2025 (1) TMI 162 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - deposits in its bank accounts during the demonetization period - HELD THAT - AO while framing the assessment vide his order u/s 144 had not rejected the books of account of the assessee company. On the contrary the AO by adopting the Net profit disclosed in the Profit and loss account of the assessee company as the base figure for determining/assessing its income had accepted its books results . As the AO had accepted the books of accounts of the assessee company therefore there could be no justification for him to have rejected the explanation of the assessee company that the cash deposits made during the demonetization period in his subject bank accounts were sourced from its business receipts forming part of the said books of accounts for the year under consideration. A view to the contrary would lead to incongruous result i.e while for the net profit arising from the duly accounted business transactions is accepted and brought to tax by the AO; but the said business transactions explaining the availability of cash-in-hand with the assessee as on 08.11.2016 is not to be accepted. A.O cannot be allowed to blow hot and cold at the same time i.e. accept the book results (as disclosed by the assessee company based on its audited books of account) and at the same time reject the duly accounted business transactions disclosed in the books of accounts which revealed that the cash deposits in the bank accounts of the assessee company were sourced out of the cash-in- hand available with it as on 08.11.2016. The fact as can be gathered from a perusal of the cash book of the assessee company reveals that the availability of cash-in-hand of Rs. 12, 00, 442.54 as on 08.11.2016 is found to be in parity with the cash-in-hand available with the assessee both during the pre-demonetization and post-demonetization period a fact which further dispels all doubts as regards the claim of the assessee company that the cash deposits in its bank accounts during the demonetization period was sourced from the cash-in-hand available with him as on 08.11.2016. No finding no justification on the part of the AO in treating the cash deposits as unexplained cash credit u/s. 68. Assessee appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the delay of 289 days in filing the appeal by the assessee company should be condoned.
Whether the addition of Rs. 12,21,000 as unexplained cash credit under Section 68 of the Income-tax Act, 1961, made by the Assessing Officer (A.O) and confirmed by the CIT(A), was justified.
Whether the assessee company's claim regarding the source of cash deposits during the demonetization period was adequately substantiated and should be accepted.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of Delay

Relevant legal framework and precedents: The principle of condonation of delay is based on the discretion of the court, taking into account bona fide reasons and compelling circumstances.
Court's interpretation and reasoning: The court considered the medical ailment of the director of the assessee company as a bona fide reason for the delay.
Key evidence and findings: Medical certificates and an affidavit were presented to substantiate the claim.
Application of law to facts: The court found the reasons compelling enough to condone the delay.
Treatment of competing arguments: The Revenue did not seriously object to the condonation.
Conclusions: The delay of 289 days was condoned.

Issue 2: Addition of Rs. 12,21,000 as Unexplained Cash Credit

Relevant legal framework and precedents: Section 68 of the Income-tax Act, dealing with unexplained cash credits, requires the assessee to satisfactorily explain the nature and source of cash deposits.
Court's interpretation and reasoning: The court observed that the A.O had accepted the books of accounts and the net profit disclosed therein, which contradicted the treatment of cash deposits as unexplained.
Key evidence and findings: The assessee provided books of accounts, purchase bills, sales bills, and a cash flow statement. The A.O had not rejected these books.
Application of law to facts: The court found that the cash deposits were adequately explained by the business receipts and cash-in-hand available before the demonetization period.
Treatment of competing arguments: The Revenue relied on the A.O's observations, but the court found them inconsistent with the acceptance of the books of accounts.
Conclusions: The addition of Rs. 12,21,000 as unexplained cash credit was vacated.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The A.O cannot be allowed to blow hot and cold at the same time, i.e., accept the book results (as disclosed by the assessee company based on its audited books of account), and at the same time, reject the duly accounted business transactions disclosed in the books of accounts which revealed that the cash deposits in the bank accounts of the assessee company were sourced out of the cash-in-hand available with it as on 08.11.2016."
Core principles established: The acceptance of books of accounts and the net profit therein implies acceptance of the transactions recorded, including cash deposits, unless specific discrepancies are identified.
Final determinations on each issue: The delay in filing the appeal was condoned, and the addition of Rs. 12,21,000 as unexplained cash credit was vacated.

The judgment ultimately allowed the appeal filed by the assessee company, setting aside the addition made by the A.O and confirmed by the CIT(A), thereby providing relief to the assessee.

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