Additions for Unexplained Cash Deposits and Loans Made Without Proper Verification : ITAT Restores Matter to AO [Raed Order]
The assessee furnished VAT returns, confirmations, and audited financials in support of the cash deposits and loans, claiming these were not properly considered.
unexplained - cash - deposit - Taxscan
unexplained - cash - deposit - Taxscan
The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) restored the matter to the Assessing Officer (AO ) for fresh adjudication after observing that additions for unexplained cash deposits and unsecured loans were made without proper verification of evidence and without granting adequate opportunity to the asseessee.
Harishkumar Khushalray Bhatt,appellant-assessee, engaged in the business of trading in plastic pipes under the proprietorship concern “Hima Sales Corporation,” had filed his return of income on 01.11.2017 declaring a total income of ₹11,57,940. The case was selected for scrutiny under CASS to verify large cash deposits made during the demonetization period.
Despite multiple notices issued under sections 143(2) and 142(1), the appellant failed to submit complete details. In response to the show-cause notice, only a self-generated cash book was submitted, without supporting ledgers or sale bills. Due to continued non-compliance, the AO completed the assessment under section 144 of the Act.
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The AO found that the assessee had deposited ₹32,61,500 in two Canara Bank accounts, which was claimed to be from cash sales. However, a mismatch of ₹1,36,517 between the cash book and audited financials led the AO to reject the explanation and treat the deposits as unexplained money under section 69A. Alternatively, the AO noted the deposits could also be taxed under section 68 as unexplained credits.
The AO also noted that the declared net profit of ₹8,59,823 on a turnover of ₹5.58 crore resulted in a net profit ratio of only 1.54%. In the absence of reliable records, the AO estimated income by applying a 25% net profit rate and made an addition of ₹1,28,15,473.
Further, a deduction of ₹5,00,000 under section 80G was disallowed as no supporting donation receipt or approval certificate was furnished. Additionally, the AO added ₹18,10,543 under section 68 towards unexplained unsecured loans due to lack of confirmation, PAN, and other supporting documents.
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Aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)[CIT(A)]. The CIT(A) confirmed the addition of ₹32,61,500 under section 69A, citing unreliable explanation. However, the estimated profit addition was significantly reduced, with the CIT(A) applying past profit history and restricting the addition to ₹66,502.
The disallowance under section 80G was deleted upon production of a donation receipt and approval of the donee institution. Regarding the unsecured loans, partial relief was granted, and only ₹3,24,382 was sustained as unexplained.The appeal was partly allowed.
The two member bench comprising T.R.SenthilKumar (Judicial Member) and Makarand V. Mahadeokar(Accountant Member) examined the assessment order, appellate order, and documents submitted by the assessee. The key issues were the addition of ₹32.61 lakh for cash deposits under section 69A and ₹3.24 lakh for unsecured loans under section 68.
The assessment was completed under section 144 due to non-compliance with notices. The appellant had only submitted a cash book without supporting documents. The AO treated the cash deposits as unexplained and found the cash book unreliable.
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The CIT(A) confirmed the addition, noting lack of evidence and discrepancies in cash balances. For the unsecured loans, the CIT(A) sustained part of the addition due to missing details for two creditors.
Before the appellate tribunal, the assessee claimed that cash sales were recorded and backed by VAT invoices, and that the AO had misread the cash balance figures. Audited financials, VAT returns, and confirmations were placed on record, which the AO had not examined. The tribunal noted that the CIT(A) also failed to call for a remand report despite receiving these documents.
The ITAT found that these issues required proper verification and that the assessment had been completed without giving full opportunity to the assessee. It restored the matter to the AO for fresh examination of the records and documents and directed that a reasoned order be passed after giving the assessee a fair chance to explain the cash deposits and loans.
No opinion was expressed on the merits of the case and directed the AO to pass a reasoned order in accordance with law.
The appeal was allowed for statistical purposes.
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