2013 (5) TMI 1044 - AT - Income Tax

Tribunal confirms deletion of unexplained cash credit under Income Tax Act

ITO, Ward-25 (1), New Delhi Versus Shri Varun Kumar Saboo

The Tribunal upheld the CIT(A)'s decision to delete the unexplained cash credit under section 68 of the Income Tax Act, 1961. The appellant, a trading ... - ISSUES PRESENTED AND CONSIDERED 1. Whether the addition under the provision relating to unexplained cash credits for deposits in the assessee's savings bank account can be sustained where the assessee furnishes bank statements, cash book entries, details of withdrawals from another bank account and a cash-flow summary purporting to show the source of the deposits. 2. Whether the appellate authority erred in admitting and relying upon documentary material not placed before the Assessing Officer without remanding the matter to the Assessing Officer under the remand provisions of Rule 46A(3) of the Income-tax Rules, 1962. 3. Whether the Assessing Officer committed an error of law or fact by failing to give credit for cash withdrawn from one bank account and redeposited into another, and by ignoring receipts from debtors and opening cash balance when determining availability of cash. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sustainment of addition under unexplained cash credits (statutory provision for unexplained cash) Legal framework: The statutory provision targets unexplained credits/deposits in a taxpayer's bank account; burden is on the assessee to satisfactorily explain the nature and source of such deposits. Documentary records, bank statements, books of account or other cogent material demonstrating source of funds are relevant to discharge the explanation requirement. Precedent treatment: No specific precedent is relied upon or overruled in the judgment; the Tribunal proceeds on established principle that credible contemporaneous records and explanations which demonstrate availability of cash to account for deposits can rebut an addition under the unexplained cash provision. Interpretation and reasoning: The appellate authority accepted the assessee's evidence - bank account entries, cash withdrawal particulars from another bank account, receipts from debtors and a cash-flow summary - concluding these showed availability of cash adequate to account for the deposits. The Tribunal found that the Assessing Officer failed to credit the cash withdrawn and re-deposited, and ignored cash receipts from debtors and opening cash balance. The Tribunal held that the assessee, a small/petty businessman who filed returns on a presumptive basis, produced sufficient evidence (cash book/statements) to explain the deposits and rebut the unexplained character of the credits. Ratio vs. Obiter: Ratio - where bank statements, cash-book entries and a cash-flow vindicate availability of cash, an addition under unexplained cash credits cannot be sustained; Assessing Officer must give credit for withdrawals redeposited and receipts from debtors. Obiter - observations on the nature of the business being 'petty' and on the appellant filing under presumptive provisions provide contextual support but are not essential to the legal holding. Conclusion: The addition was correctly deleted by the appellate authority because the assessee produced cogent documentary material and cash summary establishing sources of the bank deposits; the Assessing Officer's addition under the unexplained cash head therefore did not survive judicial scrutiny. Issue 2 - Admissibility of evidence before the Appellate Authority and remand under Rule 46A(3) Legal framework: Rule 46A(3) of the Income-tax Rules permits remand by an appellate authority to the Assessing Officer to obtain a report on additional evidence, where appropriate; ordinarily, evidence not placed before the AO that is sought to be relied upon on appeal may require remand. Precedent treatment: The decision does not cite or distinguish specific precedents on the scope of Rule 46A(3). The Tribunal applies the principle that evidence already available to the Assessing Officer need not be treated as 'additional' for the purposes of the remand rule. Interpretation and reasoning: The Tribunal examined whether the material relied upon by the appellate authority constituted additional evidence. It held that the statements, bank entries and cash summary were not additional because the assessee had not maintained formal books but had supplied statements and bank entries that were available to the Assessing Officer. The Tribunal found that the Assessing Officer had such bank details on record (savings and current account entries) and therefore the appellate authority did not violate Rule 46A(3) by admitting or relying on those materials without remand. Ratio vs. Obiter: Ratio - where the documentary material and statements relied upon in appeal are essentially records already in the possession of or available to the Assessing Officer, the appellate authority need not remand under Rule 46A(3) to obtain a remand report; such material is not 'additional evidence' warranting remand. Obiter - procedural admonitions about the circumstances under which remand would be necessary are illustrative. Conclusion: There was no breach of Rule 46A(3) because the evidence the appellate authority relied upon was not new to the assessment record and therefore did not require remand to the Assessing Officer. Issue 3 - Failure of Assessing Officer to give credit for withdrawals redeposited and receipts from debtors (evaluation of Assessing Officer's conduct) Legal framework: In determining unexplained deposits, the Assessing Officer must consider all credible sources of cash including opening balance, withdrawals from other bank accounts, receipts from debtors and sales, and must reconcile these with deposits; failure to consider such items may render an addition arbitrary. Precedent treatment: No direct precedent cited; the Tribunal applies general principles of fair and holistic evaluation of available records in assessment proceedings. Interpretation and reasoning: The Tribunal found that the Assessing Officer disregarded the cash withdrawn from the current account and redeposited into the savings account, and ignored receipts from debtors and opening cash, thereby undercounting available cash. The appellate authority reasonably concluded that redepositing withdrawn cash increases cash in rotation and is a permissible explanation for the deposits. The Tribunal therefore endorsed the appellate finding that the Assessing Officer's treatment was erroneous on facts. Ratio vs. Obiter: Ratio - an Assessing Officer must give credit for demonstrable cash movements (withdrawals and redeposits, debtors' receipts, opening balances) when assessing whether bank deposits are unexplained; failure to account for such movements undermines an addition. Obiter - comments on rotation of cash and business practices of small traders are contextual. Conclusion: The Assessing Officer erred in not crediting withdrawals re-deposited and other cash receipts; the appellate authority rightly set aside the addition based on a reasoned factual finding that adequate cash sources existed to explain the deposits. Overall disposition Having considered the documentary material, the adequacy of the explanation for the deposits, and the procedural question under Rule 46A(3), the Tribunal dismissed the revenue's appeal and upheld deletion of the addition made under the unexplained cash provision.