2023 (6) TMI 1411 - AT - Income Tax

Cash deposits during demonetization need proper verification before treating as unexplained investment under Section 69

The ITAT Bangalore held that cash deposits during demonetization period require proper verification under relevant circulars before treating as ... Unexplained investment U/s. 69 and levying tax U/s. 115BBE - cash deposited during the demonetization period - Appellant has produced the ownership of agricultural lands yield of agriculture produce, selling rates of agriculture produce without any other adverse materials - HELD THAT:- Admittedly, the assessee had accepted the SBNs which were no longer a legal tender and were to be explained in accordance with the relevant circular mentioned hereinabove. These instructions gives a hint regarding what kind of investigation, enquiry, evidences that the AO is required to take into consideration for the purpose of assessing such cases. Instructions dated 09/08/2019 speaks about the comparative analysis of cash deposits or cash sales, month wise cash sales and cash deposits. It also provides that whether in such cases the books of accounts have been rejected or not where substantial evidences of vide variation be found between these statistical analyses. Therefore, it is very important to verify whether a case of the assessee falls into statistical analysis, which suggests that there is a booking of sales, which is non-existent and thereby unaccounted money of the assessee in old currency notes (SBN) have been pumped into as unaccounted money. Another instruction dated 21/02/2017 requires that the assessing officer to verify basic relevant information e.g. monthly sales summary, relevant stock register entries and bank statement to identify cases with preliminary suspicion of back dating of cash and is or fictitious sales. The instruction is also suggested some indicators for suspicion of back dating of cash else or fictitious sales where there is an abnormal jump in the cases during the period November to December 2016 as compared to earlier year. It also suggests that, abnormal jump in percentage of cash trails to on identifiable persons as compared to earlier histories will also give some indication for suspicion. Non-availability of stock or attempts to inflate stock by introducing fictitious purchases is also some indication for suspicion of fictitious sales. Transfer of deposit of cash to another account or entity, which is not in line with the earlier history. Therefore, it is important to examine whether the case of an assessee falls into any of the above parameters are not. The assessee is directed to establish all relevant details to substantiate its claim in line with the above applicable instructions as applicable to the present facts of assessee. We are aware of the fact that not every deposit during the demonetization period would fall under category of unaccounted cash. However the burden is on the assessee to establish the genuineness of the deposit in order to fall outside the scope of unaccounted cash. The Ld.AO shall verify all the details/evidences filed by the assessee based on the above direction and applicable instruction, to the facts and circumstances of the present assessee and to consider the claim in accordance with law. Appeal filed by the assessee stands partly allowed for statistical purposes. Issues:1. Addition of unexplained investment and tax levy under Section 115BBE.2. Consideration of HUF income in assessment.3. Failure to deduct gross agricultural income in computing unexplained investment.4. Disagreement with addition of unexplained investment by CIT(A).5. Application of Section 115BBE in taxing agriculture income.6. Validity of addition under Section 68 for cash deposited in bank account.7. Adequacy of opportunity for being heard.8. Exercise of power under Section 250 for further enquiry.9. Compliance with principles of natural justice.Analysis:1. The primary issue in the appeal was the addition of Rs. 18.44 lakhs as unexplained investment and the subsequent tax levy under Section 115BBE. The assessee contended that the cash deposits were from agricultural income and LIC commission. However, the AO added the amount as the assessee failed to provide satisfactory explanations with documentary evidence.2. The CIT(A) upheld the AO's decision, emphasizing that the appellant's claims of the cash deposits being from agricultural proceeds were not substantiated with bank statements. The CIT(A) concluded that the invocation of Section 69 and tax levy under Section 115BBE were justified, dismissing grounds 1 to 5 of the appeal.3. The Tribunal considered the arguments presented by both parties. The assessee reiterated the submissions made before the lower authorities. The Revenue suggested remanding the issue back to the AO for verification in light of CBDT circulars related to demonetization period cash deposits.4. The Tribunal acknowledged the relevance of the circulars issued by the CBDT regarding verification of cash deposits during demonetization. The instructions highlighted the need for comparative analysis, examination of sales records, and identification of suspicious transactions to determine the legitimacy of cash deposits.5. The Tribunal directed the assessee to provide substantiating details in line with the applicable instructions to establish the genuineness of the cash deposits. The burden was placed on the assessee to prove the legitimacy of the deposits to avoid classification as unaccounted cash. The AO was instructed to verify the evidence and consider the claim in accordance with the law.6. Consequently, the Tribunal partly allowed the appeal for statistical purposes, emphasizing the importance of complying with the CBDT circulars and providing sufficient evidence to support the source of cash deposits.Conclusion:The judgment addressed the issues raised by the assessee regarding unexplained investments, taxation of agricultural income, and compliance with procedural requirements. It highlighted the significance of providing documentary evidence to substantiate claims and the role of the assessing officer in verifying the legitimacy of cash deposits, particularly during the demonetization period.