Assessing Officer's Addition of Cash Deposits Deemed Unjustified

The Tribunal held that the Assessing Officer's addition of cash deposits in the assessee's savings bank account was not justified as the deposits were explained to be from cash in hand of a company where the assessee was a majority shareholder. The Tribunal found the addition under Section 69 without proper opportunity for the assessee to be heard to be illegal and bad in law. Consequently, the addition was deleted, and the appeal of the assessee was allowed.

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Issues Involved:
1. Confirmation of addition of Rs. 33,71,720 made on account of cash deposits in a savings bank account.
2. Addition of Rs. 12,528 being interest earned on the said deposits.
3. Applicability of Section 68 vs. Section 69 of the Income Tax Act.
4. Consideration of deemed dividend under Section 2(22)(e) of the Act.
5. Procedural fairness and opportunity of being heard.

Issue-wise Detailed Analysis:

1. Confirmation of Addition of Rs. 33,71,720:
The primary issue was the confirmation of the addition of Rs. 33,71,720 made on account of cash deposits in the assessee's savings bank account. The Assessing Officer (AO) treated the cash deposits as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The assessee argued that the cash deposits were out of cash in hand of M/s. Orthonovo Joint & Trauma Hospital Pvt. Ltd., a company where the assessee and his wife were majority shareholders. The AO, however, observed that the bank account was not reflected in the company's balance sheet, leading to the addition being confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] under Section 69 of the Act.

2. Addition of Rs. 12,528 as Interest Earned:
The AO also added Rs. 12,528 as interest earned on the said cash deposits, which was not reflected in the return of income either by the assessee or the company. The CIT(A) upheld this addition as well, citing the same reasons for the unexplained cash deposits.

3. Applicability of Section 68 vs. Section 69:
The assessee contended that the addition under Section 68 was not justified as the savings bank account is not a book of accounts of the assessee but of the bank. The CIT(A) changed the addition to Section 69 without giving a show-cause notice to the assessee, which was argued to be procedurally unfair. The Tribunal noted that the CIT(A)'s action amounted to an enhancement of income without providing an opportunity for the assessee to be heard, rendering the addition illegal and bad in law.

4. Consideration of Deemed Dividend under Section 2(22)(e):
The AO, without prejudice, suggested that if higher judicial authorities deemed the cash deposits as explained, the amount should be considered as deemed dividend under Section 2(22)(e) of the Act, as the assessee was a substantial shareholder in the company. However, the CIT(A) dismissed this observation, stating that such an exercise by the AO was of no consequence and beyond his powers to pre-empt decisions of higher judicial authorities.

5. Procedural Fairness and Opportunity of Being Heard:
The Tribunal emphasized the importance of procedural fairness, noting that the CIT(A) confirmed the addition under Section 69 without giving the assessee a due opportunity of being heard. This act was considered an enhancement of income without proper notice, making the addition confirmed as illegal and bad in law.

Conclusion:
The Tribunal concluded that the AO was not justified in making the addition without establishing that there was no cash in hand balance available with the company. The cash deposits in the bank account were found to be out of cash in hand belonging to M/s. Orthonovo Joint & Trauma Hospital Pvt. Ltd., thus duly explaining the source. Consequently, the addition made by the AO and sustained by the CIT(A) under Section 69 was deemed not tenable in law and was deleted. The appeal of the assessee was allowed, and the order was pronounced in open court on 19.12.2019.

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