2021 (3) TMI 45 - AT - Income Tax

Addition u/s 68 - unexplained cash deposits - HELD THAT - Regarding cheque deposit of ₹ 6,50,000/-, there cannot be any addition on this count, since there is confirmation letter given by Sri Madhu Sukumaran. For cash deposit being gift, the assessee filed confirmation letter from Chetan Sharma cash stating that he has given a sum of ₹ 2 lakhs by way of cash as a gift on 10.08.2010 to his son out of love and affection and confirmation letter from Nidhi Sharma a sum of ₹ 2 lakhs gift by way of cash on 18.8.2010 to her son out of love and affection. In our opinion, the cash gift of ₹ 4 lakhs from the assessee's parents is to be accepted as source of deposit as explained, to that extent there cannot be any addition Assessee explained that mutual advisory income, the assessee deposited ₹ 4,77,346 into his bank account. However, the assessee offered income u/s. 44AD only to the extent of ₹ 3,53,740. Hence the balance amount of ₹ 1,23,603 not offered to tax. Being so, as per assessee's income in revised return 100% of the turnover to be considered as income of the assessee. Accordingly, on this count, ₹ 1,23,606 out of ₹ 4,77,346 to be taxed separately. Regarding garment sale assessee has explained that ₹ 92,54,462 is out of previous withdrawals and sale of garments and pleaded that it is to be excluded from the taxation. The assessee has not furnished any evidence to establish the nexus between the earlier withdrawals and deposits into various bank accounts. In such circumstances, we are not in agreement with the assessee's counsel that it is from the earlier withdrawals. In our opinion, these receipts are to be considered as from unknown sources to bring into taxation. Therefore these deposits of ₹ 92,54,462 to be considered as unexplained deposits from 'income from other sources'. It is ordered accordingly. Unexplained deposit into bank account cannot be considered as income u/s. 68 of the Act and it should be u/s. 69/69A - In our opinion, mentioning the wrong section is not fatal, we have to see only the substance not the form. Being so, inter alia, we confirm the addition on this count at ₹ 92,54,462.

Issues:
1. Addition of unexplained credits in bank accounts under section 68 of the Income Tax Act, 1961.
2. Justification of sustained addition by the Commissioner of Income Tax (Appeals).
3. Applicability of Section 44AD of the Act in determining income.
4. Treatment of deposits as income from business or other sources.
5. Consideration of various explanations for cash and cheque deposits.
6. Nexus between earlier withdrawals and current deposits.
7. Correct section for considering unexplained deposits.
8. Levy of interest under section 234B of the Act.

Analysis:

1. The appeal concerns the addition of unexplained credits in the bank accounts of the assessee under section 68 of the Income Tax Act, 1961. The Assessing Officer noted significant cash deposits totaling Rs. 1,17,52,762, prompting the addition. The assessee failed to provide satisfactory details regarding the sources of these funds, leading to the addition.

2. The Commissioner of Income Tax (Appeals) upheld the addition of Rs. 93,67,962 out of the total amount added by the Assessing Officer. The CIT (Appeals) found the explanation provided by the assessee regarding redeposits of earlier withdrawals to be unsubstantiated, especially considering the diverse locations of cash deposits across the country. Consequently, the CIT (Appeals) rejected the grounds raised by the assessee.

3. The Tribunal analyzed the applicability of Section 44AD of the Act in determining the income of the assessee. While referring to previous judgments, the Tribunal highlighted that if the turnover exceeds Rs. 1 crore, the provisions of Section 44AD may not apply. In this case, the total turnover would surpass the threshold if the unexplained deposits were included, thus affecting the applicability of Section 44AD.

4. The Tribunal deliberated on whether the deposits should be treated as income from the business or other sources. It emphasized that the nature of the deposits depends on the evidence and explanations provided by the assessee. In the absence of a clear nexus between the deposits and known sources of income, the Assessing Officer has the discretion to treat them as income from other sources.

5. Various explanations were considered for the cash and cheque deposits made by the assessee. The Tribunal accepted certain explanations, such as cash gifts from parents and mutual advisory income. However, deposits related to garment sales and other sources not offered to tax were deemed taxable. S.B. interest earned was also to be taxed as income from other sources.

6. The Tribunal assessed the nexus between earlier withdrawals and current deposits. Despite the assessee's claims that a significant portion of the deposits stemmed from previous withdrawals and garment sales, the lack of evidence to establish this connection led the Tribunal to consider these receipts as from unknown sources, thereby subjecting them to taxation.

7. The Tribunal addressed the contention regarding the correct section for considering unexplained deposits. It clarified that mentioning the wrong section is not fatal, emphasizing the substance over the form. Consequently, the addition of Rs. 92,54,462 as unexplained deposits from 'income from other sources' was confirmed.

8. Lastly, the Tribunal confirmed the levy of interest under section 234B of the Act as consequential and mandatory. The appeal of the assessee was partly allowed, with the Tribunal pronouncing the decision in open court on the specified date.

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