TaxTMI 
TaxTMI 
2025 (7) TMI 1164
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....of Income Tax (Appeals)-11, Ahmedabad [hereinafter referred to as "CIT(A)"]. The details of the assessment and appellate proceedings for both years are summarised as under: Particulars A.Y. 2013-14 A.Y. 2014-15 Date of Original Return Filed 08.10.2013 26.11.2014 Returned Income in Original Return in Rs. 14,55,840/- 22,29,210/- Assessment Order u/s 143(3) in Rs. Dated 16,11,950/- 22.03.2016 9,14,030/- 06.12.2016 Date of Return Filed in response to u/s 148 21.04.2021 21.04.2021 Returned Income in response to notice u/s 148 in Rs. 14,55,840/- 8,76,030/- Date of Assessment Order u/s 147 r.w.s. 144B of the Act 26.03.2022 26.03.2022 Assessed Income in Rs. 97,67,63,690/- 88,75,24,230/- Addition Made by AO invoking provisions of section 68 /69A in Rs. 97,53,07,845/- 88,66,48,200/- Date of CIT(A)'s Common Order 25.04.2022 25.04.2022 Additions Confirmed by CIT(A) in Rs. 19,46,57,904/- 19,51,73,450/- Additions Deleted by CIT(A) in Rs. 78,06,49,941/- 69,14,74,750/- Facts of the Case 2. The assessee is an individual engaged in the business of trading in paper in the name a....
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....arties of amounts below Rs. 20,000/- each. The AO concluded that these payments were not supported by credible evidence and were made in a structured manner to give a colour of genuineness to the underlying entries. The AO highlighted that the modus operandi adopted by the assessee was similar to other cases involving accommodation entries where cash is routed through the books and banks to camouflage unaccounted income. 5. The AO also noted that the assessee had claimed that part of the amount represented temporary loans from various parties. However, no confirmations or source details were furnished to substantiate the identity, creditworthiness, and genuineness of the said loans. The AO observed that while the ledger accounts and books reflected the inflow and outflow, the underlying nature and source of the amounts remained unverified. The AO relied upon the provisions of section 68/69A and concluded that the assessee had failed to satisfactorily explain the nature and source of the deposits. Further, it was specifically held that the genuineness of the explanation offered was not acceptable and the attempt was merely to provide a façade of documentation without actua....
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....y") but also assailed the validity of reopening of assessment under section 147 of the Act. The challenge to reopening was raised through written submissions filed during appellate proceedings. 9. The learned CIT(A), after considering the reassessment orders, written submissions of the assessee, and judicial precedents, rejected the assessee's challenge to the validity of reassessment. It was held that the Assessing Officer had received credible information from DGIT (System), New Delhi in the form of a dissemination note, and had formed a belief that income had escaped assessment based on such information. The CIT(A) found that the reopening was done after due application of mind and proper satisfaction, and the procedure prescribed under the Act was duly followed, including issuance of notices under sections 148 and 143(2) and granting of opportunity of hearing. The CIT(A) also noted that although the assessee had placed reliance on the decision of the Hon'ble Mumbai ITAT in the case of the Society in ITA Nos. 1721 to 1724/Mum/2023, order dated 31.01.2024, the said decision, in the opinion of the CIT(A), did not render the reassessment in the case of the assessee invalid. The ....
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....rore were offered to tax, supported by sales registers and books of account. It was observed that no part of purchases was doubted by the AO. Thus, this component of the cash deposit was held to be explained and the addition to that extent was deleted. (iv) Balance Cash Deposits - Rs. 19,46,57,904/- With respect to the remaining balance, the assessee contended that it represented cash redeposited from earlier withdrawals of Rs. 19,73,11,355/-. The learned CIT(A) considered in detail the assessee's submission that out of the total cash deposit of Rs. 51,21,21,090/-, a sum of Rs. 31,74,63,186/- was out of cash sales offered to tax, and the balance Rs. 19,46,57,904/- was out of earlier cash withdrawals of Rs. 19,73,11,355/-. However, the CIT(A) rejected the explanation regarding the alleged withdrawal-redeposit theory for the following reasons: * The assessee failed to provide a rational business explanation for frequent large cash withdrawals and deposits. * The assessee's business did not involve significant cash expenditure, and most purchases were through cheque. * No prudent person, the CIT(A noted, would frequently withdraw and redepo....
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....ailed to demonstrate any nexus between cash withdrawals and deposits or establish valid business rationale. Accordingly, the addition was restricted to Rs. 19,51,73,450/-, and balance was deleted. 16. Final outcome before CIT(A) is tabulated below: A.Y. Addition by AO (Rs.) Addition Confirmed (Rs.) Relief Granted (Rs.) 2013-14 97,53,07,845 19,46,57,904 78,06,49,941 2014-15 88,66,48,200 19,51,73,450 69,14,74,750 17. The CIT(A) also directed the AO to verify the exact quantum of deposits considered in assessment versus deposits actually made with the Society in both years and rectify any computational errors accordingly. 18. Aggrieved by the common order of the CIT(A) both Revenue and assessee are in appeal before us raising following grounds: In Revenue's appeal - ITA No. 864/Ahd/2024 - A.Y. 2013-14 1) In the facts and on the circumstances of the case and in law, the ld, CIT(A) has erred in deleting the addition of Rs. 47,43,27,036/- made on account of unexplained transaction u/s 69A of the Act, without appreciating the fact that, assessee didn't disclose the transaction in ITR and also failed to corroborate the actu....
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.... 19,46,57,904/- under section 69A, ignoring the evidences on record and the reconciliation furnished by the assessee. 3.1 The reopening of assessment under section 147 and issuance of notice under section 148 of the Act are bad in law and void ab initio as the jurisdictional conditions precedent for initiation of reassessment proceedings were not fulfilled. Prayer: It is, therefore, most respectfully prayed that the addition of Rs. 19,46,57,904/- sustained by the learned CIT(A) may kindly be deleted. In Assessee's appeal- ITA No. 830/Ahd/2024 - A.Y. 2014-15 1.1 The order passed under section 250 of the Income-tax Act, 1961 by the learned Commissioner of Income-tax (Appeals)-11, Ahmedabad, dated 27.02.2024, upholding the addition towards credits in the account of M/s. Shri Renukamata Multi-State Urban Co-operative Credit Society Ltd. to the extent of Rs. 19,51,73,450/- made by the Assessing Officer, is wholly illegal, arbitrary, and contrary to the principles of natural justice. 1.2 The learned CIT(A) has erred in law and on facts in not properly and comprehensively considering the explanation and evidence produced by the appella....
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....y-laundering-like operation by routing unaccounted funds under the garb of business transactions was thus fully justified. The learned DR further contended that the learned CIT(A), while granting substantial relief to the assessee by deleting additions to the extent of Rs. 47.43 crore in A.Y. 2013-14 and Rs. 69.14 crore in A.Y. 2014-15, has not at all dealt with or addressed the specific findings of the AO in relation to the above modus operandi. The appellate order is completely silent on the AO's detailed analysis of transaction patterns, source and destination of funds, and the conduct of the assessee as noted during the proceedings. 20. Additionally, the learned DR drew attention to the balance sheet of the assessee as on 31.03.2013, and pointed out that it disclosed only one trade creditor (Dhananjau Trade Link Pvt. Ltd.) of Rs. 34,51,78,742/- and deposits amounting to Rs. 51,55,30,810/-, which were not reconciled or co-related with the credits in the assessee's account with the credit society. It was submitted that these amounts correspond to the accommodation entries unearthed by the Assessing Officer and raise serious doubts about the actual nature of transactions record....
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.... 12,04,10,000/- Inter-bank transfers Date-wise bank details filed; source and movement explained. [as per para 5.6 of order of CIT(A)] 3. 31,74,63,176/- Cash sales and re-deposit of withdrawals Supported by cash book, bank statement and tabular chart (reply dated 05.02.2024). [as per para 5.7 of order of CIT(A)] 4. 15,14,78,000/- Temporary loans from various parties Confirmations, ITRs and ledger accounts submitted. [as per para 5.21 of order of CIT(A)] 22. Regarding the remaining amount of Rs. 19,46,57,904/- which was confirmed as unexplained under section 69A, being re-deposit of cash withdrawals allegedly not substantiated by sufficient source documentation. The AR contended that the said cash withdrawals and re-deposits were recorded in the books, the cash book was not found defective by the AO, and a chart showing classification of sources of cash was also furnished (paper book page No.113 for the A.Y. 2013- 14). It was therefore submitted that the residual addition of Rs. 19.46 crore also deserves to be deleted. 23. We have carefully considered the rival submissions, perused the orders of the Assessing Officer and the learned CIT(A), and ....
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....ck movement, purchase trail, or field inquiries. In this backdrop, the merits of each component of the source-wise bifurcation furnished before the CIT(A) are now examined independently, taking into account the original findings of the Assessing Officer, the relief granted by the CIT(A), and the respective contentions of the learned Departmental Representative and the Authorised Representative. 25. Now we examine each component of the deposit, for the A.Y. 2013-14, individually to reach at the findings and conclusion. Business receipts / sales Amounting to Rs. 3,64,53,850/- 26. We first deal with the component of Rs. 3,64,53,850/- claimed to be business receipts deposited in the account held by the assessee with Shri Renukamata Multi-State Urban Co-operative Credit Society Ltd. The assessee submitted before the CIT(A) that this amount represents sales proceeds received by cheque from various parties, and such sales are duly recorded in the books of account and offered to tax. It is further submitted that ledger copies and the sales register reflecting the said transactions were also produced before the CIT(A) for verification, along with a party-wise list of cheque receipt....
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....ed for. The mere fact that the receipts were by cheque and reflected in the sales register is insufficient in the peculiar circumstances of this case, particularly when the AO had categorically doubted the genuineness of transactions on the ground of accommodation entry routing, and the CIT(A) has not conducted any field-level or third-party verification. Further, the percentage of cheque receipts is significantly low as compared to the total sales and cash deposits claimed, casting serious doubt on the veracity of the recorded sales. 30. Accordingly, we are of the view that the deletion of Rs. 3,64,53,850/- by the CIT(A) cannot be sustained without independent verification. The matter is therefore restored to the file of the Assessing Officer for limited purpose of examining the genuineness of these business receipts afresh in light of the documents furnished before the CIT(A), after giving due opportunity to the assessee. The assessee shall cooperate and produce all necessary documents, including confirmations from parties, VAT returns (if any), bank statements, and invoices with quantitative details, to establish the identity of the parties, nature of transactions, and genuin....
