INR 25 Lakh Cash Contribution by Directors Treated as Unexplained: ITAT Sets Aside CIT(A) Order, Directs Fresh Hearing [Read Order]
The tribunal noted that the CIT(A) had not properly considered the documents submitted by the assessee, including directors’ ITR acknowledgements and board resolutions, and had invoked Section 68 without giving the assessee a chance to respond.
Cash - contribution - Taxscan
Cash - contribution - Taxscan
The Cochin Bench of Income Tax Appellate Tribunal ( ITAT ) set aside the Commissioner of Income Tax (Appeals)[CIT(A)] order and directed a fresh hearing in the matter concerning an addition of INR 25 lakh treated as unexplained cash contribution by directors for Assessment Year ( AY ) 2017-18.
E T Devassy and Sons Finance Pvt. Ltd.,appellant-assessee,filed its income tax return for AY 2017-18, declaring income of INR 9,21,690. The Assessing Officer completed scrutiny under Section 143(3) on 30/12/2019 and determined total income at INR 76,16,170, adding INR 25,00,000 under Section 69.
The assessee claimed that the amount represented cash capital contributions from its directors, recorded in the company’s books, and submitted that no addition was warranted.
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The CIT(A) rejected the claim, noting that the appellant-assessee did not provide evidence of the directors’ agricultural income and had violated Section 42 of the Companies Act, 2013 by receiving cash capital. Relying on Sections 69A and 68, the CIT(A) upheld the addition.
The assessee appealed before the tribunal.
The assessee counsel argued that the CIT(A) had decided the appeal without considering the documents submitted, and wrongly stated that no evidence was provided under Section 68. The counsel relied on the directors’ Income Tax Return acknowledgements for AY 2017-18 and the board resolution for allotment of shares.
The Departmental Representative submitted that the assessee failed to explain the cash deposits or their source, and the documents were insufficient to prove the genuineness of the transaction or the creditworthiness of the parties.
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The two member bench comprising Rahul Chaudhary (Judicial Member) and Inturi Rama Rao (Accountant Member) considered the submissions and material on record. The Assessing Officer had added INR 25,00,000 under Section 69A as unexplained investment. The CIT(A) relied on Section 68, though the assessee had not been put on notice about it.
The tribunal noted that the assessee had submitted replies and documents but had not addressed Section 68, and the CIT(A) invoked it without giving the assessee a chance to respond.
The assessee’s representative argued that documents were filed to prove the identity and creditworthiness of the directors and the genuineness of the transactions. The tribunal agreed that the CIT(A) had not properly considered this material and that its finding about the source of capital was contrary to the record.
The appellate tribunal set aside the CIT(A) order dated 29/05/2025 and directed the CIT(A) to hear the appeal afresh, allowing the assessee to submit all relevant documents to prove the source of funds under Sections 68 and 69A. All rights of the assessee were left open, and the CIT(A) could decide the appeal based on the material on record if the assessee failed to cooperate.
Accordingly,the appeal was allowed for statistical purposes.
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