ITAT Partially reduces addition of Unexplained Cash Deposits to ₹6,50,000, upholding CBDT Guidelines [Read Order]

The tribunal recognized the assessee's consistent income reporting and, citing CBDT Circular No. 3 of 2017, allowed cash deposits up to ₹2,50,000 without scrutiny, granting a benefit of ₹1,50,000 and reducing the addition to ₹6,50,000
ITAT - Income Tax - Income Tax Appellate Tribunal - ITAT Surat - TAXSCAN

The Surat Bench of Income Tax Appellate Tribunal ( ITAT ) partially reduced the addition of unexplained cash deposits to ₹6,50,000 while upholding the Central Board of Direct Taxes ( CBDT ) guidelines noting the lack of evidence for the source of the remaining cash deposits and recognizing the assessee’s consistent income reporting.

Dhirajlal Bhagwanbhai Talaviya,the appellant-assessee,filed his return of income for AY 2017-18 on March 14, 2018, declaring ₹5,40,630. His case was selected for scrutiny due to cash deposits of ₹10,50,000 during demonetization. The Assessing Officer(AO) issued a show-cause notice for the source of these deposits.

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In response, the assessee submitted a cash book but failed to satisfactorily explain the entries. Despite claiming an opening cash balance of ₹24,67,296, the AO noted a withdrawal of ₹20,000 on June 24, 2016. As a result, the entire cash deposit was treated as unexplained under Section 69A in the assessment order dated December 8, 2019.

The assessee, filed an appeal before the Commissioner of Income Tax(Appeals)[CIT(A)] against the AO’s addition of ₹10,50,000. He argued that the cash deposit during demonetization came from past savings and income earned in the year, including rental income of ₹41,000 per month and brokerage income, totaling ₹7,31,330, all disclosed in his return.

The CIT(A) noted that the assessee did not maintain books of account and found his explanation for the cash deposit implausible, as no evidence was provided for the claimed income. Consequently, the CIT(A) upheld the addition of ₹10,50,000, stating the assessee failed to substantiate the source of the deposit. The CIT(A) also identified errors in the computation of assessed income of ₹15,94,360 and directed the AO to recalculate the tax. The assessee then appealed to the tribunal.

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The tribunal reviewed the submissions from both parties and the lower authorities’ orders. It noted that the assessee made cash deposits of ₹10,50,000 during the demonetization period without providing evidence for a claimed cash balance.

The bench noted that the assessee argued that a withdrawal of ₹7,31,330 should prevent double taxation, but he failed to provide evidence of the shed generating rental income of ₹41,000 per month, which was not reflected in the bank statements.

The tribunal concluded that the assessee did not substantiate the source of the cash deposits  made during the demonetization period. It referred to the CBDT Circular No. 3 of 2017, which instructed that cash deposits up to ₹2,50,000 should be accepted.Therefore, ₹2,50,000 out of the total addition were allowed.

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A single member bench of Pawan Singh(Judicial Member) recognized the assessee’s consistent income reporting and granted a further benefit of ₹1,50,000, resulting in a total deletion of ₹4,00,000 from the addition. The remaining ₹6,50,000 was sustained, and the appeal was partly allowed.

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