Treating entire cash deposits as unexplained money is unjustified: ITAT Hyderabad

Ram Mohan Rapala Warangal vs ITO (ITAT Hyderabad)

ITAT Hyderabad held that adding full cash deposits to unexplained amounts of money was unjustified as the benefit of aggregating withdrawals with subsequent deposits had to be given. The matter was therefore remanded.

Facts- The assessee is an individual and is engaged in trading of stationery and general stores under the name and style “Vasundhara Books Stationery & General Stores” and has not filed any return of income for the financial year 2011-12. AO after receiving information that the appellant had made large cash deposits in the bank account and came to the view that the income had escaped tax assessment. Accordingly, Notice No. 148 was issued and served on the taxpayer. AO made the entire addition of cash deposits in the savings bank account amounting to Rs 44,84,000 and treated the same as unaccounted money, observing that the appellant had failed in his duty to prove the origin of the cash deposits.

CIT(A) dismissed the appeal. Since we are aggrieved, the present appeal is filed.

Diploma- From reading this statement it appears that there were also cash deposits and subsequent withdrawals. Without entering into a controversy as to whether the complainant actually carried on the business or not, it would suffice to state that the amount debited from the bank account in cash should be considered as available for the subsequent deposits in the bank account in the absence of any evidence on record to that effect the use of the withdrawn amount. Therefore, the lower authorities, i.e. the clerk and the CIT (A), should have granted the advantage of offsetting the withdrawals against the subsequent deposits. Therefore, the approach taken by the Assessing Officer as well as learned CIT (A) is completely unwarranted and unreasonable. In order to do justice, I consider it appropriate to refer the matter back to the clerk’s file with the instruction that the amount withdrawn from the bank account in cash should be treated as available for subsequent deposits and the balance (if any) may be taxable and the balance (if any) may be taxable, reduced by the amount of returned income.

FULL TEXT OF THE ORDER OF ITAT HYDERABAD

These five appeals filed by the assessee are against the various orders passed by the learned CIT (A)-NFAC Delhi, each relating to the year 2011-12 to 2013-14. Because all of these appeals involve common issues, they have been heard together for convenience and are resolved by this consolidated order.

ITA No. 1024, 1025 and 1027/Hyd/2024

2. The brief facts of the case are that the defendant is a private individual who is engaged in trading in stationery and general stores under the name and inscription “Vasundhara Books Stationery & General Stores” and for which he has no business Return of income was filed in AY 2011-12. The officer received information from the Investigation Department, Unit II Hyderabad that the complainant had made large cash deposits into the bank account and was of the view that the income had escaped tax assessment. Accordingly, Notice No. 148 was issued and served on the taxpayer. In response to the said notice, the complainant filed an income return on 09.03.2018 showing an income of Rs.3,62,500. Against the said return of income, the assessment was completed by the Officer (Income Tax Officer, Ward-3 Warangal) vide order dated 11.02.2018 passing u/s 143 of the IT Act, 1961 and adding the total income of the taxpayer at Rs .500/-. In doing so, the officer added the total cash deposits in the respondent’s savings bank account with ICICI bank account number 020101524775 amounting to Rs. 44,84,000/- and treated it as unaccounted money by noting that the complainant had done the duty to provide proof The company did not verify the origin of the cash deposits.

3. Since the respondent was aggrieved, he filed an appeal before the competent CIT (A), which pursuant to the impugned order dated May 17, 2019, dismissed the appeal filed by the appellant. On further appeal before the Tribunal, the Tribunal, by order dated September 30, 2019, referred the matter back to the file of the Assessing Officer for Denovo assessment in accordance with the law. Following the tax order passed by the court, the Clerk of NFAC, Delhi, in the vide order reiterated the additions made in the original tax order. However, the appellant was aggrieved and appealed before the learned CIT (A). The impugned order confirmed the clerk’s actions by finding that the complainant had failed to provide the necessary documentary evidence to support the claim that the cash deposits were made from the plaintiff’s business income.

4. As the assessee is violating the order of the learned CIT (A), he appeals to the Tribunal.

5. Learned counsel for the taxpayer went through the bank statement of the appellant before me and submitted that the lower authorities had failed to utilize the taxpayer’s earlier withdrawals for the subsequent cash deposits. He further stated that the lower authorities, having accepted the income returned by the complainant, would not have the opportunity to decide that the complainant had discontinued the business. Therefore, he submitted that there was no reason to add unexplained funds to his total cash deposits arising from the sale proceeds of the complainant’s company based on the cash deposits made in the bank account.

6. Learned DR, on the other hand, in support of the orders of the authorities below, submitted that in the absence of any proof of business activity, the officer was entitled to consider the entire cash deposits as unaccounted money of the appellant.

7. I have heard both the parties, perused the material on record and perused the orders of the authorities listed below. The issue in the present appeal is solely whether the assessee was entitled to add the entire cash deposits as unaccounted money of the appellant by finding that there was no evidence that the taxpayer was the appellant’s stationery business and general material continued business. I have carefully read the copy of the complainant’s bank statement at ICICI Bank. From reading this statement it appears that there were also cash deposits and subsequent withdrawals. Without entering into a controversy as to whether the complainant actually carried on the business or not, it would suffice to state that the amount debited from the bank account in cash should be considered as available for subsequent deposits into the bank account in the absence of any evidence on record of the same Use of the withdrawn amount. Therefore, the lower authorities, i.e. the clerk and the responsible CIT (A), should have granted the advantage of offsetting the withdrawals against the subsequent deposits. Therefore, the approach taken by the Assessing Officer as well as learned CIT (A) is completely unwarranted and unreasonable. In order to do justice, I consider it appropriate to refer the matter back to the clerk’s file with the instruction that the amount withdrawn from the bank account in cash should be treated as available for subsequent deposits and the balance (if any) may be taxable and the balance (if any) may be taxable, reduced by the amount of returned income.

8. As a result, the data entered by the assessee in the ITA nos. ITA numbers 1024, 1025 and 1027/Hyd/2024 partially admitted in the above provisions.

ITA No. 1025 and 1027/Hyd/2024

9. These two appeals filed by the assessee challenge the separate orders passed by the appropriate CIT (A) NFAC confirming levy of penalty under Section 271(1)(c) of the IT Act, 1961 The A.Ys 2011- 12 and 2012-13 in which appropriate appeals were filed and penalty was imposed have been reinstated in the file of the Assessing Officer Appeals will be made as per the provisions of Section 275 (A) of the IT Act, 1961 also reinstated in the file of the Assessing Officer.

10. In the result, appeals in ITA No. 1025 and 1027/Hyd/2024 are also partially allowed for statistical purposes.

Decision announced in public court on ⁶ November 2024.