2025 (6) TMI 887 - AT - Income Tax

Revenue's appeal dismissed as cash deposits under section 68 adequately explained through director's remuneration

Aayakar Bhawan Poorva, 110 Shanti Palli, E.M Bypass, Kolkata Versus Subhas Kumar Kedia

The ITAT Kolkata dismissed the Revenue's appeal regarding addition under section 68 for unexplained cash deposits. The AO had added cash deposits to the ... Addition u/s 68 - cash deposited in the bank accounts by the assessee - AO observed that there is no cash available with the assessee as he was having income from salary and interest from Firm, director’s remuneration from company and interest income under other sources and therefore, there was no source of cash deposits in the bank accounts of the assessee - HELD THAT:- We find that the assessee was having cash of ₹ 80 lacs as a director in company, which was duly shown in the balance sheet of the said company in the name of the assessee. We note that this has also been filed before the settlement commission and was also accepted by the said authority. The settlement commission has passed an order u/s 245D(4) of the Act, after considering the manner in which the income was derived by the assessee. We note that the assessee has duly explained the sources of cash deposited before the AO as well as before the CIT (A) and the ld. CIT (A) after taking into consideration of these facts and circumstances and including the order of settlement commission passed u/s 245D(4) of the Act has accepted the plea of the assessee and directed the ld. AO to delete the addition. Appeal of the Revenue is dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal question considered in this appeal is whether the addition of Rs. 85,71,100/- made by the Assessing Officer (AO) under section 68 of the Income Tax Act, on account of unexplained cash deposits in the assessee's bank accounts, was justified. The Revenue challenged the deletion of this addition by the Commissioner of Income Tax (Appeals) [CIT(A)]. The essential issue revolves around the explanation and source of the cash deposits, whether the assessee satisfactorily proved the legitimacy of these deposits, and whether the addition under section 68 was warranted.2. ISSUE-WISE DETAILED ANALYSISIssue: Legitimacy and Explanation of Cash Deposits Under Section 68 of the Income Tax ActRelevant Legal Framework and Precedents: Section 68 of the Income Tax Act deals with unexplained cash credits. If an assessee fails to satisfactorily explain the source of any sum credited in the books of account or bank account, the AO may treat such sum as income. The burden of proof lies on the assessee to explain the source of the cash deposits. The order of the Settlement Commission under section 245D(4) of the Act, which settles disputes relating to undisclosed income, is a relevant authoritative consideration. Additionally, precedents such as the Ahmedabad ITAT decision in JCIT v. Sanjay H Thakkar (ITA No.490/Ahd/2018) have held that cash deposits representing cash balances of entities utilized by the assessee should not be doubly taxed.Court's Interpretation and Reasoning: The AO found a discrepancy of Rs. 85,71,100/- between the total cash deposits and the amount disclosed by the assessee under the Income Disclosure Scheme (IDS-16). The AO concluded that the assessee had no credible source of such cash deposits, as his income was limited to salary, interest from a firm, director's remuneration, and interest income from other sources. Consequently, the AO treated the unexplained amount as income under section 68.The assessee contended that Rs. 80 lakhs of the cash deposited was held on behalf of M/s Dadi Griha Nirmal Private Limited, where he was a director. This amount was disclosed before the Settlement Commission and was accepted, with an order passed under section 245D(4) of the Act. The balance sheet of the company as on 31.03.2017 reflected this amount as a cash balance in the name of the assessee. The CIT(A) accepted this explanation, relying heavily on the finality of the Settlement Commission's order and the principle that taxing the same cash twice would be unjust. The CIT(A) also referred to the Ahmedabad ITAT decision in JCIT v. Sanjay H Thakkar, where similar facts led to deletion of addition to avoid double taxation of cash balances held by a society and utilized by the assessee.Key Evidence and Findings: The assessee furnished the following key evidence:Disclosure of Rs. 4.5 crores under IDS-16 and payment of taxes thereon;Balance sheet of M/s Dadi Griha Nirmal Private Limited showing Rs. 80 lakhs cash held by the assessee;Order of the Settlement Commission under section 245D(4) accepting the disclosure and source of cash;Explanation and reconciliation of remaining cash deposits of Rs. 7,36,000/- supported by regular books of accounts showing opening cash balance, cash withdrawals, expenditures, and closing cash balance;Bank statements and documentary evidence verifying the cash withdrawals and deposits.Application of Law to Facts: The Court noted that the Settlement Commission's order had attained finality and had considered the manner in which the income was derived and retained by the assessee. The acceptance of the cash balance by the Settlement Commission was a strong legal and factual basis to treat the cash deposits as explained. The CIT(A)'s reliance on the principle against double taxation was consistent with judicial precedents. The AO did not provide any contradictory evidence or point out discrepancies in the documents furnished regarding the balance of Rs. 7,36,000/-. The Court found that the assessee had discharged the onus to explain the source of cash deposits satisfactorily.Treatment of Competing Arguments: The Revenue's contention was that the cash deposits were unexplained and the assessee's income sources were insufficient to justify such deposits. However, the Court observed that this argument failed to consider the finality of the Settlement Commission's order and the documentary evidence submitted. The AO's reasoning that no cash was available with the assessee was rebutted by the balance sheet and settlement order. The CIT(A) and the Court gave due weight to the Settlement Commission's findings and the principle that the same cash should not be taxed twice.Conclusions: The Court upheld the CIT(A)'s order deleting the addition of Rs. 85,71,100/- under section 68. It held that the source of cash deposits was satisfactorily explained by the assessee, supported by the Settlement Commission's order and corroborative documentary evidence. The addition was thus unwarranted.3. SIGNIFICANT HOLDINGSThe Court preserved the following crucial legal reasoning verbatim from the CIT(A)'s order:'The order u/s 245D(4) of the Act was passed by Settlement Commission after considering the manner in which the income was derived and also the manner in which the income earned has been retained by the appellant. The said income was earned in cash and was lying in the custody of its director, Subhas Kumar Kedia. The Settlement Commission after duly accepting the explanations given by Dadi Griha Nirman Pvt Ltd, has settled the application and passed order under sec 245D(4). Further, this order has also attained finality.''If we deny the claim of the assessee for having received the money from the society, it would lead to the double addition of the same item of the cash receipt which is unwanted under the provisions of law.''Considering overall factual and legal aspects of the case; considering order u/s 245D(4) of the Act of Hon'ble Settlement Commission in the case of M/s Dadi Griha Nirman Pvt. Ltd and respectfully following decision of Hon'ble ITAT, Ahmedabad in the case of JCIT v. Sanjay H Thakkar ITA No.490/Ahd/2018 dated 20.4.2022, it is held that since the source of the entire cash deposits made by the appellant in its bank account stand explained, no addition is warranted u/s 68 of the Act.'Core principles established include:The finality of the Settlement Commission's order under section 245D(4) is a significant factor in determining the legitimacy of disclosed income and cash balances.The principle against double taxation applies to cash deposits representing disclosed and settled income, preventing repeated additions under section 68.The burden on the AO to demonstrate discrepancies or lacunae in the assessee's explanation once credible documentary evidence and settlement orders are produced.Final determinations on the issue:The addition of Rs. 85,71,100/- under section 68 of the Income Tax Act was deleted.The assessee satisfactorily explained the source of cash deposits by producing the Settlement Commission's order and relevant financial documents.The AO's addition was found to be without merit and was rightly reversed by the CIT(A) and upheld by the Tribunal.