Addition towards unexplained cash credit deleted as AO failed to conduct independent inquiry

Rajesh Singh A. Rajput Vs ITO (ITAT Ahmedabad)

ITAT Ahmedabad deleted the addition towards unexplained cash credit as AO failed to conduct independent inquiry and addition was made merely for the reason that there was minor difference in amount of cash deposited vis-à-vis amount of demand draft and amount of invoice.

Facts- The assessee is an individual and deriving income from salary. The assessee in the return filed u/s. 139 of the Act declared income at Rs. 1.76 lakh only which was subsequently selected for scrutiny under CASS. The AO during the assessment proceeding noticed that the saving bank account of the assessee held with Axis bank has been credited by an amount aggregating to Rs. 52,39,433/- only in the form of cash and cheque deposits. The assessee was asked to furnish the nature and sources of credit in bank account, but assessee failed to make any reply. Thus, the AO in absence of the reply from the assessee treated the entire deposit of Rs. 52,39,433/- as unexplained cash credit and added the same to the total income of the assessee.

CIT(A) confirmed the addition made by AO. Being aggrieved, the present appeal is filed.

Conclusion- The AO and the CIT(A) rejected the claim of the assessee without making any independent inquiry or bringing contrary material merely for the reason that there were minor differences in amount of cash deposited viz-a-viz amount of demand draft and the amount of invoices. Thus, held that the approach of the revenue for rejecting the explanation of the assessee merely for minor difference in the invoice amount and demand draft viz-a-viz cash deposit is not justified.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

The captioned two appeals have been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax(Appeals)-7, Ahmedabad, arising in the matter of assessment order passed under s.144 and penalty order passed u/s. 271(1)(c) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Year 2011-2012.

2. The assessee has raised following grounds of appeal:

1.1 The order passed u/s.250 on 10.11.2016 for A.Y. 2011-12 by CIT(A)-7, Abad upholding the addition of Rs.52,39,433/- to wares credits in bank account as unexplained is wholly illegal, unlawful and against the principles of natural justice.

1.2 The Ld.CIT(A), has grievously erred in law and on on facts in not considering fully and properly the submissions made and evidence produced by the appellant with regard to the impugned addition. The Ld.CIT(A) ought to have pointed out and discussed the reasons as advanced for confirming the addition before passing the impugned order.

2.1 The Ld.CIT(A) has grievously erred in law and on facts in confirming the addition towards aggregate credits, cash or otherwise of Rs.52,39,433/-in bank account with Axis Bank as unexplained.

2.2 That in the facts and circumstances of the case as well as in law, the Ld.CIT(A) ought not to have upheld the the addition towards aggregate credits, cash or otherwise of Rs.52,39,433/- in bank account with Axis Bank as unexplained.

3.1 The Ld.CIT(A) has failed to appreciate that the impugned addition of Rs.52,39,433/- included explained credits such as Rs.3,18,823/- in respect of salary, Rs.1610/- interest and Rs.51,000/- being refund from Max New York Life Insurance Co. etc. so that it amounted to double addition in respect of such credits. The CIT(A) has failed to appreciate the cash deposits in said bank account was only to the extent of Rs.30,34,000/-.

3.2 The Ld.CIT(A) has failed to appreciate that the appellant had fully discharged the burden cast upon him to prove the credits in the said bank account. No cogent and convincing reasons have been advanced by CIT(A) for upholding the addition of Rs.52,39,433/-. The observations made by CIT(A) which are contrary to the evidence on record or against the appellant are not admitted.

4.1 Without prejudice to above and in alternative, the impugned addition of Rs.52,39,433/- is highly excessive and the same deserves to be reduced by explain credits and it be restricted to the peak credit.

It is, therefore, prayed that addition of Rs.52,39,433/- upheld by the CIT(A) may kindly be deleted.

3. The facts in brief are that the assessee is an individual and deriving income from salary. The assessee in the return filed under section 139 of the Act declared income at Rs. 1.76 lakh only which was subsequently selected for scrutiny under The AO during the assessment proceeding noticed that the saving bank account of the assessee held with Axis bank has been credited by an amount aggregating to Rs. 52,39,433/- only in the form of cash and cheque deposits. The assessee was asked to furnish the nature and sources of credit in bank account, but assessee failed to make any reply. Thus, the AO in absence of the reply from the assessee treated the entire deposit of Rs. 52,39,433/- as unexplained cash credit and added the same to the total income of the assessee.

