Unaccounted Deposits Are Liabilities, Not Income, u/s 68 of the Income Tax Act: ITAT Deletes ₹66 Lakh Addition [Read Order]

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has quashed additions totalling ₹1.05 crore, holding that the alleged cash deposits were, in fact, customer liabilities and not taxable income. The case arose out of a search and seizure operation conducted under Section 132 of the Act on 24 November 2016 against Sakthi Finance Holdings Ltd. Under the search, notices under Section 153A were issued to the assessee companies for the Assessment Years (AYs) 2014–15 and 2015–16.

Based on the seized materials, particularly a Classmate notebook recovered from the premises of a group company executive and corroborative data from digital devices, the Assessing Officer (AO) concluded that the group had received unaccounted cash deposits totaling ₹210.10 lakh. While framing the assessment, the AO apportioned the cash receipts equally between Sakthi Realty Holdings Ltd. and Sakthi Finance Holdings Ltd., attributing ₹66 lakh to the former for AY 2014–15 and ₹39.05 lakh for AY 2015–16, treating them as unexplained income. Similar additions were made in the hands of Sakthi Finance Holdings Ltd. for AY 2014–15.

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According to the revenue, the seized notebook contained handwritten entries detailing cash transactions, which were allegedly collected from customers across Sakthi Finance Financial Services Ltd. branches and used to fund land purchases. The entries were corroborated by statements of several senior employees, including the general manager, who admitted that the cash was mobilised under instructions from higher-ups and that it was neither accounted for nor disclosed in the books. The AO further noted that non-convertible debentures (NCDs) were issued to acknowledge the deposits, which were systematically destroyed upon refund.

Relying on these findings, the AO invoked the provisions of Sections 153A and 68 to justify the additions as undisclosed income. These additions were confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)], and aggrieved by this, the assessee followed with an appeal to the Income Tax Appellate Tribunal

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The authorised representative of the assessee asserted that the sums in question were temporary deposits from customers bearing interest and, therefore, constituted liabilities rather than income. It was observed that the assessee had demonstrated the existence of these deposits and refunded them. The Tribunal remarked: “These are deposits from customers which represent liabilities for the assessee. The assessee mobilised deposits from customers against interest and subsequently refunded them. The deposits do not represent the income of the assessee.”

The Tribunal further noted that since the amounts were not reflected in the regular books of accounts, Section 68, which applies to unexplained credits in the books, was not applicable. Moreover, the identity of depositors and the source of funds were traceable from the records maintained by the group’s finance personnel, undermining the claim that these were unexplained or unaccounted incomes.

The bench, comprising Mahavir Singh (Vice President) and  Manoj Kumar Aggarwal (Accountant Member) after considering the nature of transactions, corroborative evidence, and the refund mechanism held that the additions made for all three appeals, ₹66 lakh, ₹39.05 lakh, and the corresponding ₹66 lakh in the hands of Sakthi Finance Holdings Ltd. were unwarranted. All three appeals were allowed, and the additions were entirely deleted.

To Read the full text of the Order CLICK HERE

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