2025 (2) TMI 1134 - AT - Income Tax

Assessee's appeal partly allowed in unexplained cash credit case under Section 68 with mixed relief

Nanjudareddy Gopala Reddy Versus The Income Tax Officer, Ward – 3 (3) (4), Bengaluru.

ITAT Bangalore allowed assessee's appeal partly in unexplained cash credit matter u/s 68. Tribunal deleted addition of Rs. 1.57 crore cash deposit in ... Unexplained cash credit u/s 68 - AO observed that the assessee had deposited cash in three different bank accounts during the year - Cash Deposit in Andhra Bank - HELD THAT:- It is a well-recognized fact that real estate transactions in India often take place based on oral agreements, particularly in cases where mutual trust exists between parties. The sale-purchase deed furnished by the assessee before the ld. CIT(A) and in remand proceedings before the AO clearly establishes the flow of funds. This documentary evidence directly supports the assessee’s explanation that the cash received was used towards the cost of acquiring the property for Mr. Chandra Kaladhara Reddy. Despite this crucial fact being on record, both the CIT(A) and the AO have failed to consider it, which constitutes a significant lapse in the assessment proceedings. Additionally, the Revenue failed to conduct any independent inquiry with Shri Chandra Kaladhara Reddy, despite all relevant details being available on record. In view of the above, we hold that the assessee has duly discharged the primary onus under Section 68 of the Act concerning the cash deposit of ₹ 1.57 crore in Andhra Bank. Since the Revenue has not controverted this explanation through independent inquiry or contrary evidence, we hereby set aside the findings of the lower authorities and direct the AO to delete the addition of ₹ 1.57 crore. Cash Deposits in Chartered Sahakari Co-operative Bank and Karnataka State Apex Co-operative Bank - We observe that the assessee has made cash withdrawals from these banks throughout the year. Similarly, we also note that there was balance cash receipt of Rs. 50 lacs (200 lacs less 150 lacs) against the sale of the property discussed above. The aggerate of all these cash is sufficient to justify the deposit of cash discussed above. At the same time, the revenue has not brought anything on record suggesting that the amount of cash available in his hands discussed above has been utilised for any other purposes i.e. personal expenses or investments other than the deposit in the impugned bank accounts. Given these facts and circumstances, we are inclined to set aside order of the learned CIT-A with the direction to the AO to delete the addition made by him on account of cash deposits in the bank. Credit in the assessee’s bank account from M/s KR Shelter and on account of interest, neither of which were offered to tax - Out of the sum of ₹ 29 lakh credited from M/s KR Shelter Pvt. Ltd., only ₹ 19 lakh is accounted for in the books as commission income and advance. However, the accounting treatment for the remaining ₹ 10 lakh is not substantiated in the profit and loss account or balance sheet. Based on the facts emerging from the above discussion, we conclude that the assessee has failed to establish that the amount of ₹ 10 lakh credited to his bank account was duly accounted for and offered to tax. Accordingly, we confirm the same. Similarly, we note that assessee’s Andhra Bank account was credited with ₹ 2.45 lakh, with the transaction description reading 'Inst03551 Clg Axis Bank Ltd,' which was treated by the authorities below to be an interest credit. Upon reviewing the same, we note that Inst03551 represents the “instrument” and not the interest as alleged by the revenue. Accordingly, we are of the view that such amount of Rs. 2.45 lacs do not represent the undisclosed interest income of the assessee as alleged by the authorities below. Accordingly, we set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him for Rs. 2.45 lakhs on account of interest income. Hence, the ground of appeal raised by the assessee is hereby partly allowed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:Whether the cash deposits totaling 2,22,48,000/- in various bank accounts by the assessee were satisfactorily explained under Section 68 of the Income Tax Act, 1961.Whether the addition of 12.45 lakh, comprising alleged unaccounted commission and interest income, was justified.Whether the interest levied under sections 234A, 234B, and 234C of the Income Tax Act was appropriate.ISSUE-WISE DETAILED ANALYSIS1. Cash Deposits of 2,22,48,000/-Relevant legal framework and precedents: The primary legal provision involved is Section 68 of the Income Tax Act, which deals with unexplained cash credits. The burden of proof lies on the assessee to satisfactorily explain the nature and source of such credits.Court's interpretation and reasoning: The Tribunal analyzed the explanation provided by the assessee regarding the cash deposits in three bank accounts. The assessee claimed that 1.5 crore was received as an advance from Mr. Chandra Kaladhara Reddy for a property sale, which was later adjusted against a joint property purchase. The remaining deposits were claimed to be from earlier cash withdrawals and personal savings.Key evidence and findings: The assessee submitted a sale-purchase deed and bank statements to substantiate the explanation. However, the authorities below rejected the explanation due to lack of corroborative evidence and the unusual nature of the transactions.Application of law to facts: The Tribunal noted that real estate transactions often occur based on oral agreements and found that the sale-purchase deed corroborated the assessee's claim that the funds were used for a property transaction involving Mr. Reddy.Treatment of competing arguments: The Tribunal considered the revenue's argument that the assessee failed to provide documentary evidence for the cash source and the impracticality of cash withdrawals and redeposits. However, the Tribunal found the explanation plausible given the facts.Conclusions: The Tribunal held that the assessee satisfactorily explained the cash deposit of 1.57 crore in Andhra Bank, directing the AO to delete this addition. For the other deposits, the Tribunal found the explanation regarding cash withdrawals credible and directed the deletion of the additions for deposits in Chartered Sahakari Co-operative Bank and Karnataka Apex Co-operative Bank.2. Addition of 12.45 LakhRelevant legal framework and precedents: The addition was made under the premise of undisclosed income, specifically commission and interest income.Court's interpretation and reasoning: The Tribunal examined the bank statements and financial records to determine the nature of the credits in the assessee's account.Key evidence and findings: The assessee provided bank statements and financial records, showing partial disclosure of the commission income and disputing the characterization of the 2.45 lakh as interest.Application of law to facts: The Tribunal found that the 10 lakh commission from M/s KR Shelter was not fully accounted for, confirming the addition. However, it rejected the addition of 2.45 lakh as interest income due to lack of evidence supporting this characterization.Treatment of competing arguments: The Tribunal considered the assessee's claim of proper disclosure and the revenue's assertion of undisclosed income, ultimately finding in favor of the assessee for the 2.45 lakh.Conclusions: The Tribunal partly allowed the appeal, confirming the addition of 10 lakh but deleting the 2.45 lakh addition.SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'The funds were not retained by the assessee for personal use but were instead utilized for a property transaction in which Shri Chandra Kaladhara Reddy was the primary beneficiary.'Core principles established: The Tribunal emphasized the importance of corroborative evidence in explaining cash credits under Section 68, while also recognizing the contextual realities of real estate transactions.Final determinations on each issue: The Tribunal directed the deletion of the addition of 1.57 crore in Andhra Bank and the cash deposits in Chartered Sahakari Co-operative Bank and Karnataka Apex Co-operative Bank. It confirmed the addition of 10 lakh as commission income but deleted the 2.45 lakh addition, finding it unsupported by evidence.