In a recent decision, the Income Tax Appellate Tribunal ( ITAT ), Mumbai Bench, has remanded a case involving the partnership firm, back to the Assessing Officer (AO) for a fresh examination. The case revolves around the addition of Rs. 3.50 crores under Section 69A of the Income Tax Act, 1961, which the AO had assessed as unexplained income due to discrepancies in cash deposits reported during the demonetization period.
Ramchandra Keshav and Company, appellant-assessee, a jewellery trading firm, filed its return of income for the assessment year 2017-18 declaring a total income of 40.5 lakhs. During scrutiny, the AO discovered cash deposits of Rs. 3 crores in Saraswat Co-operative Bank Ltd and 50 lakhs in Deccan Merchants Co-operative Bank Ltd. The cash deposits, totaling 3.5crores, were made during the demonetization period. While the appellant had reported the Saraswat Bank deposit, a clerical error had led to a misreporting of the Deccan Bank deposit in the return of income. The AO also observed an increase in cash sales, raising doubts about the veracity of the deposits.
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Despite the appellant’s submission of detailed cash ledgers and explanations about the increase in cash sales due to the festive season, the AO remained unconvinced. The AO took the view that the cash deposit of 3.5 crores was unexplained and should be taxed under Section 69A, assuming that the cash sales and deposits were manipulated to conceal unaccounted income.
The CIT(A), in the first appeal, upheld the AO’s addition, prompting the assessee to challenge the order before the ITAT. The appellant contended that the cash deposits were legitimate, originating from cash sales that were fully recorded in the books, and that there was no need to report the deposits differently in the return of income since they had already been declared in the prescribed cash deposit forms submitted during demonetization.
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The ITAT, however, found a significant gap in the investigation process. While the assessee had submitted detailed records of cash sales and cash ledgers, it had failed to provide physical stock details to support the claim of cash sales. The Tribunal pointed out that the AO had not conducted a proper enquiry into the veracity of the claim of cash sales, nor had he examined the availability of physical stock, which is crucial to validating the sales.
In light of these findings, Two Member Bench comprised of C V Bhadang (President) and B R Baskaran (Accountant Member) admitted new evidence—details of stock summary submitted by the appellant— and ordered the case be remanded to the AO for fresh examination. The Tribunal instructed the AO to verify whether the cash sales were supported by physical stock and, if so, reconsider the addition under Section 69A.
This decision underscores the importance of thorough enquiry and proper examination of supporting evidence in tax assessments. The remand offers a crucial opportunity for the AO to reassess the case with a complete set of facts, ensuring that taxpayers are not unfairly penalized based on assumptions without adequate scrutiny.
In conclusion, the ITAT has sent the matter back for a fresh examination, providing an opportunity for the AO to reconsider the addition in accordance with the directions laid out, ultimately ensuring a fair resolution of the dispute.
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