2022 (6) TMI 690 - AT - Income Tax

Addition on account of deposit of cash during the demonetization period - cash deposits which the AO has held to be sham transactions, were routed through the books of account maintained by the assessee - HELD THAT - We fully agree with the contention of the Ld. AR that the AO had no sound reason to reject the contention of the assessee vis- -vis the source of cash deposits made in the bank account of M/s Syna Creations especially when the deposits have been routed through the regular books of account of the assessee. It is also a case in point that books of account have not been rejected and the AO has accepted the sales as well as purchases and also the expenses claimed by the assessee and has only found fault with the quantum of cash deposits during the demonetization period. Thus, apparently, this impugned addition has been made without any foundation and in our considered view, the AO has acted on mere surmise and conjectures without duly appreciating the undisputed fact that he himself has accepted the books of account as well as the book results. The Ld.CIT(A) has also upheld the findings of the AO without assigning any cogent reason and he also seems to have simply approved the addition without proper appreciation of facts. As also to be noted that on the same set of facts, the AO has accepted the cash deposit of Rs.17 lacs in another proprietorship concern of the assessee namely M/s Wool World but has proceeded to doubt the cash deposited in the proprietorship concern M/s Syna Creations without any cogent reason. We are of considered view that the impugned addition was not called for especially when the assessee s books of account have not been rejected and all the income and expenses and the book results have been accepted except the cash deposit without there being any iota of evidence, which would point out that the assessee had deposited her unaccounted money under the garb of sales or receipts from sister concern M/s Rajan Enterprises. AO has proceeded in a very hasty and an illogical manner without taking a holistic view of the entire case record before him. It is also to be noted that the captioned case was a search case and even during the course of search no incriminating material was found which would point out towards the assessee introducing her unaccounted cash into the books of account under the garb of sales or receipts from sister concern. Therefore, we find ourselves unable to confirm the view taken by the Ld.CIT(A) in upholding the addition of Rs.10 lacs and we set aside the order of the Ld.CIT(A) on the issue and direct the AO to delete the same.- Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of the addition of Rs. 10,00,000 to the assessee's income.
2. Validity of the assessment proceedings under Section 153D of the Income Tax Act, 1961.

Detailed Analysis:

1. Legitimacy of the Addition of Rs. 10,00,000 to the Assessee's Income:

The core issue revolves around the addition of Rs. 10,00,000 made by the Assessing Officer (AO) to the assessee's income for the assessment year 2017-18. The AO observed that during the demonetization period, the assessee had deposited Rs. 10 lacs in the bank account of M/s Syna Creations and Rs. 17 lacs in M/s Wool World. While the AO accepted the deposit in M/s Wool World, he questioned the deposit in M/s Syna Creations, suspecting it to be unaccounted money introduced under the guise of sales.

The assessee contended that the deposits were legitimate and supported by regular books of accounts, which were duly audited and showed no discrepancies. The AO, however, did not find the explanation satisfactory for M/s Syna Creations and invoked Section 69A of the Act, charging the amount to tax under Section 115BBE at 60%.

The Tribunal observed that the AO had accepted the books of accounts, sales, purchases, and expenses of the assessee without pointing out any defects. The AO's decision to doubt the cash deposit in M/s Syna Creations while accepting the same in M/s Wool World was found to be arbitrary and without cogent reasons. The Tribunal noted that the AO acted on mere surmises and conjectures without substantial evidence, especially since no incriminating material was found during the search that could indicate the introduction of unaccounted money.

The Tribunal concluded that the addition of Rs. 10,00,000 was unwarranted, given that the books of accounts were not rejected, and all transactions were duly recorded. Therefore, the Tribunal directed the AO to delete the addition, setting aside the order of the Ld. CIT(A).

2. Validity of the Assessment Proceedings under Section 153D of the Income Tax Act, 1961:

The assessee raised an additional ground challenging the validity of the assessment proceedings, arguing that the mandatory approval under Section 153D was given mechanically without application of mind. The assessee relied on the ITAT Chandigarh Bench's decision in the case of M/s Inder International Vs. ACIT, which held that mechanical approval invalidates the assessment.

The Tribunal admitted this additional ground, recognizing it as a legal issue going to the root of the matter. However, since the Tribunal had already provided complete relief to the assessee on the merits of the case, it deemed the additional ground to be academic and infructuous. Consequently, the Tribunal dismissed this ground without delving into its merits.

Conclusion:

The Tribunal allowed the appeal partly, providing relief to the assessee by deleting the addition of Rs. 10,00,000 on the merits of the case. The additional ground concerning the validity of the assessment under Section 153D was dismissed as academic.

Order pronounced on 13.06.2022.