2023 (12) TMI 639 - AT - Income Tax

Undisclosed cash deposits in bank account - agricultural income declared in the ITR as submitted by assessee to support of source of cash deposits - HELD THAT - It is not in dispute that the assessee along with his mother owns agriculture land measuring 38 bighas where apple orchards are grown and cultivated by the assessee. The land holdings records have been submitted before the lower authorities. Further, agriculture produce records have now been submitted which shows production of apples. The assessee has also availed cash credit limit from the bank based on joint land holding and the amount has been transferred in his bank account. It is the claim of the assessee that all expenditure and receipts from agriculture operations are undertaken through his bank account. Therefore, taking into consideration the land holding and apples production and the fact that all transactions are routed through the assessee s bank account, the explanation so submitted by the assessee in support of source of cash deposit of Rs 4 lacs out of agriculture produce is accepted. Also not in dispute that the assessee has worked as a contractor for HP Forest Corporation and has reported gross receipts u/s 44AD of the Act and which has been accepted by the AO. All the transactions in terms of receipts of money from HP Forest Corporation are credited in the assessee s bank account and corresponding expenditure are undertaken by way of withdrawals from time to time by way of cash and cheque payments. As submitted by the assessee that the work is being undertaken in remote far flung areas and given the nature of work, it is essential to keep certain cash in hand which is withdrawn from the bank from time to time and where certain cash so withdrawn is not required, the same is deposited back in the bank account. It has thus been submitted that source of cash deposit of Rs 3.20 lacs is out of earlier withdrawals and which has not been accepted by the AO merely for the reason that there is a time gap of two months in terms of withdrawal and subsequent deposits. In our view, the nature of assessee s activities and the business exigency of keeping cash in hand has to be considered instead of just looking at the entries in the bank account on a standalone basis. The entries in the bank account are reflection of the business activities so undertaken by the assessee and unless the nature of the business is considered, the entries on standalone basis won t provide a realistic picture of the transactions so undertaken by the assessee. Further, where the revenues from contract activities and corresponding expenditure are not disputed and there are regular deposits and withdrawals from the same bank account, the explanation of the assessee is found to be reasonable and merely for the reason that there is time gap of two months, the explanation so furnished cannot be rejected. The assessee has duly explained the nature and source of cash deposits in his bank account. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Non-acceptance of agricultural income amounting to Rs. 4,50,000/-.
2. Addition of Rs. 7,20,000/- made on account of cash deposits.

Summary:

Issue 1: Non-acceptance of Agricultural Income

The assessee declared an agricultural income of Rs. 4,50,000/- in the ITR filed for the Assessment Year 2012-13. The Ld. CIT(A) upheld the A.O.'s decision of not accepting this income due to lack of proof of sale of agricultural produce. The assessee argued that the land holding records and agriculture produce records, which show apple production, were ignored by the authorities. The Tribunal accepted the explanation of the assessee, considering the land holding and apple production, and the fact that all transactions were routed through the assessee's bank account. Therefore, the source of the cash deposit of Rs. 4,00,000/- out of agricultural produce was accepted.

Issue 2: Addition of Rs. 7,20,000/- on Account of Cash Deposits

The assessee explained that the cash deposits were made out of earlier cash withdrawals, which were necessary due to the nature of his work as a contractor for HP Forest Corporation in remote areas. The Ld. CIT(A) upheld the A.O.'s decision to add Rs. 7,20,000/- as unexplained cash deposits, citing a considerable time gap between withdrawals and deposits. The Tribunal found the explanation of the assessee reasonable, considering the business exigency of keeping cash in hand and the regular deposits and withdrawals from the same bank account. The Tribunal set aside the addition of Rs. 7,20,000/- made by the A.O. and confirmed by the Ld. CIT(A).

Conclusion:

The Tribunal allowed the appeal of the assessee, setting aside the impugned orders dated 19/12/2017 and 07/11/2022. The addition of Rs. 7,20,000/- was deleted, and the agricultural income of Rs. 4,50,000/- was accepted.

Order Pronounced in the Open Court on 06/12/2023.