Addition of ₹12 Lakh u/s 69A: ITAT holds Sundry Debtors do not Qualify as Unexplained Income [Read Order]

The Jaipur Bench of Income Tax Appellate Tribunal (ITAT) found that the addition of ₹12 Lakh under Section 69A of Income Tax Act,1961 was not justified, as the sundry debtors shown in the books did not qualify as unexplained income.

Ratika Kumbhat,appellant-assessee,was selected for limited scrutiny to verify cash deposits made during the demonetization period (November 9 to December 30). The case was later converted into complete scrutiny by a Principal Commissioner of Income Tax(PCIT) letter dated December 22, 2017.

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She filed her income tax return on March 31, 2017, for the assessment year 2015-16. A notice was issued on September 16, 2017, through Computer-Aided Scrutiny Selection (CASS) and sent by registered post. During the assessment, the Assessing Officer (AO) found that she had deposited ₹25,00,000 in cash during demonetization, claiming it was declared under the IDS Scheme 2016. However, she did not submit proof, but no addition was made on this issue.

The AO also found that she had shown ₹12,00,000 as debtors but did not provide evidence to prove their identity. Since she failed to justify the claim, the AO treated the amount as her own capital, disguised as debtors to explain the cash deposits. As a result, ₹12,00,000 was added as bogus debtors and taxed under Section 69A of the Act.

The assessee appealed before the Commissioner of Income Tax(Appeals)[CIT(A)] against the addition of ₹12,00,000 as unexplained income under Section 69A of the Act.

The CIT(A) noted that she had shown debtors of ₹12,00,000 but failed to provide confirmations or basic details like PAN or address. Instead, she suggested that the AO could summon them. Since the burden of proof was on her, the lack of evidence was considered.

The CIT(A) found that she did not prove the source or genuineness of the amount and repeated the same arguments from the assessment stage. Since no valid explanation or proof was given, the addition of ₹12,00,000 under Section 69A was upheld, and the appeal was dismissed.

Aggrieved by the decision of the CIT(A) the tribunal appealed before the tribunal.

Read More:Addition of Rs. 3.53 Crore as Unexplained Income u/s 69A: ITAT Sets Aside CIT(A)’s Order

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The two member bench comprising Narinder Kumar (Judicial Member) and Rathod Kamlesh Jayantbhai (Accountant Member) examined the case and heard both sides. The assessee challenged the ₹12,00,000 addition under Section 69A of the Act.. The case was initially selected to verify cash deposits and later converted into full scrutiny. During assessment, the AO found that ₹12,00,000 was shown as debtors but without supporting evidence, leading to its addition under Section 69A of the Act.

The CIT(A) upheld the addition, citing a Supreme Court ruling that unexplained receipts can be treated as taxable income. However, the appellate tribunal noted that sundry debtors recorded in the books do not fall under Section 69A. It also found that these debtors related to 2013 and 2014, not the relevant assessment year (2015-16). Since this fact was undisputed, the tribunal ruled that the addition was not justified and allowed the appeal.

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