2025 (9) TMI 645 - AT - Income Tax

Assessee's s.69A additions deleted where audited books and ITR corroborate lower cash deposits and accounted credits

Income Tax Officer, Ward-1, Palanpur Versus Neesarga Tractors

ITAT allowed the appeal in favour of the assessee, upholding the CIT(A)'s deletion of additions made by the AO under s.69A for alleged unexplained cash ... Unexplained cash deposit in bank account u/s. 69A - absence of any evidence furnished by the assessee explaining their source - CIT(A) deleted addition - HELD THAT:- The financial statements, admittedly, were duly audited u/s 44AB of the Act. CIT(A) has noted from these records itself that the bank account in which the impugned credits were noted by the AO to have been deposited were accounted for in the books of the assessee. He has noted the balance outstanding in the Bank to be reflected in the Balance Sheet of the assessee. Further, he has noted that the cash deposited in the said bank account was not Rs. 3.42 crores, as noted by the AO, but was only Rs. 1.18 crore and this information was available in the ITR system of the Department also. The findings of the CIT(A) that the entire credits in the bank account including the cash deposits were duly explained as accounted for in the books of the assessee, we hold, is correct. CIT(A) has rightly rejected the basis with the Assessing Officer for making the impugned addition holding that the entire records of the assessee were available with the AO. Decided in favour of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether the addition of unexplained cash deposits to income under Section 69A was sustainable where the bank account credits were reflected in the assessee's audited books, balance sheet and cash book. 2. Whether the appellate authority erred in admitting and relying on documents said to be additional evidence without compliance with Rule 46A of the Income Tax Rules (i.e., whether the documents relied upon by the CIT(A) constituted inadmissible additional evidence and/or required a report from the Assessing Officer before admission). 3. Whether the Assessing Officer's factual computation of cash deposits (Rs. 3.49 crores) could be dislodged by ITS/ bank book records and books of account showing a different quantum of cash deposits (Rs. 1.18 crores) and overall credits reflected in the balance sheet. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Sustainability of addition under Section 69A where credits are reflected in books Legal framework: Section 69A taxes unexplained cash credits when a person is unable to account for the nature and source of such credits; the addition is avoidable if the assessee satisfactorily explains the nature and source and the credits are reflected in books of account. Precedent treatment: No specific precedents were cited by the parties or the Tribunal in the judgment. The Court applied statutory principles governing unexplained credits and treatment of books of account. Interpretation and reasoning: The Tribunal accepted the CIT(A)'s factual findings that (a) the bank account in question formed part of the books of account; (b) audited financial statements, cash book and bank book were on record; (c) the balance of the bank account was reflected in the balance sheet; and (d) the assessee's turnover and total cash receipts corroborated the recorded credits. On this basis the Tribunal held the AO's foundational premise - absence of accounting explanation - to be displaced by the contemporaneous audited records. The Tribunal also noted that the AO neither rejected the books nor pointed to mistakes in them during assessment proceedings. Ratio vs. Obiter: Ratio - where credits are shown in audited books, reflected in the balance sheet and supported by cash book and turnover figures, the addition under Section 69A cannot be sustained merely on the basis of an AO's assertion of unexplained deposits without having demonstrated infirmity in those books. Obiter - ancillary observations about the relative weights of ITS figures versus bank book entries are factual and do not establish a general rule beyond the present facts. Conclusion: The addition under Section 69A was rightly deleted because the entire credits in the bank account were explained by and accounted for in the assessee's audited books and financial statements; therefore the AO's addition was unsustainable. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Admission and appreciation of evidence before the CIT(A) and compliance with Rule 46A Legal framework: Rule 46A governs admission of additional evidence before the Commissioner (Appeals) and requires conditions for reception of such evidence, including reasons for not producing evidence earlier and, in some contexts, seeking a report from the AO. Precedent treatment: No authority was relied upon to construe Rule 46A; the Tribunal proceeded on factual analysis of what documents were on record before the AO and which documents were first considered by the CIT(A). Interpretation and reasoning: The Revenue's objection-that the CIT(A) admitted and relied upon additional evidence in breach of Rule 46A-was examined against the contemporaneous assessment record. The Tribunal found that the assessee had furnished audited financial statements, tax audit report, balance sheet, profit & loss account and cash book during assessment proceedings and that the AO had these records before him. The CIT(A)'s reliance on those records was therefore not a reception of fresh evidence but an appreciation of material already available to the AO. Because the AO neither rejected the books nor pointed out defects, the requirement to treat the material as additional evidence or to seek an AO report was not triggered in the factual matrix. The Tribunal concluded that the CIT(A) did not err in appreciating documents that were part of the assessment record. Ratio vs. Obiter: Ratio - when documents relied upon by the appellate authority were already submitted before the Assessing Officer and the AO has not rejected them or identified defects, their appreciation by the appellate authority does not amount to admission of additional evidence in breach of Rule 46A. Obiter - procedural steps an appellate authority may take in different factual circumstances (e.g., where documents were genuinely produced for the first time) remain unexamined and not decided. Conclusion: There was no violation of Rule 46A by the CIT(A) because the materials relied upon were already part of the assessment record and the AO had not disowned or rejected those records; hence the Revenue's contention on additional evidence failed. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Reliance on ITS/bank figures versus books of account on quantum of deposits Legal framework: Factual determinations as to the quantum of bank credits rest on admissible records and reconciliations; ITS data and bank statements/bank book are relevant but may be displaced by authoritative and audited books where reconciliation is possible and reliable. Precedent treatment: No specific case law was invoked to prioritize ITS data over bank books or vice versa; the Tribunal resolved the discrepancy on the basis of documentary reconciliation and audit status. Interpretation and reasoning: The AO's figure of cash deposits (Rs. 3.49 crores) was at variance with ITS information and the assessee's bank book showing cash deposits of Rs. 1.18 crores and total credits of Rs. 3.36 crores. The CIT(A) examined the bank book and balance sheet which reflected the bank balance, and noted turnover and total cash receipts which supported the accounting of credits. The Tribunal accepted this reconciliation and the ITS-consistent figure, concluding that the AO's higher figure was not sustainable in the face of bank book and audited accounts that were on record and unrejected by the AO. Ratio vs. Obiter: Ratio - where ITS/bank data and books of account are reconcilable and the audited books correspond with bank book and balance sheet figures, the AO's divergent computation cannot be sustained without demonstrating specific errors or reasons to reject the books. Obiter - the judgment does not lay down a rule resolving all conflicts between ITS records and assessment computations; it is confined to the factual reconciliation presented. Conclusion: The Tribunal upheld the CIT(A)'s finding that the correct quantum of cash deposits, as per bank book and system records, was lower than the AO's computation and that the credits were accounted for in the books; therefore the AO's addition based on the higher figure failed. FINAL CONCLUSION (integrated) The Tribunal sustained the CIT(A)'s deletion of the addition under Section 69A because (i) the impugned bank account credits were reflected in audited books, cash book and balance sheet; (ii) the alleged additional evidence relied upon by the CIT(A) formed part of the assessment record and was not newly tendered in violation of Rule 46A; and (iii) ITS and bank book figures reconciled to a lower quantum of cash deposits than that adopted by the AO, undermining the basis for the AO's addition. Accordingly, the Revenue's grounds were dismissed and the appellate order deleting the addition was upheld (ratio on the facts stated above).