Tribunal allows appeal, removes Rs. 45L addition under Income Tax Act

The tribunal allowed the appeal filed by the assessee, deleting the addition of Rs. 45,00,000 under section 69A of the Income Tax Act. It emphasized that the cash deposits during the demonetization period were adequately explained through the cash in hand and opening balance reflected in the genuine books of accounts. The tribunal held that in the absence of evidence contradicting the source of the cash deposits, no addition should be made, citing the case of ATUL GUPTA V/S ITO [142 TAXMANN.COM 36 (ITAT DELHI)].

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Issues Involved:
1. Validity of the vague show cause notice.
2. Justification of the addition of Rs. 45,00,000/- under section 69A of the Income Tax Act, 1961.

Summary:

Issue 1: Validity of the vague show cause notice

The appellant contended that the Learned Commissioner of Income Tax (Appeals) [CIT(A)] failed to provide a "speaking finding" on the issue of the vague show cause notice. However, the tribunal did not find any merit in this argument, noting that the notice issued by the Assessing Officer (AO) specifically inquired about the cash deposits of Rs. 45,00,000/- during the demonetization period, and there was no contradiction in the addition made by the AO.

Issue 2: Justification of the addition of Rs. 45,00,000/- under section 69A

The assessee, a Private Limited Company engaged in the dyeing and printing business, deposited Rs. 45,00,000/- in its bank accounts during the demonetization period. The AO treated this amount as unexplained money under section 69A of the Income Tax Act, 1961, on the grounds that the assessee failed to satisfactorily explain the source of the cash deposits. The AO observed that the cash withdrawn before Diwali was likely used for wages and salaries, and the deposited cash was not from those withdrawals.

The assessee argued that the cash deposited was from the opening balance and cash in hand, which was substantiated by the cash book showing a sufficient balance. The tribunal noted that the books of accounts were subject to statutory audit and the cash book's opening and closing balances were verified by the auditor, thus establishing the genuineness of the cash book.

The tribunal also considered a comparative analysis of cash withdrawals and expenses for previous years, which showed no abnormality. It concluded that the cash deposited during the demonetization period was from the cash in hand available with the assessee-company, and the AO failed to provide evidence to the contrary.

Citing the case of ATUL GUPTA V/S ITO [142 TAXMANN.COM 36 (ITAT DELHI)], the tribunal held that where the source of cash is satisfactorily explained, no addition should be made. Therefore, the tribunal deleted the addition of Rs. 45,00,000/- made by the AO.

Conclusion:

The appeal filed by the assessee was allowed, and the addition of Rs. 45,00,000/- was deleted. The tribunal emphasized that the cash in hand recorded in the books of accounts, which were accepted as genuine, should not be arbitrarily treated as unexplained income.

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