Cash deposits from recorded sales and debtor realizations cannot be treated as unexplained credits under Section 68

The ITAT Chandigarh ruled in favor of the assessee regarding unexplained cash credit additions under Section 68 read with Section 115BBE. The assessee deposited cash in bank accounts during demonetization period from business receipts and debtor realizations. Despite accepting the books of accounts and trading results, the AO added these deposits as unexplained credits. The ITAT held that cash deposits from recorded sales and debtor realizations cannot be treated as unexplained credits under Section 68, as this would constitute double addition of the same amount. The addition was deemed illegal and void-ab-initio, and was consequently deleted.

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Issues Involved:
1. Reasonable and adequate opportunity of hearing.
2. Addition of Rs. 87,95,000/- as unexplained cash credit under section 68 read with section 115BBE.
3. Initiation of proceedings under section 271 AAC.
4. Charging of interest under sections 234B, 234C, and 234D.

Detailed Analysis:

1. Reasonable and Adequate Opportunity of Hearing:
The assessee contended that the Assessing Officer (AO) passed the order under section 144 of the Income Tax Act, 1961, without providing a reasonable and adequate opportunity of hearing. The AO issued multiple notices under section 142(1) to which the assessee responded partially but failed to provide complete information. A show cause notice was issued on 04.12.2019, and the assessee responded on 09.12.2019, but the information remained incomplete. The AO concluded that the non-compliance indicated the assessee's unwillingness to provide further explanation, leading to an ex-parte assessment under section 144(1)(b).

2. Addition of Rs. 87,95,000/- as Unexplained Cash Credit:
The AO analyzed the bank accounts and observed significant cash deposits during the demonetization period, suspecting them to be unaccounted money. The AO cited the Supreme Court's decision in "Smt. Srilekha Banerjee and others Vs CIT," which held that unexplained money could be treated as assessable income. The AO added Rs. 87,95,000/- as unexplained cash credit under section 68 and taxed it under section 115BBE.

The CIT(A) confirmed the AO's addition, noting that the appellant failed to provide a reason for the rise in sales in October and November, suggesting the cash deposits were from undisclosed sources. The assessee argued that the CIT(A) passed a non-speaking order, ignoring the nature of the business and the details furnished in the Tax Audit Report.

The Tribunal found that cash deposits in the bank were a normal feature of the assessee's business, with higher deposits in October and November due to cyclic variations like festivals and marriage season. The assessee provided detailed cash flow statements, showing that the cash deposits were from business receipts and were duly recorded in the books of account. The Tribunal noted that the AO accepted the trading results and books of account, which included the cash deposits. Therefore, adding the same amount as unexplained cash credit amounted to double addition. The Tribunal concluded that the addition under section 68 was illegal, bad in law, and void-ab-initio.

3. Initiation of Proceedings under Section 271 AAC:
The Tribunal did not specifically address the initiation of proceedings under section 271 AAC in the judgment. However, given the cancellation of the addition under section 68, the basis for initiating proceedings under section 271 AAC would also be invalid.

4. Charging of Interest under Sections 234B, 234C, and 234D:
The Tribunal did not specifically address the charging of interest under sections 234B, 234C, and 234D. However, with the cancellation of the addition under section 68, the interest charged under these sections would also need to be recalculated based on the revised taxable income.

Conclusion:
The Tribunal allowed the assessee's appeal, canceling the addition of Rs. 87,95,000/- made under section 68 as unexplained cash credit. The Tribunal found that the cash deposits were part of the regular business transactions and were duly recorded in the books of account. The addition was deemed illegal, invalid, and void-ab-initio. Consequently, the initiation of proceedings under section 271 AAC and the charging of interest under sections 234B, 234C, and 234D would also be affected by this decision.

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