Addition Upon Unexplained Cash Deposits Partly Sustained: ITAT Restricts ₹78.29 Lakh Addition to Peak Balance [Read Order]

The Income Tax Appellate Tribunal (ITAT) Ahmedabad Bench has held that while addition on account of unexplained cash deposits is sustainable in principle, taxing the entire amount would be excessive, and accordingly directed the Assessing Officer to restrict the addition to the peak balance.

The tribunal allowed the appeal in part, holding the validity of the reassessment proceedings and the addition under Section 69 of the Income TaxAct, 1961. It directed the Assessing Officer to tax only the peak credit in the bank account and not the entire deposits.

The assessee Kanubhai Ambalal Patel filed his return declaring income of ₹3.41 lakh. The assessment was reopened under sections 147 and 148 of theAct on the basis of the information received from the Investigation Wing.

Further, It is to be noted that the assessee had maintained a bank account with the co-operative credit society. The Assessing Officer noticed the cash deposits to the tune of ₹78.29 lakh. It is to be noted that the Assessing Officer held the deposits as unexplained investment under section 69 of the Act as the assessee had not offered any satisfactory explanation.

The assessee argued that he was merely lending his bank account for routing third parties’ money and hence, was not in possession of the money. It was further contended that since there were immediate withdrawals, this proved that there was a routing of money and hence, only if there is any commission then it would be liable to taxation.

The Revenue, on the other hand contended that there was no documentary evidence provided by the assessee, such as who were the depositors or who were the beneficiaries which justified the addition.

The Tribunal comprising Siddhartha Nautiyal (Judicial Member) and Narendra Prasad Sinha (Accountant Member) found that there was no evidence provided by the assessee to support his claim of acting as a conduit as there was no evidence provided regarding the identity of the parties involved in this transaction. However, in view of the pattern of deposits and withdrawals.

Hence, the Tribunal found that there was a possibility that routing of funds and taxing the entire deposits would be unjustified.

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