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....ad placed on record a summary chart and cash book evidencing cash withdrawals and re-deposits. However, the CIT(A) also expressly recorded that the assessee failed to give a specific breakup as to which portion of the available cash was deposited with the Society and which part constituted current cash receipts. The CIT(A) observed that this bifurcation was material and that the claim was not conclusively established. Nevertheless, while finalizing the computation of unexplained income in para 5.15, the CIT(A) appears to have treated Rs. 31,74,63,176/- as explained, without subjecting the claim to independent verification, third-party cross-check, or reconciliation with stock records or VAT returns. 34. At the outset, we note that the explanation regarding cash deposits is based entirely on internal documents such as the cash book and bank statements. No primary evidence has been placed on record to prove that actual sales took place against which cash was received. The supporting invoices are VAT-free and no VAT returns or sales tax records were submitted either before the AO or the CIT(A). Further, no stock register or inventory movement summary has been filed to establish tha....
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....s explanation hinges on an uncorroborated assertion that cash deposited in the Society was either from cash sales or from earlier withdrawals, without any external evidence, stock movement proof, or matching entries in third-party ledgers. In our view, such a claim cannot be accepted at face value without detailed field-level verification, especially in a case involving alleged accommodation entries and substantial cash movement. It is also significant that this entire explanation was brought on record only at the appellate stage, and no remand report was called for by the CIT(A), thereby depriving the Assessing Officer of an opportunity to verify the cash flow trail and reconcile it with stock and sales tax compliance. 37. In view of the foregoing, and considering the incomplete evidentiary backing, absence of bifurcation of cash flow, and lack of third-party validation, we hold that the claim of the assessee that the deposits of Rs. 31,74,63,176/- were sourced from genuine cash sales and re-deposits of withdrawals is not conclusively established on the basis of material available on record. The treatment of this amount as explained by the CIT(A), without requisite verification....
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....TRs, ledger accounts, and bank statements may prima facie establish the identity of the lenders, the core legal requirement under section 68 includes satisfaction regarding creditworthiness and genuineness of the transactions as well. In the present case, we find that the AO failed to verify any of the financial statements or ITRs of the creditors. No inquiry was made to assess whether the creditors had sufficient financial capacity to advance loans of such magnitude. Even the bank trail of funds from the lenders to the assessee was not called for or analysed. Further, from the record, it is seen that many of these entities also appeared in the books of the assessee as customers or suppliers. This dual role of the same parties, as creditors and as trading counterparties, raises serious questions regarding the commercial substance and economic reality of these transactions. There is no discussion in the CIT(A)'s order about whether the funds advanced as loans originated from independent sources or were recycled business receipts routed to give the colour of loans. Additionally, the assessee's balance sheet as on 31.03.2013 discloses "Deposits" of Rs. 51,55,30,809.71, the nature of w....
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....lanation of the assessee and upheld the addition, primarily on the following grounds that the assessee failed to establish a nexus between the specific withdrawals and subsequent deposits. The CIT(A) also noted that there was no commercial rationale or business necessity for such frequent cash movements and the cash flow trail was incomplete, with no documentary evidence to prove that the same funds were redeposited. The CIT(A) also noted that the pattern of withdrawals and redeposits reflected possible non-genuine structuring rather than normal trading activity. The explanation remained general and uncorroborated. Accordingly, the CIT(A) confirmed the addition under section 68/69A of the Act to the extent of Rs. 19,46,57,904/-. 46. We have considered the rival submissions and examined the materials placed on record. The explanation offered by the assessee- namely, that the deposits were sourced from earlier cash withdrawals-is prima facie plausible but requires substantive verification. The cash flow summary, reconciliation charts, and books of account may support the availability of funds, but that by itself does not discharge the assessee's burden under section 68/69A unless ....
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....ctions, nor was there any finding suggesting that the creditors were also functioning as counterparties in trade transactions with the assessee. In the present case, however, the assessee has claimed substantial cash deposits to be sourced from temporary loans, cash sales, and redeposit of cash withdrawals without demonstrating a clear nexus or commercial justification. Several of the creditors also appear in the books of the assessee as customers or suppliers, raising a serious concern of accommodation layering. The alleged transactions were neither verified by the Assessing Officer through independent enquiry nor supported by VAT returns, stock movement, or purchase trail. The outstanding deposits of Rs.51.55 crore as on 31.03.2013 also remained unexplained and potentially correlated with the same entries. Thus, in the absence of independent verification and in view of the complex factual setting involving significant cash transactions and potential circularity, we are of the view that the reliance placed by the CIT(A) on those decisions do not assist the assessee in the present case, as the foundational facts necessary to invoke their applicability are not comparable. Finding....