Wrongful Assessment on Non-Existent Entity Invalid: ITAT Drops Section 69A Additions [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) deleted additions made on account of cash deposits treated as unexplained under Section 69A of the Income Tax Act, 1961, holding that the tax authorities incorrectly initiated proceedings based on Permanent Account Number (PAN) belonging to a non-existent entity.

The appeal was filed by Bombay Tyres, a proprietary concern of Rohit Rajgopal Soman, against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [CIT(A)]. The dispute arose when the Assessing Officer (AO) proceeded against a PAN which denotes a company status and does not belong to the appellant, instead of the correct PAN belonging to the proprietor.

Based on information received through the AIMS module relating to cash deposits of ₹3,18,43,590 in Federal Bank Account, the AO issued notices under Section 142(1) as no return was found filed under the incorrect PAN. Despite a clear clarification letter submitted by the assessee on 26.02.2018 explaining the PAN error and confirming that all transactions were undertaken by the proprietorship business and duly offered to tax, the AO proceeded to make additions under Section 69A treating the deposits as unexplained money.

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Further, a notional income addition of ₹31,64,997 was made by estimating profit at 8% on total bank credits of ₹3,95,62,466, and the assessment was ultimately completed at an income of ₹3,50,08,587. The first appellate authority, while noting the issue of incorrect PAN, remanded the matter to the AO, resulting in significant delay, and ultimately confirmed the additions.

The Appellant, represented by Tanzil Padvekar and Gopal Sharma, contended that Bombay Tyres is only a proprietorship and no company exists in that name on the Ministry of Corporate Affairs portal. The counsel submitted that all credits in the said bank account were accounted for as business turnover in the audited books of the proprietorship, subject to tax audit under Section 44AB.

The counsel submitted that the tax had already been discharged on such income in regular and reassessment proceedings under Section 147 read with Section 143(3), where no addition on account of cash deposits was made. They argued that the duplicate PAN was inadvertently and erroneously allotted by the department systems.

The Revenue, represented by Leyaqat Ali Aafaqui, contended that substantial cash credits were found in the bank account and the assessee failed to file returns or explain the deposits under the PAN against which information was flagged in the AIMS system. The counsel argued that estimation of income at 8% on total credits was justified due to inadequate explanation provided at the assessment stage.

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The bench comprising Amit Shukla (Judicial Member) and Girish Agrawal (Accountant Member) held that the bank account in question undisputedly belongs to the individual assessee and that the credits were already fully disclosed and assessed in his hands.

It observed that the AO acted without properly verifying facts despite being informed that the PAN used for the assessment belonged to a non-existent entity, and that taxing the same income again would be wholly unjustified.

The tribunal noted supporting evidence such as reconciliation of bank transactions with books of accounts, assessment history evidencing taxation of income under the correct PAN, and letters issued by Federal Bank confirming ownership of the account by the individual assessee and validating the amount of cash deposits.

Thus, the ITAT ruled that the additions made under Section 69A were uncalled for and directed that they be deleted in full. The appeal of the assessee was allowed.

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