Cash Deposits from Farmers’ Loan Transactions Not Recorded in Books of Account Not Taxable u/s 68: ITAT Upholds Deletion of ₹2.49 Cr Addition [Read Order]

The Income Tax Appellate Tribunal (ITAT) Nagpur Bench upheld the deletion of addition for ₹2.49 crore made under Section 68 observing that cash deposits made through a bank account and not appearing in the books of account cannot be treated as unexplained income.

The assessee, Surekha Ashok Mukkawar, proprietor of Shri Sai Agro Warehouse is engaged in providing storage facilities to farmers for agricultural produce. The Assessing Officer (AO) based on information regarding cash deposits totaling ₹2.49 crore in the bank account re-opened the assessment and treated the entire amount as unexplained cash credit under Section 68 for non-compliance during assessment proceedings.

In the appeal before the CIT(A) the assessee claimed that the deposits were made through a structured banking arrangement for availing loans against pledged agricultural produce stored in her warehouse. The transactions were made through a control account and she only earned rental income from storage which is below taxable limits.

The Revenue department submitted that the CIT(A) erred in admitting additional evidence without following Rule 46A and deleted the addition without obtaining a remand report.

On the other hand, the assessee submitted that bank statements do not amount to books of account and hence Section 68 is not applicable. Moreover, the deposits have a direct nexus to withdrawals and represent loan transactions of farmers, which is well supported.

The Tribunal comprising Pawan Singh (Judicial Member) and Khettra Mohan Roy (Accountant Member) held that Section 68 is applicable only to amounts credited in the books of account of the assessee.

However, in this case, the deposits were made to a bank account that was being used for conducting loan transactions and not for representing them as income in the books of account. Moreover, it is true that deposits and withdrawals have a direct nexus to each other and represent repayment of loans to farmers.

Therefore,the Bench held that the CIT(A) has validly exercised his powers in admitting additional evidence in view of the exceptional circumstances prevailing during the Covid-19 pandemic and verified the transactions on a test-check basis as a result, the appeal of the Revenue is dismissed.

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