2021 (3) TMI 1012 - AT - Income Tax

Tribunal invalidates cash deposit addition under Income Tax Act, stresses need for clear income source documentation

The Tribunal dismissed the challenge to the validity of reassessment proceedings and overturned the addition of cash deposits under section 68 of the ... Addition u/s 68 - CIT(A) sustained the addition on the ground that the assessee could not substantiate with evidence of sales and cash deposits made at Jam Nagar, Delhi and Jaipur and, therefore, cash deposits at Jaipur and Jam Nagar and at Delhi were sustained by the CIT(A) - HELD THAT:- Once the total turnover of the assessee is much more than the total cash deposit in the bank account (in this case sales is 227% of the cash deposit), no addition is called for on account of unexplained cash deposit in the bank account. The explanation of the assessee appears to be reasonable. Under these circumstances, I hold that the ld.CIT(A) is not justified in sustaining the addition of ₹ 3,67,000/-. I, therefore, set aside the order of the CIT(A) and direct the AO to delete the addition. The grounds raised by the assessee on this issue is accordingly allowed. Issues:Validity of reassessment proceedings and addition of cash deposits under section 68 of the Income Tax Act.Validity of Reassessment Proceedings:The appeal challenged the validity of the reassessment proceedings and the addition of cash deposits made by the Assessing Officer (AO) under section 68 of the Income Tax Act. The AO reopened the assessment based on cash deposits in the assessee's bank account, issuing notices and seeking explanations. The assessee contended that most cash deposits were from sale receipts and a portion was from a gift. The Commissioner of Income Tax (Appeals) [CIT(A)] sustained an addition of Rs. 3,62,000 out of the total addition made by the AO. The Tribunal dismissed the ground challenging the validity of reassessment proceedings as it was not pressed during the hearing.Addition of Cash Deposits:The main issue revolved around the addition of cash deposits in the bank account, which the AO attributed to unexplained sources. The CIT(A) upheld an addition of Rs. 3,62,000, stating that the deposits were not from regular sales. The assessee argued that the total gross receipts were higher than the deposits, and the AO had already accepted a portion as a gift. The Tribunal agreed with the assessee, noting that the total turnover significantly exceeded the cash deposits. The Tribunal held that no addition was warranted for unexplained cash deposits and directed the AO to delete the addition. Consequently, the appeal was partly allowed, and the addition was overturned.Conclusion:The Tribunal's decision highlighted the importance of establishing a clear link between income sources and cash deposits to avoid additions under section 68 of the Income Tax Act. The judgment emphasized the need for thorough documentation and explanations to substantiate cash transactions, ensuring compliance with tax regulations and preventing unwarranted additions based on insufficient evidence.