ITAT Sets Aside Deletion of ₹1.43 Crore Unexplained Cash Deposits in Income Tax Dispute due to Absence of Critical Supporting Evidence [Read Order]

The Income Tax Appellate Tribunal (ITAT), Hyderabad bench has set aside the deletion of income tax additions made towards unexplained cash deposits and alleged cash payments by Ingeneric Technologies Solutions Private Limited and remanded the matter to the Assessing Officer for fresh verification under the Income Tax Act, 1961.

The assessee Ingeneric Technologies Solutions Private Limited, Hyderabad, filed its return of income for the assessment year 2016-2017 showing a loss, which was revised subsequently. The assessment was reopened by the Assessing Officer (AO) under Section 147 of the Income Tax Act, 1961 after cash deposits amounting to ₹1.43 crores in its HDFC Bank account and a cash receipt of ₹43 lakhs allegedly paid to M/s. Analogics Tech India was discovered during scrutiny and investigation. The AO issued notices under Section 148 of Income Tax Act and called upon the appellant to prove the source of these cash transactions.

The appellant contended these were legitimate business receipts from sale of scrap and claimed the amounts were recorded in the books of account and subject to tax. Despite these claims, the AO found the appellant failed to provide adequate evidence including details of buyers, Tax Collected at Source certificates, and returns filed under Form 27EQ as required under the Income Tax Act, 1961.

Thus, making additions totaling ₹1.83 crores under Sections 68 and 69A read with Section 115BBE of the Income Tax Act as unexplained cash credits and payments. However, the AO issued a final show cause notice before passing the order.

On appeal against the order of AO, the Commissioner of Income Tax (Appeals) [ CITA(A) ] deleted the additions after accepting the appellant’s cash flow statement and accounting explanations, noting the AO did not disprove appellant’s books or record satisfaction under Section 145(3) of Income Tax Act for rejecting books of accounts.

The appellant represented by Hema Murali Krishnan, contended that the cash deposits were legitimate business receipts from the sale of scrap, duly recorded in the books of accounts and taxed under direct income.

Regarding the alleged cash payment of ₹43 lakhs to Analogics Tech India, it was contended that the current management had no knowledge of such a transaction, as there was a complete change in control, and denied its existence in the official company books.

The revenue represented by Narender Kumar Naik, argued that the appellant failed to provide sufficient evidence such as buyer details, Tax Collected at Source receipts, and returns in Form 27EQ to substantiate the source of cash deposits. It was further argued that ledger copies and bank statements alone were insufficient, and the explanations lacked documentary support addressing core deficiencies highlighted during assessment.

The cash payment receipt was relied upon as third-party evidence, and no satisfactory explanation was provided by the appellant. Hence, the AO treated the deposits and payments as unexplained cash credits and payments under Sections 68 and 69A respectively, read with Section 115BBE of Income Tax Act, and made additions.

The Bench comprising Vice President, Vijay Pal Rao and Accountant Member, Manjunatha G observed the absence of critical supporting evidence and the failure of the appellant to demonstrate compliance with statutory requirements for tax collected at source and proper documentation.

The Tribunal set aside the deletion order of ₹1.43 crores on cash deposits and remanded the issue for reassessment with directions for detailed verification and opportunity for the appellant to substantiate its claims.

Regarding the cash payment of ₹43 lakhs, the matter was also remanded for fresh inquiry with instructions to provide adequate opportunity for rebuttal based on third-party evidence.

Thus, the appeal of Revenue was allowed for statistical purposes.

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