2024 (10) TMI 421 - AT - Income Tax

Assessee partially succeeds in Section 68 case with Rs 14.60 crores explained through advances but Rs 81 lakhs sustained

Jaya Balaji Real Media Pvt Limited, Hyderabad. Versus The Deputy Commissioner of Income Tax, Central Circle – 2 (3), Hyderabad.

ITAT Hyderabad allowed the assessee's appeal partially in a case involving unexplained cash deposits under Section 68. The tribunal held that while ... Addition u/s 68 - unexplained deposits found in the bank account - whether Section 68 can be invoked for deposits found in bank account or not? - main contention of the assessee is bank passbook is not a book as per section 2(12A) and thus, the provisions of Section 68 cannot be invoked to cash deposits into bank account as unexplained cash deposit - HELD THAT:- According to the assessee, unexplained cash deposits in a bank account can be considered as unexplained money u/s 69A of the Act, but the same cannot be treated as unexplained credits as per Section 68, because the said deposit is not a credit as per books of accounts, but only out of cash balance available in the books of accounts. We do not subscribe to the arguments of the counsel for the assessee for the simple reason that, merely for the reason of choosing wrong head or incorrect section, the addition itself cannot be nullified or held to be void. But what is to be seen is the context of discussion and substance of the issue and if, the discussion points to an issue, then in our considered view the issue needs to be considered. Therefore, we reject the arguments of the assessee along with relevant case laws cited in support of this proposition. Addition made towards cash deposit as unexplained money -Once the AO accepted the advances as genuine in the earlier assessment year, then in our considered view, the AO cannot question the advances received by the appellant in the present assessment year as non-genuine while examining the source of cash deposits into the bank account. This legal principle is supported by the decision of Basetteppa B. Badami [2018 (5) TMI 902 - KARNATAKA HIGH COURT] wherein it has been clearly held that when closing balance of cash in hand for the preceding assessment year is sufficient to cover the expenditures in the subsequent year, no addition can be made towards cash deposit as unexplained money. Therefore, in our considered view, the addition made by the AO u/s 68 of the Act, cannot be sustained. Advances received from 6 parties - The appellant has established the transactions with all evidence, including the confirmation from the parties. Therefore, in our considered view, the appellant is able to explain the source of cash of Rs. 14.60 crores towards cash deposit to bank account out of advances received from 6 parties in earlier financial year and the corresponding cash balance available as per books of accounts, and thus, we direct the AO to delete the addition made to the extent of Rs. 14.60 crores. In so far as remaining cash deposit of Rs. 81 laces, out of advance received from one person in the FY 2016-17 relevant to AY 2017-18, all though the appellant filed all details, but failed to prove credit worthiness of the person and thus, in our considered view advance received from Sri. M Satya Gopal for Rs. 81 laces cannot be considered as source for cash deposit and thus, we confirm the addition to the tune of Rs. 81,00,000/-. Source for cash deposits out of cash withdrawals from the bank account - AO and ld.CIT(A) have not disputed the fact that the assessee is having cash balance out of cash withdrawals from the very same bank account, but the AO rejected the explanation of the assessee only on the ground that the appellant has prepared books of accounts after date of search and there is a possibility of dressing up the books of accounts to cover up the source of cash deposits. In our considered view, the reasons given by the AO is fallacious for the simple reason that, unless AO proves with necessary findings that the cash balance available in the books of accounts is not backed by any evidence, including withdrawals from the bank account or the said cash in hand has been utilized or appropriated for any other purposes, the cash balance available as per books of accounts cannot be denied merely for the reason that the said books of accounts has been audited or prepared after the date of search. Merely for the reason that the book of accounts has been prepared and audited after the date of search, the books of accounts cannot be rejected by the AO, unless the AO points out that the books of accounts are not verifiable or there is a discrepancy in supporting evidence maintained by the assessee in respect of said books of accounts. In the present case, the AO neither made out a case of incorrectness in books nor pointed out any inconsistencies or discrepancies in the books of accounts maintained by the appellant. Therefore, in our considered view, once the AO having noted the fact that the cash balance to the extent of Rs. 4.63 crores is out of past withdrawals from very same bank account, then he should not have rejected the assessee’s explanation with regard to source for cash deposits. CIT(A), without considering the said fact, simply sustained the additions made by the AO towards cash deposits on a flimsy ground that the appellant’s line of business there would be substantial cash expenditure and that the withdrawals from bank account should have been utilized for cash payments. In our considered view, the said observation of ld.CIT(A) is not based on any evidence, but purely on suspicion and without any valid evidence. Direct the AO to delete the additions made u/s 68. Appeal filed by the assessee is partly allowed. Issues Involved:1. Applicability of Section 68 of the Income Tax Act to deposits found in the bank account.2. Justification of additions made under Section 68 regarding advances received from creditors.3. Validity of the theory of human probability applied by the Assessing Officer.4. Explanation of cash deposits out of cash withdrawals from the bank account in earlier financial years.Detailed Analysis:1. Applicability of Section 68 of the Income Tax Act:The appellant argued that bank passbooks are not considered books of accounts under Section 2(12A) of the Income Tax Act, and therefore, Section 68, which pertains to unexplained credits in books of accounts, cannot be applied to bank deposits. The Tribunal rejected this argument, stating that the substance of the issue should be considered rather than the technicality of the section applied. The Tribunal held that merely choosing the wrong section does not nullify the addition if the context and substance of the issue are addressed.2. Justification of Additions under Section 68:The appellant claimed that the cash deposits were sourced from advances received from seven parties in the financial year 2015-16, relevant to the assessment year 2016-17. The Tribunal noted that the assessment for AY 2016-17 was abated due to the search, allowing the appellant to file a return as if under Section 139(1). The Tribunal found that the Assessing Officer had accepted the advances in the earlier assessment year, and therefore, could not question them in the current year. The Tribunal directed the deletion of the addition of Rs. 14.60 crores, as the appellant had established the transactions with evidence, including confirmations from the parties. However, the Tribunal upheld the addition of Rs. 81 lacs, as the appellant failed to prove the creditworthiness of one creditor.3. Validity of the Theory of Human Probability:The Assessing Officer applied the theory of human probability, suggesting that the appellant's explanation was an afterthought. The Tribunal held that this theory can only be applied when there is inconsistency in the documents submitted. Since the appellant provided consistent evidence and confirmations from creditors, the Tribunal found the application of the theory of human probability unjustified and contrary to legal principles.4. Explanation of Cash Deposits from Cash Withdrawals:The appellant explained cash deposits of Rs. 4.63 crores as being sourced from cash withdrawals in earlier years. The Tribunal noted that the appellant had filed returns under Section 153A, supported by books of accounts, which were not disputed by the Assessing Officer. The Tribunal found the Assessing Officer's rejection of the books of accounts, prepared after the search, unjustified without evidence of discrepancies. The Tribunal directed the deletion of the addition of Rs. 4.63 crores, as the cash balance was adequately explained by past withdrawals.Conclusion:The appeal was partly allowed, with the Tribunal directing the deletion of additions related to Rs. 14.60 crores from advances and Rs. 4.63 crores from cash withdrawals, while upholding the addition of Rs. 81 lacs due to insufficient evidence of creditworthiness. The decision emphasized the necessity of consistent evidence and the limitations of applying the theory of human probability without discrepancies in the documentation.