2025 (10) TMI 767 - AT - Income Tax

Addition of Rs 1.08 crore under section 68 upheld for unexplained cash deposits; Rule 46A not considered

ITAT (Lucknow) upheld the AO's addition of Rs.1,08,99,338 u/s 68 for unexplained cash deposits, while confirming acceptance of Rs.9,58,662 as genuine bank ... Addition u/s 68 - unexplained cash deposits - assessee had claimed that an amount of Rs. 20,000/- was received from the assessee’s father as gift - assessee submitted that an amount of Rs. 30 lakhs was declared under ITD-2016, which was deposited in bank in cash - HELD THAT:- From the perusal of the impugned order of the learned CIT(A) there is no mention that the books of account, vouchers etc. were produced by the assessee before her or that the CIT(A) examined the books of account and vouchers either on her own or remanded the matter regarding examination of books of account and vouchers to the AO. It is not clear whether the assessee produced/submitted any evidence during appellate proceedings before CIT(A) other than those produced/submitted before the AO during assessment proceedings. Even if the assessee did so, it would not have been admissible without meeting requirements under Rule 46A of Income Tax Rules. There is not even whisper about Rule 46A of Income Tax Rules in the impugned order of CIT(A). CIT(A) has accepted the assessee’s claim regarding cash sales in proprietary firm M/s R. P. Pharma, which is contrary to particulars furnished by the assessee during assessment proceedings. After due verification of the details submitted by the assessee, AO has found that cash sale was only and the remaining sales was other then in cash. Therefore, the AO was justified in accepting the assessee’s claim of cash deposit in bank, to the extent of Rs. 9,58,662/-; and in rejecting the assessee’s explanation regarding the remaining amount of Rs. 1,08,99,338/-. Therefore, the aforesaid addition of Rs. 1,08,99,338/- is confirmed. As regards the remaining amounts of Rs. 20,000/- (claimed to be gift received by the assessee from father, in cash) and Rs. 80,000/- (claimed by the assessee to be out of old savings), the order of the learned CIT(A) is found to be reasonable and just in the facts and circumstances of the case. Considering the fact that the assessee is a doctor and also proprietor of M/s R. P. Pharma, it can be said that the assessee is not of ordinary means. It is also common in Indian households that the ladies regularly make some savings out of funds earmarked for house hold expenses, and such savings are accumulated over time. Having regard to assessee’s profession and business, economic standing, common practice in households, etc.; the assessee’s claim of Rs. 80,000/- being accumulated savings from past is not excessive or unreasonable in the facts and circumstances of the present case. As regards Rs. 20,000/- claimed by the assessee to be cash received by way of gift from father, it is customary in Indian society for children to receive cash from parents as a token of blessings from time to time. Therefore, the claim of assessee that an amount of Rs. 20,000/- was received from father by way of gift is accepted having regard to assessee’s social standing and customary practice in Indian society. Therefore, no interference is called for in the order of the learned CIT(A) as regards the aforesaid amounts of Rs. 80,000/- and Rs. 20,000/-. ISSUES PRESENTED AND CONSIDERED 1. Whether cash deposits in bank accounts exceeding cash sales, as per assessment findings, can be treated as unexplained and added to income where the assessee's explanation attributes the deposits to cash sales of a proprietary firm. 2. Whether cash deposits claimed to be from declared IDS funds and accumulated old savings/donative gifts can be accepted as explained on the facts without documentary proof. 3. Whether evidence and documents produced before the CIT(A) but not before the Assessing Officer are admissible if they do not comply with Rule 46A of the Income Tax Rules. ISSUE-WISE DETAILED ANALYSIS Issue 1: Treatment of cash deposits in excess of cash sales-whether unexplained and taxable Legal framework: The Assessing Officer may treat unexplained cash deposits as income where the assessee fails to satisfactorily explain the source. The fact-finding power of the AO includes examination of books, corroborative documents and reconciliation of claimed cash sales with bank deposits. Precedent Treatment: No specific precedents cited in the judgment. The Court applies established principles of verification and onus of proof on the assessee to substantiate cash receipts. Interpretation and reasoning: The AO, after verification, found net cash sales of Rs. 9,58,662 for the proprietory concern whereas the assessee before the CIT(A) claimed cash sales far higher (Rs. 1,27,34,347 as per appellate claim). The Tribunal noted that the assessee had not produced books/vouchers during assessment and that the CIT(A)'s order does not record examination of primary books or any remand to the AO for verification. The Tribunal emphasized that the AO's contemporaneous verification and finding that cash sales were limited to Rs. 9,58,662 was reasonable and that the AO was justified to treat deposits over that amount as unexplained. The Tribunal therefore confirmed the addition of Rs. 1,08,99,338 (difference between