2022 (11) TMI 1243 - AT - Income Tax

Unexplained cash deposit for settling credit card bills - unsatisfactory explanation being given by the assessee of the source of cash so deposited - HELD THAT - The assessee had explained source of cash deposits as being from his cash on hand, withdrawals made from his bank account in ICICI Bank and SBI Bank. The CIT(A), NFAC surprisingly took no cognizance of this explanation of the assessee at all, and upheld addition for the reason that in assessment proceedings the assessee had given some other explanation of source, as being paid by his friends, who had used his card and this present explanation furnished by the assessee was not sufficient since the assessee had given no valid reason as to why he kept so much in cash, when he was holding bank account. As long as the explanation of the assessee is duly substantiated, the same has to be accepted notwithstanding the fact that a different explanation was offered by the assessee in an earlier point of time. What is relevant is that the assesses explanation is duly substantiated with evidence. Whichever explanation fulfils this criteria is undoubtedly the correct and valid explanation for all purposes. Any other explanation of the assessee is of no relevance. If the assessee is able to demonstrate through evidence, in the appellate proceedings, the source of cash deposits,the same needs to be considered, examined, verified and only then a finding be given on the same. It could not be rejected or dismissed solely for the reason that some other explanation was given in the assessment proceedings. As for the other reason given by the ld.CIT(A) for dismissing assesses explanation that there was no reason for the assessee to keep so much cash with him, thus find the same to be also irrelevant. It is upto the assessee to keep how much cash as he requires, hence, this is not a criterion for making any disallowance in the income tax proceedings. How much cash an assessee keeps cannot be reason for dismissing the explanation regarding payment made in cash. In the present case, the assessee having explained the cash deposits as withdrawals from his bank account, CIT(A) having not found any infirmity in this explanation of the assessee, we see no reason for upholding the addition - Appeal of assessee allowed.

Summary

Issues:
Appeal against time-barred order, addition to income on account of cash deposit for credit card bills, sufficiency of explanation for the source of cash deposits.

Analysis:
The appeal was filed against an order passed by the Commissioner of Income Tax(Appeals) under section 250(6) of the Income Tax Act, 1961, pertaining to the assessment year 2017-18. The Registry pointed out that the appeal was filed two days beyond the deadline, but the delay was condoned, and the appeal was taken up for hearing on merit.

The primary grounds raised by the assessee included the assertion that the addition made by the Assessing Officer was unlawful, as it was based on a hypothetical situation without providing sufficient opportunity for the appellant to provide evidence for the source of cash deposits in the credit card account. The Assessing Officer was accused of passing the order hastily without proper investigation and failing to justify the suspicions and assumptions made. The appellant argued that the Assessing Officer erred in concluding that payments to credit card dues were unexplained cash deposits.

The main issue revolved around the addition made to the assessee's income due to cash deposits for settling credit card bills, totaling Rs.6,46,600, with the source remaining unexplained. The assessee provided a detailed explanation of the source of cash deposits, including withdrawals from bank accounts in ICICI Bank and SBI Bank. However, the CIT(A) upheld the addition, citing a different explanation given by the assessee during the assessment proceedings. The ITAT found no merit in the CIT(A)'s basis for upholding the addition, emphasizing that as long as the assessee's explanation is substantiated with evidence, it must be accepted. The ITAT also dismissed the CIT(A)'s argument that there was no reason for the assessee to keep so much cash, stating that it is not a criterion for making any disallowance in income tax proceedings.

Ultimately, the ITAT allowed the appeal, directing the deletion of the addition of Rs.6,46,600 to the assessee's income. The decision was based on the assessee's substantiated explanation of the source of cash deposits, which was found to be valid and correct. The judgment was pronounced in the Court on 28th September 2022 at Ahmedabad.