2025 (1) TMI 1167 - AT - Income Tax

Addition u/s 68 - excess of SBNs deposited in the bank account of assessee charged to tax u/s. 115BBE - As argued assessee has received the above cash on account of his business of Bar Restaurant - HELD THAT - As decided in Sreelekha Bannerjee 1963 (3) TMI 47 - SUPREME COURT whole issue will depend in the manner in which the evidences brought by the taxpayer are viewed. The issue would be quite different when the assessee has maintained books of account which are accepted and there is a credit balance sufficient to cover the deposit of SBNs. All these facts would have to be examined. Thus if in this case the assessee establishes that the amount of cash deposit is generated out of its business no addition deserves to be made because the AO has accepted the book results of Bar Restaurant business. Therefore it is for the assessee to establish that the cash deposit by the assessee is business income profit of which is already offered for taxation. If the assessee is able to establish that there is sales recorded in the books of accounts in cash and source of deposit is available with the assessee out of such sales naturally no addition can be made in the hands in the Assessee. Assessee is directed to show the above details before ld AO which may be examined by him and then decide the issue afresh. Appeal filed by the assessee is allowed for statistical purposes.

1963 (3) TMI 47 - SC

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the cash deposits made by the assessee during the demonetisation period can be considered as undisclosed income under Section 68 of the Income-tax Act, 1961.
Whether the addition of Rs. 9,50,302 as unexplained cash credits is justified when the assessee claims these deposits as part of disclosed business receipts.
Whether the assessee's argument that the deposits were part of legitimate business transactions, despite being in Specified Bank Notes (SBNs) post-demonetisation, holds merit.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legitimacy of Cash Deposits as Business Income

Relevant Legal Framework and Precedents: The case primarily revolves around the application of Section 68 of the Income-tax Act, which concerns unexplained cash credits. The precedent set by the Supreme Court in the case of Sreelekha Bannerjee was considered, which emphasizes the importance of evidence in establishing the nature of cash deposits.
Court's Interpretation and Reasoning: The tribunal focused on the need for the assessee to demonstrate that the cash deposits were indeed business receipts. The court noted that if the assessee could establish the deposits as business income already offered for taxation, no additional tax should be levied.
Key Evidence and Findings: The assessee provided explanations that the cash deposits were from sales of the Bar & Restaurant business and were recorded in the books of accounts. The tribunal found that the assessee had maintained books of accounts accepted by the tax authorities, which showed sufficient credit balance to cover the deposits.
Application of Law to Facts: The tribunal applied the principles from the Sreelekha Bannerjee case, stating that if the assessee can prove that the deposits were from legitimate business transactions, no addition should be made under Section 68.
Treatment of Competing Arguments: The tribunal considered the assessee's argument about potential double taxation if the deposits were taxed again. The department's stance was that the onus was on the assessee to prove the legitimacy of the deposits. The tribunal directed the assessee to provide further details to the Assessing Officer (AO) for examination.
Conclusions: The tribunal concluded that the matter should be remanded back to the AO for a fresh examination of the evidence provided by the assessee regarding the source of the cash deposits.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "Thus, if in this case, the assessee establishes that the amount of cash deposit is generated out of its business, no addition deserves to be made, because the AO has accepted the book results of Bar & Restaurant business."
Core Principles Established: The tribunal reiterated that the burden of proof lies on the assessee to establish the source of cash deposits as legitimate business income. It emphasized the importance of maintaining proper books of accounts and the acceptance of these accounts by tax authorities.
Final Determinations on Each Issue: The appeal was allowed for statistical purposes, with the tribunal directing the AO to re-examine the evidence and decide the issue afresh based on the assessee's submissions.

The tribunal's decision underscores the necessity for taxpayers to maintain clear and comprehensive records to substantiate their claims, particularly in cases involving significant cash transactions during periods of regulatory changes such as demonetisation.

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