Additions on Cash Deposits and Property Purchase Made Without Proper Appraisal of Evidence: ITAT Orders Fresh Verification [Read Order]

The Nagpur Bench of the Income Tax Appellate Tribunal (ITAT) has set aside additions made under Sections 69A, 69C, and 56(2)(x) of the Income Tax Act against an individual taxpayer, holding that the department failed to review the evidence on the source of cash deposits submitted by the assessee.

In this case, the assessee, Chandrakant Nemasao Palsapure, had filed a return declaring income of ₹4.81 lakh for AY 2017–18.

The case was reopened under Section 147 after the AO received information that the assessee had purchased an immovable property worth ₹37.82 lakh during FY 2016–17, allegedly below market value, attracting the provisions of Section 56(2)(vii)(b).

Upon issuing notices under Sections 148, 143(2), and 142(1), the AO called for an explanation and supporting documents regarding the source of funds used for the purchase.

The assessee submitted copies of bank statements, the purchase agreement, and the registered sale deed, contending that the payments were made from cash withdrawals and joint account deposits funded by his wife’s bank account.

However, the AO was not satisfied, holding that the assessee had failed to properly explain the source of cash deposits amounting to ₹26 lakh, which were made in his SBI account before payments for the property. Consequently, the AO treated the cash deposits as unexplained money under Section 69A.

Further, as two payments mentioned in the sale deed, ₹1.50 lakh and ₹9 lakh, were not reflected in the bank account, the AO treated ₹11 lakh as unexplained expenditure under Section 69C.

In addition, the differential value between the property’s market valuation and its purchase price, amounting to ₹82,000, was taxed as income under Section 56(2)(x). The total assessed income was thereby enhanced to ₹42.63 lakh.

On appeal, the CIT(A) upheld all additions, dismissing the assessee’s contentions and rejecting the additional grounds raised during the appellate proceedings.

The assessee contended before the Tribunal that the CIT(A) erred in failing to consider key evidence, including bank transactions showing withdrawals from his wife’s account and deposits into their joint account used for the property purchase.

He also submitted that despite making a formal request, no opportunity for video conferencing or a hearing was granted before the disposal of the appeal, violating the principles of natural justice.

The Tribunal, after examining the paper book and submissions, found merit in the assessee’s claim that documentary evidence regarding the source of funds had not been adequately verified by the lower authorities.

The bench of Pavan Kumar Gadale (Judicial Member) observed that both the AO and the CIT(A) failed to consider the nexus between the withdrawals from the wife’s account and the corresponding deposits into the assessee’s account, which were crucial to determining the genuineness of the transactions.

Taking note of these procedural deficiencies, the Tribunal held that the matter required fresh examination. Accordingly, it set aside the order of the CIT(A) and restored the matter to the file of the AO with directions to verify the evidence and decide the issues afresh on merits.

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