2021 (6) TMI 57 - AT - Income Tax

Tribunal overturns decision on unexplained cash deposits, stresses accurate income assessment

Smt. Marri Vijayalakshmi Versus Income Tax Officer Ward-1 (3), Guntur

The Tribunal allowed the appeal, setting aside the lower authorities' orders and deleting the addition of unexplained cash deposits in the joint account. ... Unexplained cash deposits - assessee is having joint account with HDFC Bank - HELD THAT:- As deposits were made in joint account maintained in the names of Marri Venkata Subbareddy being a first holder, the assessee and her mother-in-law Smt.Subbayamma Reddy. In the assessment order, the AO has not given any reason to assess the deposits made in the bank account in the hands of the assessee instead of her mother-in-law Smt. Subbayamma Reddy, though, the assessee has given a letter to the AO stating that the deposits made in joint account belonged to her mother-in-law Smt. Subbayamma Reddy. AO simply brushed aside the explanation and taxed the deposits in the hands of the assessee. When the deposits were made in the joint account the same should be assessed in the hands of correct person after due identification. In the instant case, the assessee furnished the letter but the AO has not made any effort to verify the correctness of the statement made by Smt. Marri Vijaya Lakshmi stating that Smt. Subbayamma Reddy is not an Income-tax assessee. AO is not barred from making assessment in the hands of the person who is not assessed to tax if there is taxable income. Smt. Subbayamma Reddy also did not refuse or reject the statement made by the assessee and therefore we hold that when specifically made out the case that deposits were made by her mother-in-law Smt. Subbayamma Reddy who is the joint account holder, there is no justification to make the addition in the hands of the assessee, hence, we set aside the order of the ld. CIT(A) and delete the addition made by the AO. Even otherwise, the assessee has the furnished cash flow statement explaining the source of the deposits, the cash deposits made by the assessee are supported by the withdrawals made in the account and the department did not bring any evidence to dispute the cash flow statement of the assessee. According to the cash flow statement there was a deficit of ₹ 76000/- only. Since all the joint account holders are the Income-tax assessees, there is no reason to suspect the negative balance of ₹ 76,000/-. Therefore, on merits also, the assessee succeeds. Issues:1. Addition of unexplained cash deposits in a joint account.2. Assessment of deposits in the hands of the correct person.3. Verification of the correctness of statements made by the parties.4. Assessment of deposits in joint account holders' hands.5. Supporting evidence for cash deposits.Analysis:Issue 1: Addition of unexplained cash deposits in a joint accountThe appeal was against the addition of Rs. 51,13,000 as unexplained cash deposits in a joint account maintained with HDFC Bank. The Assessing Officer (AO) accepted Rs. 13,70,000 as explained for the sale of agricultural land but added the remaining amount to the assessee's income. The CIT(A) upheld the addition. The appellant argued that the deposits were made by another joint account holder, not the assessee, and provided evidence to support this claim.Issue 2: Assessment of deposits in the hands of the correct personThe AO did not provide a reason for assessing the deposits in the assessee's hands instead of the joint account holder responsible for the funds. The appellant submitted a letter stating that the deposits belonged to the other joint account holder, which the AO did not adequately consider. The Tribunal emphasized the importance of correctly identifying the person responsible for the deposits.Issue 3: Verification of the correctness of statements made by the partiesThe Tribunal noted that the AO failed to verify the correctness of the statement made by one of the joint account holders regarding the ownership of the funds. The failure to investigate this aspect led to an incorrect assessment of the deposits.Issue 4: Assessment of deposits in joint account holders' handsThe Tribunal held that when a specific claim was made that the deposits belonged to the other joint account holder, there was no justification for assessing the funds in the assessee's hands. The assessment should be made in the hands of the correct person, especially when the claim is supported by evidence.Issue 5: Supporting evidence for cash depositsThe appellant provided a cash flow statement explaining the source of the deposits, which was not disputed by the department. The Tribunal found that the evidence presented by the appellant supported the legitimacy of the cash deposits, leading to the deletion of the addition.In conclusion, the Tribunal allowed the appeal, setting aside the orders of the lower authorities and deleting the addition of unexplained cash deposits in the joint account. The Tribunal emphasized the importance of correctly assessing income in the hands of the appropriate person based on the evidence and statements provided during the assessment proceedings.