2025 (9) TMI 641 - AT - Income Tax

Assessing unexplained cash credits and crypto purchases under section 68: appellate deletion set aside for further verification

Income Tax Officer, Ward – 2 (1), Maharashtra Versus Shahid Shabbir Godil

ITAT held that the CIT(A) erred in deleting additions relating to cryptocurrency purchases and unexplained cash credits u/s 68, observing the assessee ... Additions against Purchases of crypto currency/Bitcoin - verification Zebpay transactions - ld.DR vehemently argued that the ld.CIT( A) deleted the additions made without taking into account specific observations and findings of the AO in respect of all the ground of appeal which mainly emphasized that relevant details were not submitted despite adequate opportunity of hearing. HELD THAT:- Claim of the assessee with regard to local purchase it is evident that the AO specifically asked the assessee to produce relevant details of such purchases, the assessee admittedly submitted merely the names of local dealers and amount of purchases made from them. Besides, the assessee admitted that such local transactions were not audited which was restricted to purchase from Zebpay only. Despite such glaring omissions on the part of the assessee in this regard and its failure to furnish relevant details even during appeal proceedings, we are of the view that the CIT(A) erred in deleting the substantial part of the purchases without bringing on sufficient evidence on record. It is also incomprehensible as to why the audit was restricted to only a part of the purchases and not the entire purchases including local purchases. Addition u/s 68 - unexplained cash credit - CIT(A) deleted addition - HELD THAT:- CIT(A) was not justified in deleting the additions completely overlooking the findings and observations of the AO wherein he has categorically pointed out the necessary evidence were not furnished by the assessee before him. Therefore, the appellate order is set aside. ISSUES PRESENTED AND CONSIDERED 1. Whether the deletion by the first appellate authority of addition of Rs. 6,96,07,010/- (purported purchases in crypto-currency from local traders) was justified when the Assessing Officer found that only Zebpay transactions were audited and that the assessee furnished merely a list of names and amounts without documentary evidence. 2. Whether the deletion by the first appellate authority of addition of Rs. 1,30,00,000/- (loan treated as unexplained cash credit u/s. 68) was justified where the AO found absence of contra entries in bank account and failure to furnish PAN, contra confirmations, ITR and bank details of the alleged lender to establish identity and creditworthiness. 3. Whether the deletion by the first appellate authority of additions relating to credits of Rs. 5,85,99,387/- in the bank account (receipts claimed to be from specified persons/concerns) was justified when the AO recorded that details of such receipts were not furnished. 4. Whether issues raised by the assessee in additional grounds (jurisdiction under s.147/s.148, validity of approval to reopen, and issuing authority for notices) required consideration in light of the appellate remit. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Deletion of addition of Rs. 6,96,07,010/- (purported local purchases in crypto-currency) Legal framework: The Assessing Officer may make additions where purchases/sales are not substantiated; unexplained expenditure/purchases can be treated as income under relevant statutory provisions (AO relied on principles underpinning s.69C read with s.115BBE and general burden of proof rules under the Income-tax Act). The onus to produce verifiable evidence to substantiate transactions rests on the taxpayer once enquiries are raised. Precedent treatment: No specific judicial precedents were cited by the authorities in the record; the decision relies on well-settled evidentiary and burden rules applicable to assessment proceedings. Interpretation and reasoning: The AO recorded that only Zebpay transactions (Rs.1.93 crore) had been audited/test-checked by the auditor and substantiated. Purchases aggregating to Rs.6.96 crore (part of total purchases Rs.8.90 crore) were not audited and the assessee produced only a list of local dealers with amounts, without contract notes, vouchers, contra confirmations or audit verification. The first appellate authority accepted the assessee's explanation (modus operandi, list of dealers, Zebpay contract notes) and deleted the addition, concluding that the total purchases were substantiated. The Tribunal found this deletion unsustainable because the CIT(A) overlooked the AO's repeated findings that relevant documentary evidence was not furnished and that auditors had restricted test-check to Zebpay transactions. The Tribunal emphasised that absence of verification and mere production of names/amounts, without supporting documentary proof or auditable trail, is insufficient to displace AO's finding. Ratio vs. Obiter: Ratio - where AO records lack of substantiation and requests specific verifiable evidence which the assessee fails to furnish, appellate deletion that disregards such factual findings is erroneous and warrants reconsideration. Obiter - observations on the auditors' scope of test-check and the possible commercial modus operandi of off-market crypto transactions. Conclusions: The Tribunal held the CIT(A) erred in deleting the addition; the matter is remitted