assessed unexplained deposits and amounts accepted as explained by AO) while observing that the CIT(A) had accepted an inconsistent figure without following the requirement of on-record verification. Ratio vs. Obiter: Ratio-where an assessee's claimed source for cash deposits (cash sales) contradicts the particulars furnished during assessment and no books or corroborative vouchers were produced or examined, the AO's addition of unexplained cash deposits is sustainable. Obiter-the Tribunal's observations on the general nature of the business (medicinal retail) as ordinarily cash-intensive are explanatory but do not override the requirement for verification. Conclusions: The addition relating to Rs. 1,08,99,338 of cash deposits is confirmed as income. The AO's finding that only Rs. 9,58,662 constituted cash sales is upheld due to lack of substantiation for higher cash-sale figures and absence of compliance with evidentiary requirements. Issue 2: Acceptability of claimed sources-IDS declaration, demonetisation savings, and small cash gifts Legal framework: Cash deposits may be explained by legitimate sources such as previously declared IDS funds, accumulated savings, or gifts; acceptance depends on sufficiency and credibility of evidence and consistency with taxpayer's status and conduct. Precedent Treatment: No authorities relied upon; Tribunal applies fact-led assessment principles and standards of reasonableness. Interpretation and reasoning: The AO had allowed credit for Rs. 30,00,000 declared under the IDS. The remaining Rs. 80,000 deposited during demonetisation was treated as unexplained by the AO, and Rs. 20,000 alleged gift from father was also rejected. The CIT(A) accepted both Rs. 80,000 as accumulated savings and Rs. 20,000 as a customary gift based on documentary materials presented at appellate stage (bank ledgers, sales/cash ledgers) and on appraisal of the assessee's profession and household practices. The Tribunal reviewed these findings and held that acceptance by the CIT(A) of modest sums as explained was reasonable in the light of the assessee's economic standing (doctor and proprietor), common social practices, and the modesty of amounts. Therefore, the Tribunal sustained the deletion in respect of Rs. 80,000 and Rs. 20,000. Ratio vs. Obiter: Ratio-small cash deposits can be accepted as explained on the basis of surrounding circumstances and reasonable inferences from the taxpayer's status where amounts are modest and consistent with usual practices. Obiter-general comments on customary gifts in Indian society are illustrative and not binding law. Conclusions: Deletion of additions in respect of Rs. 80,000 (demonetisation-period savings) and Rs. 20,000 (gift from father) is upheld as reasonable and not excessive on the facts. Issue 3: Admissibility of documents produced before the CIT(A) but not before the AO-Rule 46A compliance Legal framework: Rule 46A of the Income Tax Rules prescribes conditions for admissibility of additional evidence before appellate authorities; evidence produced at appeal without compliance may be inadmissible unless remitted or allowed in accordance with the rule. Precedent Treatment: No case law cited; Tribunal relies on the procedural requirement embodied in Rule 46A. Interpretation and reasoning: The Tribunal observed that the impugned order of the CIT(A) does not state whether books of account or vouchers were produced before her or whether she examined them or remanded the matter to the AO. The Tribunal held that evidence presented before the CIT(A) but not earlier would not be admissible without meeting Rule 46A's requirements; absence of any mention of Rule 46A in the appellate order undermines the appellate acceptance of explanations that contradicted assessment-stage particulars. Consequently, the Tribunal treated the CIT(A)'s acceptance of materially different cash-sale figures as improper where the evidentiary chain and Rule 46A compliance were not shown. Ratio vs. Obiter: Ratio-appellate acceptance of new or additional evidence that was not before the AO must comply with Rule 46A; failure to comply may render appellate findings unsustainable. Obiter-remarks on the lack of 'whisper' about Rule 46A in the CIT(A)'s order are critical commentary supporting the ratio. Conclusions: The Tribunal found the CIT(A)'s acceptance of a higher cash-sales figure unsustainable because there is no record of compliance with Rule 46A or examination/remand of primary books; this supported confirmation of the AO's addition on that component. Cross-references and net outcome 1. Issue 1 and Issue 3 are interlinked: the confirmation of the AO's addition of Rs. 1,08,99,338 rests on both the assessee's failure to substantiate higher cash-sales figures and the procedural infirmity that the CIT(A) did not show admissible fresh evidence or compliance with Rule 46A. 2. Issue 2 stands apart on facts: modest deposits (Rs. 80,000 and Rs. 20,000) were accepted as explained by the CIT(A) and sustained by the Tribunal on reasonableness and the assessee's status despite the general requirement for evidence. Net Conclusion: The Tribunal partly allowed the Revenue appeal-confirming the addition of Rs. 1,08,99,338 as unexplained cash deposits while upholding deletion of additions relating to Rs. 80,000 (demonetisation savings) and Rs. 20,000 (gift).