2025 (9) TMI 1438 - AT - Income Tax

Cash deposits recorded as sales in audited books are business receipts; addition under s.69A deleted to avoid double taxation

ITAT held that cash deposits were duly recorded in audited books as sales/receipts from sundry debtors and therefore represented business receipts. Since ... Addition u/s 69A - cash deposited during the year - HELD THAT:- We note that the assessee has duly accounted for the cash receipts in the cash book giving narration therein that the cash receipts were on account of sales or receipt from sundry debtors. We note that the books of account were duly audited by the tax auditor and no adverse inference was drawn. We note that both the authorities below have failed to correctly appreciate the facts available on record that cash deposits into the bank accounts were out of business receipts only. Cash shown by the assessee was represented by cash sales / receipts from the sundry debtors which were duly shown in the books of account. Therefore, once, the cash has been treated as sales no addition can be made u/s 69A of the Act towards unexplained money as the same amounts to double taxation of the same income which is not permissible under the Act. Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether cash deposits in bank accounts can be treated as unexplained money and added to income under section 69A when the assessee has recorded corresponding cash receipts as business sales in the books of account. 2. Whether making an addition under section 69A in respect of amounts already accounted for as business income in the books (and audited) results in double taxation and is therefore impermissible. 3. Whether the routine production of audited books, cash book narrations and related bank statements suffices to explain cash deposits, absent contrary specific evidence. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of section 69A to cash deposits already recorded as business receipts Legal framework: Section 69A permits addition of unexplained money found from an assessee which the assessee cannot satisfactorily explain. Where money is shown in books as sales/receipts and supported by bank credits and cash book entries, the statutory power to make an addition requires that the explanation is not satisfactory. Precedent Treatment: The authorities below treated the deposits as unexplained and applied section 69A; no specific precedents were cited by the Tribunal in the text. Interpretation and reasoning: The Tribunal analyzed the assessee's turnover across relevant years and noted consistency of business receipts: turnover for the year under appeal and adjacent assessment years were comparable, and similar substantial cash deposits occurred in other years. The assessee produced audited books, cash book with narrations identifying receipts as sales or receipts from sundry debtors, and bank statements corroborating deposits. The tax auditor conducted statutory audit without drawing adverse inference. On this factual matrix, the Tribunal concluded that the deposits were explained as business receipts and the explanation was satisfactory. Ratio vs. Obiter: Ratio - where cash deposits are recorded in the books as business receipts, supported by bank statements and audited accounts, they cannot be treated as 'unexplained money' under section 69A. Obiter - the form of notices issued (section 148A/148) and use of third-party information were noted but not determinative of the section 69A issue. Conclusions: The Tribunal held that the AO/first appellate authority erred in treating the deposits as unexplained; the statutory addition under section 69A could not be sustained on the facts. Issue 2 - Double taxation arising from adding amounts already brought to tax in books Legal framework: Taxation principles and the Act do not permit imposition of an additional tax charge on amounts already assessed or represented as taxable business income in the books of account - an addition under section 69A resulting in taxation of the same receipts again would amount to double taxation. Precedent Treatment: No distinct case law was invoked or overruled in the decision; the Tribunal applied the principle against double taxation to the facts. Interpretation and reasoning: The Tribunal emphasized that once amounts have been treated as sales in the books and the assessee has offered turnover in returns (and been audited), treating the same sums as unexplained and adding them to income would duplicate tax on the same quantum. The Tribunal found that both authorities below failed to correctly appreciate that the cash deposits were represented by sales/cash receipts already reflected in the books and returns. The absence of any adverse audit report or specific contrary material led the Tribunal to conclude that addition would amount to impermissible double taxation. Ratio vs. Obiter: Ratio - addition under section 69A cannot be levied on amounts already accounted for and represented as business income in the books (to avoid double taxation). Obiter - observations on the consistency of turnover across years and prior occurrence of similar deposits in other years are factual supports rather than binding legal propositions. Conclusions: The Tribunal set aside the additions and directed deletion, holding that addition under section 69A would amount to double taxation of income already recorded as sales. Issue 3 - Sufficiency of books, cash book narrations, audit and bank statements to discharge explanation burden Legal framework: Where the assessee furnishes books of account, cash book entries with specific narrations, bank statements and audited accounts, these materials constitute explanatory evidence concerning the source of cash deposits; the statutory addition presupposes that the explanation is not satisfactory. Precedent Treatment: Authorities below rejected the explanation despite production of records; the Tribunal assessed the evidentiary weight of those records. Interpretation and reasoning: The Tribunal found the records - cash book with narrations identifying receipts as sales or receipts from sundry debtors, audited accounts, and corroborative bank statements - to be satisfactory explanation of the deposits. The tax auditor's failure to draw adverse inference was treated as reinforcing the adequacy of the explanation. The Tribunal held that the AO and first appellate authority did not correctly appreciate these facts and the explanatory material on record. Ratio vs. Obiter: Ratio - production of contemporaneous books showing the cash receipts as business sales, supported by audit and bank credits, constitutes a satisfactory explanation preventing classification of such deposits as 'unexplained money' under section 69A. Obiter - procedure of issuing notices under sections 148/148A and reliance on third-party information does not, by itself, negate the explanatory value of the assessee's books. Conclusions: The Tribunal concluded that the assessee had satisfactorily explained the cash deposits by reference to business records and audit, and therefore directed deletion of the additions made under section 69A. Cross-References and Outcome All three issues are interrelated: the factual finding that cash deposits were book-accounted sales (Issue 1) and supported by audited records (Issue 3) leads to the legal consequence that imposing an addition under section 69A would effect double taxation (Issue 2). On that combined reasoning the Tribunal allowed the appeal and directed deletion of the additions.