The Visakhapatnam Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the addition of Rs. 11.4 lakhs made by the Assessing Officer ( AO ) for unexplained cash, citing the assessee’s insufficient explanation regarding the source of these funds.
Aravind Reddy Devagiri, appellant-assessee, was a managing partner in M/s. A.R. Constructions, with a 75% profit share, and also held partnership interests in M/s. Lakshmi Cold Storage and M/s. Vigneswara Cold Storage. For the Assessment Year ( A.Y ) 2017-18, he filed his income tax return on March 8, 2018, reporting a total income of Rs. 7,54,800.
Get a Complete Kit of Essential Books for Daily Practice, Click Here
During the assessment process, the AO observed that while the assessee had disclosed a capital balance of Rs. 48,53,245 in M/s. A.R. Constructions, he had not accounted for capital introduced in M/s. Lakshmi Cold Storage and M/s. Vigneswara Cold Storage. Specifically, his investments amounted to Rs. 1,45,64,960 and Rs. 86,64,883, representing his 40% partnership shares in these firms.
Believing that income had escaped assessment under section 147, the AO issued a notice under section 148 on March 12, 2020, after receiving prior approval from the Joint Commissioner of Income Tax ( JCIT ).The assessee did not submit a revised return but responded to notices issued under section 142(1) of the Act.
Following an examination of these responses, the AO proceeded with additions, including Rs. 11,40,665 for cash introduced in the firm under section 68 read with section 115BBE.
Get a Complete Kit of Essential Books for Daily Practice, Click Here
Challenging these addition, the appellant filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], reiterating the submissions made to the AO. However, the CIT(A) dismissed the appeal, upholding the AO’s additions in their entirety. Aggrieved by the decision of the CIT(A), the assessee appealed before the tribunal.
The assessee contested an addition of Rs. 11,40,665, claiming that the amount was withdrawn from his capital account in the partnership firms during the financial year 2015-16. He presented documentation indicating that these cash withdrawals were used for investments, seeking the removal of the addition made by the AO.
In response, the Departmental Representative ( DR ) argued that the cash withdrawals occurred in the AY 2016-17, while the investments were made in the AY 2017-18. The DR emphasized that the appellant had not adequately shown that the withdrawn cash had been used for the investments, advocating for the addition to be upheld.
Get a Complete Kit of Essential Books for Daily Practice, Click Here
Upon reviewing the submissions, the tribunal observed that although the appellant indicated that cash withdrawals from the previous financial year were intended for investments made in 2017-18, he did not explain the rationale for holding the cash for over a year before investing.
The two member bench comprising Duvvuru RL Reddy ( Judicial Member ) and S.Balakrishnan ( Accountant Member ) noted that the responsibility to clarify the source of capital investments lay with the assessee. Due to the insufficient explanation provided regarding the source of the investment, the tribunal found the DR’s arguments persuasive and decided to uphold the addition made by the AO.
As a result, the assessee’s request for deletion of the addition was denied.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
