AO Failed to Consider Rule 6DD Exceptions in Cash Deposit Disallowance: ITAT Remits Case for De Novo Assessment [Read Order]

The Cochin bench of the Income Tax Appellate Tribunal (ITAT) remanded the matter back for de novo assessment as the bench observed that the assessing officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] failed to consider the Rule 6DD exceptions in cash deposit disallowance.

The assessee has appealed against the order passed by the CIT(A) for the assessment year (AY) 2020-21.

Want a deeper insight into the Income Tax Bill, 2025? Click here

Coming to the facts of the present case, the assessee, Joy Thomas, an individual engaged in business and agriculture, filed a return declaring a total income of Rs. 24,95,020. The assessment proceedings were completed by AO by calculating the income at Rs. 1.13 crores.

The AO made three additions such as Rs. 63,71,381 as unexplained cash deposits in a bank account, Rs. 16,00,219 as unexplained money from interest collections, and Rs. 9,12,000 as disallowed interest expenditure under Section 40A(3) of the Income Tax Act, 1961, for cash payments exceeding the prescribed limit. 

Complete Blueprint for Preparing Project Reports, click here

The assessee contested these additions, arguing that the cash deposits were sourced from agricultural proceeds, specifically cardamom cultivation on 142 acres of land. He also claimed that the interest payments were made to close friends, falling under exceptions provided in Rule 6DD of the Income Tax Rules.

But there were no favorable results on the part of the CIT(A), and thus the assessee appealed before the ITAT for relief.

The assessee’s counsel contended that the lower authorities had not considered important evidence, including cash withdrawals of Rs. 29,74,000 during the relevant period, which could explain the subsequent deposits.

The Senior Departmental Representative did not raise strong objections to these contentions.

Clear all Your Doubts on RCM, TCS, GTA, OIDAR, SEZ, ISD Etc... Click Here

The bench reached the conclusion that the AO, as well as the CIT(A), failed to consider the withdrawals made from the bank account for the purpose of subsequent deposits in the same account. ITAT also observed that the AO failed to examine the exceptions enumerated under Rule 6DD of the Income Tax  Rules before invoking Section 40A(3) of the Income Tax Act.

The bench comprising Soundararajan (Judicial Member) and Inturi Rama Rao (Accountant Member) allowed the assessee’s appeal for statistical purposes.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates