The Ahmedabad ITAT clarified that when the cash deposits are sufficiently explained through the taxpayer’s own bank transactions and business activity, and the source of such deposits stands reconciled, then the addition made under Section 68 of the Income Tax Act is not sustainable at all.
The clarification came after drawing attention to the bank statement, Form 26AS, and the cash book produced by the appellant-taxpayer for the relevant assessment year, along with a detailed date-wise correlation between cash withdrawals and subsequent deposits.
Further, the Tribunal found that the reconciliation submitted by the appellant shows that while cash deposits during the year amounted to Rs. 14.01 lacs, the cash withdrawals stood at Rs. 38.75 lacs, thereby resulting in a net withdrawal of Rs. 24.73 lacs. Additionally, out of the total labour expenses of Rs. 45.40 lacs incurred during the year, Rs. 24 lacs were paid in cash. This establishes the availability of sufficient funds with the appellant to justify the cash deposits.
The Division Bench comprising Dr. BRR Kumar (Vice President) and Siddhartha Nautiyal (Judicial Member) observed that the addition of Rs. 12 lacs made by the AO on account of alleged unexplained cash deposits and bank interest was primarily based on the absence of compliance by the appellant during the assessment proceedings, which concluded in a best judgment assessment under Section 144.
The Bench, however, noted that the appellant had furnished a detailed explanation substantiating the source of cash deposits and clearly demonstrated that he was engaged in the construction business, and the contract receipts were directly credited to his savings bank account. Further, the appellant had withdrawn substantial amounts from the same account to meet site-level operational expenses, including payment of labour charges.
Thus, the Bench accepted the appellant’s case that any surplus cash, after incurring such expenses, was re-deposited into the same bank account, and hence the deposits were not unexplained in the present facts.
Briefly, in this case, the AO, noticing that the appellant had deposited a total of Rs. 11.94 lacs in cash into his bank account, initiated re-assessment proceedings under Section 148. However, since the appellant didn’t file an ITR and also ignored several notices under Section 142(1), the non-compliance prompted the AO to complete the best judgment assessment under Section 144. Resultantly, the total bank deposits were treated as unexplained cash credit and added to the total income of the appellant. Additionally, penalty proceedings under Section 271(1)(c) were also initiated for escaping income.
Appearances:
Biren Shah, for the Appellant/ Taxpayer
Rajenkumar M Vasavda, for the Respondent/ Revenue
