2022 (12) TMI 437 - AT - Income Tax

Addition u/s.68 - unexplained cash deposit into bank - assessee had during the demonetization period deposited an amount in old demonetized currency notes of Rs.500/- and Rs.1000/-, respectively, in its bank accounts with Axis Bank and Bank of Baroda - HELD THAT - If the assessee s claim that the cash deposits in question were made out of its duly disclosed cold storage rent receipts was not to be accepted, then, the A.O was obligated to have rejected the books of account of the assessee, for the reason, that by not doing so he had on the one hand held the cash deposits to have been sourced out of an unexplained source, while for at the same time by accepting its books of account had accepted its claim that the cash deposits in duly accounted bank accounts were sourced out of the duly disclosed source of the assessee firm. It may be observed that the fact that the bank accounts in question in which the cash deposits were made by the assessee during the demonetization period formed part of its books of account can safely be gathered from a perusal of the assessee s balance sheet Thus we have a strong conviction that now when the bank accounts in question, had both duly been accounted for by the assessee in its books of account for the year under consideration, therefore, the A.O by not rejecting the said books of account had clearly accepted that the cash deposited by the assessee firm during the year under consideration in the said bank accounts was out of its disclosed sources. As the treating of the cash deposits an unexplained cash credit u/s.68 of the Act by the A.O in itself militates against the acceptance of the book results of the assessee by him, therefore, there can be no justification in upholding the addition so made by him. We vacate the addition made by the A.O u/s.68 - Decided in favour of assessee.

Summary

Issues Involved:
1. Sustaining the addition of Rs. 46,55,000/- under Section 68 of the Income-tax Act, 1961 on account of unexplained cash deposits during the demonetization period.

Issue-wise Detailed Analysis:

1. Sustaining the Addition of Rs. 46,55,000/- under Section 68 of the Act:

The assessee, engaged in the business of running a cold storage, filed its return of income for the assessment year 2017-18, declaring an income of Rs. Nil. During scrutiny assessment, it was observed that the assessee deposited Rs. 46,55,000/- in old demonetized currency notes in its bank accounts during the demonetization period. The assessee claimed that these deposits were sourced from its business receipts, specifically cold storage rental receipts, and provided copies of its cash book, bank statements, and details of monthly cold storage rent receipts to support its claim.

The Assessing Officer (A.O) issued a notice under Section 142(1) of the Act, calling for additional documents to substantiate the claim. The assessee failed to furnish the requisite details within the short time frame provided. Consequently, the A.O observed that the cash deposits during the demonetization period were abnormally high compared to the preceding and succeeding periods, and held that the deposits were not sourced from the cold storage rental receipts. The A.O thus treated the entire amount of Rs. 46,55,000/- as unexplained cash credit under Section 68 of the Act and assessed the income accordingly.

The Commissioner of Income-Tax (Appeals) [CIT(A)] upheld the A.O's decision, leading the assessee to appeal before the Appellate Tribunal.

Upon review, the Tribunal noted that the A.O did not provide a reasonable opportunity for the assessee to produce supporting documents. The Tribunal observed that the A.O's request for documents on a Sunday evening, with a deadline the following day, did not afford sufficient time for compliance. Furthermore, the Tribunal found that the assessee had uploaded relevant documents during the proceedings before the CIT(A), which were not properly appreciated by the lower authorities.

The Tribunal highlighted a crucial inconsistency in the A.O's approach: while rejecting the assessee's claim that the cash deposits were from business receipts, the A.O simultaneously accepted the assessee's book results without rejecting the books of account. This contradictory stance suggested that the A.O accepted the disclosed cold storage rent receipts, which should logically support the assessee's claim regarding the source of the cash deposits.

Given these observations, the Tribunal concluded that the A.O's decision to treat the cash deposits as unexplained cash credit was unjustified. The Tribunal vacated the addition of Rs. 46,55,000/- made by the A.O under Section 68 of the Act, thereby allowing the assessee's appeal.

General Ground of Appeal:

The second ground of appeal, being general in nature, was dismissed as not pressed.

Conclusion:

The appeal of the assessee was allowed, with the Tribunal vacating the addition of Rs. 46,55,000/- made under Section 68 of the Act. The order was pronounced in open court on 29th November 2022.