2022 (8) TMI 939 - AT - Income Tax

Addition u/s 69 - cash deposits unexplained - case was taken for limited scrutiny regarding cash deposits in the bank account was more than the turnover - HELD THAT - The objection of the assessee regarding the AO having exceeded his jurisdiction in view of the Instruction No.20/15 dated 29.12.2015 issued by CBDT is misplaced as the assessee was required to explain the source of cash deposits in the bank account. It is seen from the records that the AO has restricted the scrutiny to verify the cash deposits in the bank account. Hence, the objection of the assessee that the AO exceeded the jurisdiction is ill-founded hence, rejected. Account does not belong to the assessee - As bank A/c No.50053185861 maintained with Kangra Central Co-op Bank Ltd., Mubarkpur, it was recorded by the AO that during the year under consideration, the assessee made cash deposits in the said account - AO that till the finalization of the assessment, the assessee could not substantiate with documentary evidence about the basis of her gross total turnover disclosed in the Income Tax Return filed on 03.12.2015. Therefore, cash deposited in the bank account No. 50053185861 was treated as unexplained. It is seen from the bank statement furnished by the assessee for the period 01.04.2014 to 31.03.2015, there are deposits and withdrawals from the bank account of the assessee. The total deposits are Rs.8,24,000/- and withdrawals of Rs.9,35,084/-. The AO has not given any finding regarding withdrawals of such amount. Thus considered view that the authorities below ought to have given a clear finding regarding withdrawals made by the assessee during the year under consideration. Therefore, in view of the facts of the present case, there are debit entries in the bank statement of the assessee. The addition of entire deposits as unexplained was not justified. Hence, the assessee deserves to get benefit of tele-scoping if the benefit of tele-scoping is allowed then the entire addition would not survive. The AO is therefore, directed to delete the addition. Thus, grounds raised by the assessee are partly allowed.

Summary

Issues Involved:
1. Validity of selection for limited scrutiny.
2. Scope of limited scrutiny and its expansion.
3. Compliance with CBDT instructions.
4. Requirement of permission for expanding scrutiny.
5. Telescopic benefit of cash deposits versus withdrawals.
6. Double addition of cash sales as unexplained investments.

Issue-wise Detailed Analysis:

1. Validity of Selection for Limited Scrutiny:
The assessee contended that the selection of their case under limited scrutiny was void-ab-initio as per rule 114-E read with Form No. 61A. This rule applies to cash deposits of more than Rs. 10,00,000/- in savings accounts and not to cash deposits in cash credit/current accounts. The Tribunal did not specifically address this issue, focusing instead on the broader context of scrutiny and the findings of the AO.

2. Scope of Limited Scrutiny and its Expansion:
The assessee argued that the AO widened the scope of limited scrutiny beyond permissible limits by including cash deposits in a current account, which was not initially flagged. The Tribunal noted that the AO had restricted scrutiny to verifying cash deposits in the bank account and did not exceed the jurisdiction. Therefore, the objection of the assessee regarding the AO exceeding his jurisdiction was rejected.

3. Compliance with CBDT Instructions:
The assessee claimed that the AO overlooked CBDT Instruction No. 20/15 dated 29-12-15, which mandates mentioning the scope of enquiry and reason for selection in the notice issued under section 143(2). The Tribunal found that the AO adhered to the instructions by focusing on the cash deposits in the bank account, thus rejecting the assessee's claim.

4. Requirement of Permission for Expanding Scrutiny:
The assessee argued that the AO did not obtain permission from the Pr. CIT before expanding the scope of limited scrutiny, making the order void-ab-initio. The Tribunal did not find merit in this argument, as the AO's actions were within the scope of verifying cash deposits, which was the initial reason for scrutiny.

5. Telescopic Benefit of Cash Deposits versus Withdrawals:
The assessee contended that the AO failed to provide the telescopic benefit of total cash deposits against total cash withdrawals from the same account. The Tribunal observed that the AO did not provide a clear finding regarding the withdrawals made by the assessee. Given the total deposits and withdrawals, the Tribunal concluded that the entire addition of cash deposits as unexplained was not justified. Therefore, the assessee deserved the benefit of telescoping, leading to the deletion of the addition.

6. Double Addition of Cash Sales as Unexplained Investments:
The assessee raised an additional ground that the AO accepted the sale proceeds and returned income but still made an addition under section 69 for unexplained investments, amounting to double addition. The Tribunal noted that the AO treated the cash deposits as unexplained due to a lack of documentary evidence supporting the gross total turnover disclosed. However, considering the totality of the facts and circumstances, the Tribunal directed the deletion of the addition, acknowledging the merit in the assessee's argument against double addition.

Conclusion:
The Tribunal partly allowed the appeal, directing the deletion of the addition made by the AO. The Tribunal emphasized the need for a clear finding on withdrawals and acknowledged the merit in the assessee's argument for telescoping and against double addition. The decision highlighted adherence to procedural guidelines and the necessity of a thorough examination of all relevant transactions in the bank account.