Addition deleted as cash deposits in CC account already recorded as sales, not unexplained cash u/s 69A

ITAT held that the cash deposits in the HDFC bank CC account could not be taxed as unexplained cash credit u/s 69A in the hands of the partnership concern, as the business along with all assets and liabilities, including the cash credit account, had been taken over by a proprietary concern of one of the partners under a valid agreement. The deposits were duly recorded as sales in the books and balance sheet of the proprietary concern, establishing an explained source. ITAT ruled that the same income cannot be assessed twice and that s.69A was inapplicable on these facts, thereby allowing the assessee's appeal and deleting the addition.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether cash deposits aggregating to Rs. 2,05,53,980 in a bank account standing in the name of a partnership firm could be treated as unexplained money under section 69A read with section 115BBE in the hands of the firm, when the business along with all assets and liabilities had been taken over and run as a proprietary concern of one partner, and the deposits were recorded in the audited books of that proprietary concern.

1.2 Whether, in view of the deposits having already been considered as part of the turnover and income of the proprietary concern, the same amounts could be assessed again as unexplained money in the hands of the partnership firm, contrary to the principle that the same income cannot be taxed twice.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of section 69A to cash deposits in bank account after takeover of business by proprietary concern

Legal framework (as discussed)

2.1 The assessment was made by invoking section 69A of the Act, treating the cash deposits of Rs. 2,05,53,980 in the current account with HDFC Bank as unexplained money in the hands of the partnership firm, taxable under section 115BBE. The appellate authority upheld this addition on the ground that no plausible explanation was offered regarding the genuineness of the claim.

Interpretation and reasoning

2.2 The Court recorded as undisputed that the partnership firm carried on the saree business up to the preceding assessment year and, during the relevant year, the entire business, along with all assets and liabilities, including the cash credit/current account No. 1165678 with HDFC Bank, was taken over by one of the partners, who thereafter ran the business as a proprietary concern.

2.3 It was further found that: (i) the cash sales of the proprietary concern during the financial year were partly deposited into this very cash credit account, aggregating to Rs. 2,05,53,980; (ii) the total sales of the proprietary concern, as per audited balance sheet, were Rs. 3,65,83,876, inclusive of the cash sales so deposited; (iii) the proprietary concern had filed GSTR-9 disclosing turnover of Rs. 3,65,98,916; and (iv) the current/CC account with HDFC Bank, with a closing balance of Rs. 33,99,346, was incorporated and shown on the liability side of the proprietary concern's balance sheet as on 31.03.2019.

2.4 The Court noted that the takeover of the business, with assets and liabilities, by the proprietary concern was supported by an agreement between the partners placed on record. It therefore accepted that, in substance, the bank account, though continuing in the name of the firm in bank records, formed part of the proprietary concern's business and books.

2.5 On these facts, the Court held that the source of the deposits in the said bank account stood fully explained as being out of the sale proceeds of the proprietary concern and that all the deposits were duly incorporated in the books of account of that concern. Consequently, the statutory condition for invoking section 69A-namely, that the money is not recorded in the books of account and that the assessee offers no satisfactory explanation-was not satisfied.

2.6 The Court therefore found that section 69A could not be applied to treat the said deposits as unexplained money in the hands of the partnership firm, particularly when the business and the concerned account had been effectively taken over by and accounted for in the proprietary concern.

Conclusions on Issue 1

2.7 The cash deposits of Rs. 2,05,53,980 in the current/cash credit account could not be regarded as unexplained money under section 69A in the hands of the partnership firm because: (i) the business, along with the bank account, had been taken over by the proprietary concern; (ii) the deposits represented explained cash sales of the proprietary concern; and (iii) the amounts were duly recorded in the audited books and balance sheet of that proprietary concern and supported by GST filings.

2.8 The addition under section 69A read with section 115BBE was thus held to be unsustainable in law and on facts.

Issue 2: Prohibition against taxing the same income twice in different hands

Interpretation and reasoning

2.9 The Court emphasised that the total sales of the proprietary concern, as per audited accounts and GST return, already included the cash sales represented by the very deposits that had been brought to tax under section 69A in the hands of the firm.

2.10 On this basis, the Court accepted the contention that the same income cannot be assessed twice-once as part of the business turnover and income of the proprietary concern, and again by treating the same amounts as unexplained money in the hands of the erstwhile partnership firm.

2.11 Even though the partnership concern had not been formally wound up, the Court held that this did not alter the substantive position that the deposits had already been subjected to assessment in the hands of the proprietary concern through inclusion in its sales and accounts.

Conclusions on Issue 2

2.12 The principle against double taxation of the same income applied. Since the deposits were already taken into account in the income of the proprietary concern, they could not be validly assessed again as unexplained money in the hands of the partnership firm.

2.13 Consequently, the appellate order sustaining the addition was set aside, and the assessing authority was directed to delete the entire addition of Rs. 2,05,53,980 made under section 69A read with section 115BBE.

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