2023 (8) TMI 141 - AT - Income Tax

ITAT reduces unexplained cash addition and penalty, emphasizing fairness in penalty imposition

The ITAT partially allowed the appeals by reducing the unexplained cash addition to Rs. 82,825 and the penalty to Rs. 10,000. It found the AO exceeded ... Addition u/s 69A/68 - cash deposits in bank account maintained with SBI unexplained - assessee case has been selected under limited scrutiny to verify the cash deposit during the demonetization period - HELD THAT:- Admittedly, it is a case of limited scrutiny as evident from the notice issued u/s 143(2) - The notice issued u/s 132 of the Act states that case has been selected under limited scrutiny to verify the cash deposit during the demonetization period. Thus, to our understanding, the scope was limited to the extent of cash deposited during the demonetization period. We find that the AO under the assessment order has treated the cash deposits made by the assessee during the entire year as unexplained money/ cash credit under section 69A/68 - The action of the AO is clearly in violation of the instruction issued by the CBDT Circular No. 5 dated 17/07/2016. In view of the above, we hold that the AO while framing the assessment has exceeded his jurisdiction by making an addition of the cash deposit of the entire year as income of the assessee. We note that the cash has been deposited during the demonetization period by the assessee which can only be considered for the purpose of determining the income. Admittedly, there were also withdrawals of cash deposit from the bank account as evident from the submission made by the assessee before Ld. CIT(A). We are of the view that the entire cash deposit cannot be treated as income of the assessee. Computation of income - The dispute before us relates to the cash deposits during the demonetization period which to our understanding represents business receipts and therefore only a percentage of such deposits should be taken for calculating the income of the assessee. Thus, in the interest of justice and fair play, we are of the view that a lumpsum addition of Rs. 82,825.00 being 5% of Rs. 16,56,500 over and above the income declared, will serve justice to the assessee as well as revenue. Hence, the ground of appeal of the assessee is partly allowed. Issues Involved:1. Addition of Rs. 1,74,31,100/- as unexplained cash under section 68/69A.2. Jurisdiction of the Assessing Officer (AO) in limited scrutiny cases.3. Levy of penalty under section 271A(1)(d).Summary:1. Addition of Rs. 1,74,31,100/- as Unexplained Cash:The assessee, engaged in vegetable trading, had cash deposits of Rs. 1,74,31,100/- in his bank account. The AO added this amount as unexplained cash under section 69A/68 due to the assessee's failure to explain the source. The assessee contended that these deposits were business receipts and withdrawals were used for future deposits. However, the CIT(A) confirmed the addition, stating that no supporting documents were provided to justify the withdrawals and deposits.2. Jurisdiction of the AO in Limited Scrutiny Cases:The case was selected for limited scrutiny to verify cash deposits during the demonetization period. The AO exceeded his jurisdiction by considering cash deposits for the entire year, violating CBDT Circular No. 5 dated 17/07/2016. The ITAT referenced an identical case (Shri Narendrakumar Rameshbhai Patel) where it was held that the AO could only examine issues specified in the limited scrutiny notice unless converted to complete scrutiny with proper approval. The ITAT concluded that only cash deposits during the demonetization period (Rs. 16,56,500) should be considered, and a lumpsum addition of Rs. 82,825 (5% of Rs. 16,56,500) was appropriate.3. Levy of Penalty under Section 271A(1)(d):The AO levied a penalty of Rs. 20,000/- for non-compliance with notices under sections 143(2) and 143(1). The assessee claimed ignorance of tax proceedings as a reasonable cause. The CIT(A) upheld the penalty, asserting that notices were sent online. The ITAT, referencing a Delhi Tribunal decision (Smt. Rekha Rani Vs. DCIT), reduced the penalty to Rs. 10,000/-, emphasizing that penalties for non-compliance should not be repetitive for the same default.Conclusion:The ITAT partly allowed the appeals, reducing the addition to Rs. 82,825 and the penalty to Rs. 10,000/-. The AO's action of exceeding the limited scrutiny scope was deemed unjustified, and the penalty was adjusted to reflect a fair assessment of the assessee's compliance issues.