Non-Compliance and Failure to Explain Bank Credits: ITAT upholds ₹3.13 Crore S.69 Addition under Income Tax [Read Order]

In a recent ruling, the Income Tax Appellate Tribunal ( ITAT ) upheld the addition of ₹3.13 crore as unexplained cash deposits in the bank accounts of an appellant, citing his failure to provide any justification or evidence regarding the source of the funds. The appellant had challenged the Income Tax Department’s decision to treat the deposits as unexplained income under Section 69A of the Income Tax Act 1961 ( ITA )

The case stems from the appellant’s original income tax return for the assessment year 2010-11, in which he declared a meager income of ₹3,02,200. The appellant/ assessee, Prakash Govindbhai Patel,  operated two proprietary businesses, Prince Creation and Sonal Creation, and reported a turnover of ₹1.83 crore. However, in 2017, the Income Tax Department received information indicating substantial cash deposits totaling ₹3.13 crore across several bank accounts associated with the appellant and his businesses, far exceeding the declared income.

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The investigation further revealed that these deposits, made in the fiscal year 2009-10, were disproportionate to the appellant’s reported income and raised suspicions about the legitimacy of the funds. Moreover, when the Income Tax Department attempted to serve notices, the addresses linked to the appellant’s businesses were found to be non-existent.

Based on this information, the Income Tax Officer issued a notice under Section 148 of ITA on March 31, 2017, reopening the assessment for the year. Despite repeated reminders and notices, the appellant failed to respond, prompting the department to initiate ex parte proceedings under Section 144 of the tax statute. With no explanation provided for the significant cash deposits, the Assessing Officer (AO)  added the entire amount of ₹3.13 crore to the appellant’s total income as unexplained credits under Section 69A of the tax legislature.

Aggrieved, the appellant appealed the decision to the Commissioner of Income Tax (Appeals) [ CIT (A)] claiming that the Income Tax Officer had erred in adding the ₹3.13 crore as unexplained cash credits. He argued that the officer had only considered credit entries from the bank statements without accounting for the corresponding debit entries. However, despite several notices from the CIT (A) between 2021 and 2022, the appellant failed to respond or provide the necessary evidence to substantiate his claims.

The CIT (A) ultimately upheld the addition, noting that the appellant had not provided any documentation or explanation to justify the cash deposits, stressing that the burden of proof lay with the appellant to establish the identity, creditworthiness, and genuineness of the transactions. Since the appellant remained non-compliant throughout the proceedings, the CIT (A) ruled in favor of the Income Tax Department.

Aggrieved, The appellant’s case was then brought before the ITAT, where the appellant again failed to present his case despite being given numerous opportunities to do so. The tribunal noted the appellant’s repeated non-compliance and lack of cooperation during both the assessment and appellate stages.

The bench of Mr Sidhartha Nautiyal and Mr Makarand V Mahadeokar  reviewed the facts of the case.The tribunal referred to several judicial precedents, affirming that the burden of proof lies with the taxpayer to substantiate the legitimacy of any unexplained credits in their bank accounts. Without any credible explanation or supporting evidence, the tribunal had no choice but to uphold the addition.

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The tribunal also acknowledged the appellant’s argument for considering withdrawals from the bank accounts but noted that no supporting documents or explanations were submitted to justify such withdrawals. The tribunal directed the Assessing Officer to account for the withdrawals while finalizing the appellant’s income.

In its final ruling, the tribunal  upheld the ₹3.13 crore addition as unexplained income, dismissing the appellant’s appeal due to his non-compliance and failure to provide a satisfactory explanation for the cash deposits.

In result, the appellant’s ground for appeal was dismissed.

To Read the full text of the Order CLICK HERE

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