2024 (10) TMI 1271 - AT - Income Tax

Addition u/s 68 - cash deposit during demonetization period as unexplained cash credit assessee s claim of having introduced cash in form of capital with his proprietary concern - HELD THAT -Although the assessee in his statement recorded u/s. 131 had claimed to have introduced cash amounting to Rs. 21.70 lacs by way of capital addition (out of personal funds available with him) in his proprietary concern, but I am afraid that the same in absence of any material which would irrefutably evidence availability of the aforesaid substantial amount of cash with him to source the capital introduction on the respective dates, cannot be summarily accepted. AO s conviction that now when the assessee during the pre-demonetization period was already having substantial amount of cash available with him, i.e. sourced out of opening CIH and cash withdrawn from bank accounts of the proprietary concern therefore, it was beyond comprehension and against the principle of preponderance of human probabilities that he would be in possession of substantial amount of cash-in-hand (in his personal account) carries substance. If the assessee during the pre-demonetization period was in possession of substantial amount of cash in hand (personal account), then neither there would have been any need for him to have made heavy cash withdrawals from the bank accounts of his proprietary concern nor made cash withdrawals from his bank accounts for incurring business expenses. Accordingly, the assessee s claim of having introduced cash in form of capital in his proprietary concern, viz. M/s. CP Coal Company in absence of any supporting material, and being beyond human probabilities cannot be accepted. Based on my aforesaid observations, the cash in hand available with the assessee in the books of account of his proprietary concern, i.e. on the date on which he had made a cash deposit of Rs. 33 lacs in Allahabad Bank stand reduced by an amount of Rs. 21.70 lacs, i.e. the capital (in cash) allegedly claimed to have been introduced by him during the period 13.10.2016 to 02.11.2016 out of cash in hand (from personal account). As the cash book of the assessee reveals availability of the CIH as on 22.11.2016 of Rs. 33,14,870.58, therefore, after reducing the same by an amount of Rs. 21.70 lacs (supra) the balance remains at Rs. 11,44,870.58. Thus cash in hand available with the assessee to source the cash deposit of Rs. 33 lacs on 22.11.2016 is explained only to the extent of Rs. 11,44,870.58 - Appeal of the assessee is partly allowed

Summary

Issues Involved:
1. Treatment of cash deposit during the demonetization period as unexplained cash credit under Section 68 of the Income Tax Act.
2. Legality of recording the assessee's statement under Section 131 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Treatment of Cash Deposit as Unexplained Cash Credit:

The key issue in this case was whether the cash deposit of Rs. 33,00,000 made by the assessee during the demonetization period should be treated as unexplained cash credit under Section 68 of the Income Tax Act. The assessee argued that the cash deposit was sourced from the books of account of his proprietary concern, which included opening cash in hand, cash withdrawals from bank accounts, and capital introduced by him. However, the Assessing Officer (A.O) found the explanation unsatisfactory, as it defied logic and human probabilities. The A.O highlighted that despite having substantial cash in hand, the assessee continued to withdraw cash from bank accounts, which was deemed improbable. Consequently, the A.O treated the cash deposit as unexplained cash credit under Section 68, leading to an addition of Rs. 33,00,000 to the assessee's income.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the A.O's decision, agreeing that the explanation provided by the assessee lacked credibility. The CIT(A) emphasized the principle of human probabilities, referencing the Supreme Court decision in Sumati Dayal vs. CIT, which allows tax authorities to examine the reality of transactions. The CIT(A) concluded that the assessee's explanation was not supported by sufficient evidence, justifying the addition as unexplained cash credit.

Upon further appeal, the Appellate Tribunal found that while the assessee's claim of cash deposits being sourced from the proprietary concern's books was partially substantiated, the introduction of Rs. 21.70 lakhs as capital was unsubstantiated. The Tribunal reduced the addition to Rs. 21,55,130, acknowledging that part of the cash deposit was explained by available cash in hand.

2. Legality of Recording Statement under Section 131:

The assessee contended that the A.O erred in recording his statement under Section 131, claiming it was unwarranted and bad in law. However, the CIT(A) clarified that Section 131(1) grants Income Tax Authorities the same powers as a court under the Code of Civil Procedure, including enforcing attendance and examining individuals on oath. The CIT(A) noted that the assessee had participated in the proceedings without objection, thereby invalidating his later challenge to the legality of the statement recording. The Tribunal upheld this view, confirming that the action of the A.O in issuing summons and recording the statement was within legal bounds, as scrutiny proceedings were pending at the time.

Conclusion:

The judgment addressed the treatment of cash deposits during demonetization as unexplained cash credit and the legality of recording statements under Section 131. The Tribunal partially allowed the appeal, reducing the addition to Rs. 21,55,130, while upholding the legality of the statement recording process. The decision emphasized the importance of providing credible evidence to substantiate claims regarding cash deposits.