2019 (11) TMI 868 - AT - Income Tax

ITAT rules in favor of assessee, overturning AO's addition under Section 68 of Income Tax Act

Smt. Asha Sanghavi Versus Income Tax Officer Ward-2 Rajamahendravaram

Smt. Asha Sanghavi Versus Income Tax Officer Ward-2 Rajamahendravaram - TMI Issues Involved:1. Validity of notice issued under Section 143(2) of the Income Tax Act, 1961.2. Addition of Rs. 1,22,29,000/- under Section 68 of the Income Tax Act, 1961, treating cash deposits as unexplained income.Issue-Wise Detailed Analysis:1. Validity of Notice under Section 143(2):- The assessee raised an issue regarding the validity of the notice issued under Section 143(2) of the Income Tax Act, 1961.- During the appeal hearing, the assessee's representative did not press this ground.- Consequently, this ground was dismissed as not pressed.2. Addition under Section 68:- Facts of the Case:- The assessee, an individual with income from house property, interest, commission, and other sources, filed a return of income for A.Y. 2011-12 declaring a total income of Rs. 3,10,000/-.- During scrutiny, the AO found that the assessee had traded in Metals & Energy in Multi Commodity Exchange of India Limited, resulting in a loss of Rs. 55,767/-.- The AO noticed cash deposits totaling Rs. 1,29,09,000/- in various bank accounts and asked the assessee to explain the source of these deposits.- Assessee's Explanation:- The assessee claimed the sources were gifts received and the sale of inherited gold ornaments.- The AO requested documentary evidence for the sale of gold and cash gifts.- The assessee provided sale bills on white paper slips without names and addresses of buyers and failed to furnish evidence for the gifts.- The AO treated the entire amount deposited as unexplained cash credit under Section 68 and made the addition.- Appeal before CIT(A):- The assessee furnished additional evidence in the form of confirmation letters from 18 creditors who allegedly purchased the gold.- The CIT(A) admitted the additional evidence and called for a remand report from the AO.- The AO requested the assessee to produce the 18 persons who provided confirmations along with their income tax returns and bank statements, but the assessee failed to produce them.- The CIT(A) confirmed the addition made by the AO under Section 68.- Arguments before ITAT:- The assessee argued that since the deposits were made in bank accounts and not in the books of accounts, Section 68 should not apply.- The assessee relied on the decision of ITAT Mumbai in Mehul V. Vyas Vs. Income Tax Officer, which held that bank deposits cannot be treated as unexplained cash credit under Section 68.- The assessee also argued that they had filed confirmation letters from buyers with clear addresses and PAN, thus discharging their burden of proof.- The assessee contended that the AO did not conduct any inquiries to disprove the claim and that the deposits should be set off against trading losses.- Revenue's Argument:- The Revenue argued that the assessee did not declare the transactions in the return of income and failed to explain the sources of cash deposits.- The Revenue emphasized that the assessee could not produce the buyers of the gold during remand proceedings.- The Revenue relied on the decision in Sachdeva Vs. ITO, arguing that the assessee did not own the gold and thus could not have sold it.- ITAT's Decision:- ITAT noted that Section 68 allows the AO to make additions for sums credited in the books of accounts for which the assessee fails to offer satisfactory explanation.- ITAT referenced the decision in Mehul V. Vyas and CIT Vs. Bhaichand N. Gandhi, which held that bank passbooks are not considered books of accounts for the purpose of Section 68.- ITAT concluded that since the deposits were not recorded in the books of accounts, the addition under Section 68 was unsustainable.- The appeal of the assessee was allowed, and the addition made by the AO was deleted.Conclusion:- The appeal of the assessee was allowed, and the addition of Rs. 1,22,29,000/- made by the AO under Section 68 was deleted.- The ITAT held that cash deposits in bank accounts, not recorded in the books of accounts, cannot be treated as unexplained cash credit under Section 68.