Unexplained cash deposits and tax additions: source established through books of account, addition disallowed in favour of taxpayer

Unexplained cash deposits assessed as additions were contested on the basis that bank statements, pass books, ledgers and cash book identified the source of funds from three third-party firms. The reasoning emphasised that absence of material disputing the creditworthiness of those firms or ownership of funds meant the amounts were not unexplained for tax purposes; consequently provisions relating to unexplained money did not apply and the addition was set aside in favour of the taxpayer.

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Issues: Whether the credits/ deposits of Rs. 3,18,41,574/- (including cash deposits of Rs. 15,90,000/-) in the assessee's savings bank account for AY 2013-14 are unexplained money attracting addition under Section 69A of the Income-tax Act, 1961, and whether the assessing officer's reassessment under Sections 147/148/148A was valid for making such addition.

Analysis: The assessee produced bank statements, bank pass book, ledger accounts of three partnership firms and his cash book to explain the source and movement of funds. The recorded facts show that (i) the assessee was partner in three firms, (ii) funds were transferred between those firms via the assessee's savings bank account as a conduit, and (iii) supporting documents identifying the source and utilisation of the credits were furnished and were not disputed by the revenue before the Tribunal. The assessing officer did not point to any material discrediting the source of funds or showing that the amounts belonged to the assessee personally independent of the documented inter-firm transactions. In those circumstances, the conditions for treating the credits as unexplained money under Section 69A are not satisfied and the reassessment additions lack supporting material to displace the evidence in the books of account.

Conclusion: The addition under Section 69A is not sustainable; appeal by the department is dismissed and the assessment order setting aside the deletion of the addition is not sustained. The result is in favour of the assessee.

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