2014 (6) TMI 397 - AT - Income Tax

Appeal partially allowed, relief granted from addition under sec. 68. Importance of explaining cash deposits emphasized.

Ghazi Mohsin Mehfooz Versus ITO WD No. 13(3) (4), Mumbai

The ITAT Mumbai partly allowed the appeal, granting relief of Rs.6,00,000/- to the assessee from the addition of Rs.26,27,000/- made under sec. 68 of the ... Addition made u/s 68 of the Act – Held that:- Relying upon Manoj Aggarwal and others Versus Deputy Commissioner Of Income-tax, Central Circle - 3, New Delhi [2008 (7) TMI 446 - ITAT DELHI-A] - CIT(A) has expressed the view that the assessee might have saved Rs.2.00 lakhs over the years - CIT(A) has failed to give relief at least to the extent of Rs.2.00 lakhs, as estimated by him - CIT(A) did not take into account the Opening Capital balance that was available with the assessee, i.e., the Ld CIT(A) has considered the income declared by the assessee and not the opening capital balance - the assessee has shown opening capital balance as on 1.4.1991 at Rs.22,06,210 - the availability of opening capital balance cannot be discounted altogether - it may not be proper to altogether reject the claim of savings from past income also – thus, the amount saved out of opening capital balance and past income is estimated at Rs.6,00,000 – Decided partly in favour of Assessee. Issues:1. Addition of Rs.26,27,000/- under sec. 68 of the Act.2. Rejection of assessee's explanation for the source of cash deposits.3. Consideration of bank pass book for additions under sec. 68 of the Act.4. Assessment of savings from past income and opening capital balance.Issue 1: Addition of Rs.26,27,000/- under sec. 68 of the Act:The appeal pertains to the assessment year 2009-10 where the assessee, a spiritual healer engaged in selling precious stones, had deposited Rs.26,27,000/- in a bank account without explaining the source of the funds. The assessing officer treated this as income under sec. 68 of the Act, a decision upheld by the Ld CIT(A) leading to the appeal before ITAT Mumbai.Issue 2: Rejection of assessee's explanation for the source of cash deposits:The Ld CIT(A) rejected the assessee's claim that the funds could have been saved from gifts received from devotees or past income. The authority highlighted discrepancies in the assessee's financial history, including low savings over the years and borrowing a small amount despite claiming possession of a significant cash balance. The Ld CIT(A) concluded that the explanation provided was insufficient, leading to the confirmation of the addition.Issue 3: Consideration of bank pass book for additions under sec. 68 of the Act:The ITAT Mumbai referenced a decision by the Hon'ble Bombay High Court and a Special Bench of the Delhi Tribunal to emphasize that even if sec. 68 of the Act might not strictly apply due to lack of maintained books of account, the onus is on the assessee to explain cash deposits. The tribunal noted that under general principles or sec. 69 of the Act, the assessee must justify the sources of bank deposits, irrespective of strict application of sec. 68.Issue 4: Assessment of savings from past income and opening capital balance:The ITAT Mumbai, after considering the submissions and financial records, estimated that the assessee could have saved Rs.6,00,000/- from the opening capital balance and past income. The tribunal modified the Ld CIT(A)'s decision, granting relief of Rs.6,00,000/- from the total addition of Rs.26,27,000/-, emphasizing the importance of considering the opening capital balance and past income in determining the source of funds.In conclusion, the ITAT Mumbai partly allowed the appeal, modifying the order to grant relief of Rs.6,00,000/- to the assessee from the addition made under sec. 68 of the Act, based on a comprehensive analysis of the financial history and explanations provided by the assessee.