for de novo consideration with directions to allow adequate opportunity to both parties to produce and test documentary evidence relating to local purchases and to verify audit scope. Issue 2 - Deletion of addition of Rs. 1,30,00,000/- (loan added u/s. 68) Legal framework: Cash credits alleged to be unexplained are examinable under s.68; assessee must prove identity, creditworthiness and genuineness of the transaction by producing PAN, bank entries, ITRs and confirmations. Precedent treatment: No prior decisions were invoked in the text; treatment follows statutory burden principles for cash credits. Interpretation and reasoning: The AO sought and recorded absence of any bank credit/debit in Axis Bank reflecting receipt/repayment of the alleged loan, and the assessee failed to furnish PAN, contra confirmations, ITR or bank details of the alleged lender. The CIT(A) deleted the addition without addressing or verifying these specific factual findings. The Tribunal found this omission material: the CIT(A) did not discuss or test the primary evidence required to establish identity and creditworthiness, and deletion in the face of AO's categorical findings was unjustified. Ratio vs. Obiter: Ratio - deletion of additions in respect of alleged cash credits cannot be upheld without addressing AO's specific factual findings and without requisite documentary verification of identity/creditworthiness; such matters should be remitted for de novo consideration. Obiter - none material beyond critique of appellate omission. Conclusions: The Tribunal set aside the appellate deletion and remitted the issue for fresh adjudication with directions to permit parties to lead/verify evidence pertaining to the loan and bank entries. Issue 3 - Deletion of addition of Rs. 5,85,99,387/- (bank credits claimed to belong to specified persons/concerns) Legal framework: Receipts appearing in bank accounts, claimed to belong to third parties, require supporting evidence (identification of remitters, nature of receipt, corroborative documents) if relied upon to explain credits; failure to produce such evidence may justify additions. Precedent treatment: No authorities cited; analysis follows assessment practice and evidentiary burden rules. Interpretation and reasoning: The AO recorded that details of receipts from named individuals/companies aggregating Rs.5.85 crore were not furnished despite enquiry. The CIT(A) accepted the explanation and deleted the addition though the appellate record shows such details were not placed before him. The Tribunal found the deletion unsupportable because it ignored AO's specific findings about non-production of required particulars; deletion without evidentiary basis conflicts with statutory expectation that the assessee substantiate claimed third-party receipts. Ratio vs. Obiter: Ratio - where AO records non-furnishing of particulars for bank credits, appellate deletion without checking/recording requisite particulars is erroneous and requires remand. Obiter - the Tribunal noted that the AO had not separately added this amount because of telescoping with other additions, but this does not cure the evidentiary deficiency. Conclusions: The Tribunal remitted the issue for de novo consideration and directed that parties be given adequate opportunity to produce and test evidence concerning the claimed third-party receipts. Issue 4 - Additional grounds raised relating to jurisdiction (s.147/s.148), approval to reopen and issuing authority for notices Legal framework: Validity of reopening (s.147/s.148 and related procedural safeguards including approval and issuing authority) raises jurisdictional and procedural questions requiring verification of grounds for initiation and compliance with prescribed formalities. Precedent treatment: No precedent discussion in the record; the Tribunal observed these are legal/ procedural issues that can be considered afresh on remand. Interpretation and reasoning: The additional grounds were raised before the Tribunal; given that factual findings on substantive issues were set aside and remitted, the Tribunal considered it appropriate that procedural/jurisdictional grounds also be open for fresh adjudication by the AO/CIT(A) in the course of de novo reconsideration so that all facets are finally decided in accordance with law. Ratio vs. Obiter: Ratio - where remand for de novo consideration is ordered on substantive evidentiary issues, associated procedural and jurisdictional grounds properly belong to the remanded proceedings and must be adjudicated afresh. Obiter - none beyond procedural propriety. Conclusions: The Tribunal remitted the procedural/jurisdictional grounds to the AO/CIT(A) for de novo consideration after affording opportunity to both sides. OVERALL CONCLUSION AND DIRECTIONS The Tribunal concluded that the first appellate authority erred in deleting the additions without addressing AO's documented findings of non-production and lack of verification; consequently the appellate order was set aside and all issues raised by the Revenue (grounds 1-3) and the assessee's additional procedural grounds were remitted for de novo consideration with directions to afford adequate opportunity to both parties and decide in accordance with law. The Tribunal's decision to remit for fresh adjudication constitutes the operative ratio on the necessity of evidentiary verification before upholding deletions of additions in assessment proceedings.