2023 (9) TMI 328 - AT - Income Tax

Unexplained money u/s. 69A - addition on account of cash deposits in the bank account during the demonization period - undisclosed income - HELD THAT - AO has not refuted or discredited the evidences and documents given by assessee. AO has just brushed aside these evidences without even a word on why they are not acceptable. It is a well settled Law that when an assessee has all the possible evidences in support of its claim, they cannot be brushed aside based on surmises and guesswork. Assessee has submitted cash book, cash flow statement and cash book, which shows that assessee has sufficient opening cash balance at the beginning of 01.04.2016. Apart from this, the assessee is a partner in M/s Shivam Polishing LLP and from the partnership firm, the assessee has received remuneration and profit - assessee has submitted the cash deposited during the demonetization and hence it is quite clear from the cash book, cash flow statement and cash withdrawal from the bank, that assessee has explained the source of cash deposit in bank account in a satisfactorily manner - addition so made is deleted. Decided in favour of assessee.

Summary

Issues:
The issues involved in this case are the addition of cash deposits during demonetization period treated as unexplained money under section 69A of the Income Tax Act, 1961, and the initiation of penalty under section 271AAC of the Act.

Issue 1: Addition of Cash Deposits During Demonetization Period

The appellant contested the addition of Rs. 5,07,000 on account of cash deposits during the demonetization period, arguing that the source of the cash was explained through cash withdrawals and capital withdrawals. The Assessing Officer, however, treated the deposits as undisclosed income, stating that the appellant failed to prove the source of the cash. The Commissioner of Income Tax (Appeals) upheld the addition, noting the appellant's failure to provide sufficient explanation. In the appeal before the ITAT, the appellant presented various documents including cash flow statements and cash book records to support the claim that there was sufficient opening cash balance to explain the deposits. The ITAT reviewed the evidence submitted by the appellant, including bank statements and partnership firm details, and concluded that the appellant had adequately substantiated the source of the cash deposits. As the Assessing Officer did not discredit the evidence provided by the appellant and failed to provide reasons for rejecting it, the ITAT allowed the appeal and deleted the addition.

Issue 2: Initiation of Penalty under Section 271AAC

The appellant raised a second ground regarding the premature initiation of penalty under section 271AAC of the Act. The ITAT deemed this issue unnecessary for adjudication, given the decision on the primary issue of the addition of cash deposits during the demonetization period. Consequently, the appeal was allowed, and the addition was deleted, rendering the question of penalty initiation moot.

In conclusion, the ITAT ruled in favor of the appellant, deleting the addition of cash deposits during the demonetization period as unexplained income and dismissing the need for adjudication on the penalty initiation under section 271AAC.