Cash Deposits in Bank Account Cannot Be Treated as Undisclosed Income Without Proper Consideration: ITAT Sets Aside ₹81.14 Lakh Addition [Read Order]

The Income Tax Appellate Tribunal (ITAT) Kolkata Bench has held that cash deposits in a bank account cannot be summarily treated as undisclosed income without proper adjudication of the assessee’s explanation and supporting records.

The assessee Radhakrishna Forex Private Limited engaged in the business of buying and selling foreign currencies, filed its return of income for Assessment Year 2018-19 declaring a total income of ₹1.85 lakh. During scrutiny, the Department noted substantial cash deposits amounting to ₹61.76 crore in the assessee’s bank account maintained with Bank of Baroda during FY 2017-18.

The amount of total credits in the bank account was observed to be ₹62.42 crore by the AO while the turnover reported in the income tax return was ₹61.61 crore. The AO classified the difference of ₹81.14 lakh as unexplained cash within the ambit of Section 69A result to an inability to provide a satisfactory explanation for the additional credits.

The assessee contended that the deposits represented sale proceeds from its forex business and submitted that relevant records including sales registers, cash book, bank statements and statutory forms FLM-5 and FLM-8 were available to substantiate the source of deposits. It was argued that all deposits arose from business transactions and could not be treated as unexplained income.

However, the CIT(A) dismissed the appeal observing that the assessee had not specifically rebutted the AO’s findings and had only made general submissions.

The Tribunal observed that the appellate authority had failed to pass a speaking order while confirming the addition made by the Assessing Officer (AO). Finding inconsistencies between the observations of the AO and CIT(A) the Bench restored the appeal to the CIT(A) for adjudication on merits after granting the assessee a reasonable opportunity of being heard. The appeal was partly allowed for statistical purposes.

The Bench noted that the CIT(A)’s findings were inconsistent with the assessment order, as the AO himself had not independently examined all entries but merely adopted the difference between total credits and turnover as the basis for addition. The Tribunal held that such issues required proper consideration of the assessee’s explanation and evidence.

Accordingly, the Bench comprising Pradip Kumar Choubey (Judicial Member) and Rakesh Mishra (Accountant Member) set aside the addition of ₹81.14 lakh made under Section 69A of theIncome Tax Act, 1961 and remanded the matter to the Commissioner of Income Tax (Appeals) [CIT(A)] for fresh disposal.

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