4. The aggrieved assessee preferred an appeal before the learned CIT(A).

5. The assessee before the learned CIT(A) submitted the detail of total credits in the bank account made during the year which are as under:

5.1 The assessee further submitted sources of cash deposited for Rs. 30,34,000/- in the bank account which are detailed as under:

Summary of Cash Book is as follows:

5.2 The assessee further submitted that the cash amounting to Rs. 21,71,000/- was deposited by M/s Deep Enterprises a proprietary concern of his friend who was ill at that time and was not able to handle banking activity due to illness. However, his friend was in need to issue demand draft in favour of Indian Oil Corporation against the purchases of petroleum products by M/s Deep Enterprises. Accordingly, cash of M/s Deep Enterprises was deposited in his bank account, and he issued demand draft in favour of Indian Oil Corporation (IOC). The assessee in support of its claimed submitted copy of invoices issued by the IOC to M/s Deep Enterprises, copy of letter from the owner of M/s Deep Enterprises in this regard, confirmation and ITR of Deep Enterprise.

5.3 The assessee further during the remand proceeding submitted confirmation and PAN from the friends and relatives whose cheques were deposited in his bank account. The assessee during remand proceeding also submitted cash book, bank book etc.

5.4 However, the AO in the remand reported submitted that the assessee has not furnished sufficient materials to substantiate that cash deposited was received from M/s Deep Enterprises. As such, the amount of cash deposits in assessee’s bank, the amount of demand draft issued and the amount of invoice from IOC were not matching with each other. Likewise, the assessee claimed remaining cash deposits were made from opening cash balance and cash withdrawal during the year, but no corroborative material produced by the assessee. Similarly, the assessee claimed that amount credited in the bank account other than the cash deposit were on account of salary, receipt of loans from friends and relative and refund from Max New York Life insurance but no corroborative material was produced. Accordingly, the AO contended that the addition made should be sustained.

6. The learned CIT(A) after considering the facts in totality confirmed the addition made by the AO by observing as under:

6.2 I have considered the assessment order, facts of the case the submissions made by the appellant, the remand report and the rejoinder to the remand report. The appellant has submitted by way of submissions made during the appellate proceedings (a copy of which was sent to the AO as well for his comments) that the amount deposited in his bank account included cash deposits to bank, income from received during the year, loans received from friends and relatives and amount refunded from Max New York Life Insurance. He has further stated that out of the cash received, an amount of Rs 21,71,000/- was received from Deep Enterprises for payment of bills to Indian Oil Corporation on behalf of Deep Enterprises. A perusal of all the submissions made and evidences filed shows that the explanation with respect to cash deposit from Deep Enterprises cannot be accepted in the absence of satisfactory evidences. While the appellant has furnished four bills of Indian Oil Corporation for an amount of Rs.5,41,700/- each, this amount does not tally with the amounts of cash deposits from Deep Enterprises and the demand drafts issued. Moreover, the bank statement also does not reflect anywhere that these amounts which have been made out to “self” for issuance of demand draft, have been paid to Indian Oil Corporation. Simply furnishing an affidavit of the proprietor of Deep Enterprises cannot be regarded as documentary evidence to establish genuineness of a transaction.

6.1 In respect of the other cash deposits as well, the appellant has not submitted supporting corroborative evidences to establish the genuineness of the transaction or the any creditworthiness of the depositors. In fact, the appellant has not submitted copy of ITR or bank statement of any of the friends and relatives from whom he has ostensibly received loans. It is seen that the appellant’s income from salary is only Rs.3,18,823/-. Therefore, his contention that the amount of Rs. 18,34,000/- deposited in his bank account comprises of income received from personal sources and loans received from friends and relatives cannot be taken at face value. He has not explained what his income from personal source is.

6.1.1 It is also pertinent to note that in the rejoinder to the remand report, the appellant has not made any submission on merit. He has simply stated that he has no other income except salary income. Considering all the facts as discussed above as well as the submissions made, I am of the view that the appellant has not satisfactorily discharged the onus of establishing the genuineness of the transaction and creditworthiness of the depositors in respect of the deposits in his bank account and his claim in respect of cash received from Deep Enterprises is also not explained with corroborative evidences. Considering these facts, the addition of Rs.52,39,433/- made by the Assessing Officer is confirmed Ground of appeal no.3 is dismissed.

7. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.

8. The learned AR before us filled paper book running from pages 1 to 72 and reiterated the submission made during remand and appellate proceedings before the AO and the ld. CIT-A.

9. On the other hand, the learned DR vehemently supported the order of the authorities below.

10. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, during the year under consideration, the saving bank account of the assessee has been credited for an amount aggregating to Rs. 52,39,433/- only. The assessee during the appellate proceeding before the learned CIT(A) and remand proceeding before the AO furnished sources of credit in the bank account but the lower authorities did not agree with the submission of the assessee and treated the entire credit in bank account as unexplained money. For the sake of convenience, we proceed to adjudicate each source of credit in the bank account of the assessee separately.

Credit entry in the bank through cheque or other electronic forms amounting to Rs. 22,05,433/-.

10.1 The first source of credit claimed by the assessee is from salary amounting to Rs. 3,18,823/- only. In this regard, we note the AO himself noted that the assessee is a salaried person and declared net taxable income for Rs. 1.76 lakh which include income from salary, loss on account of house property. But the AO and the learned CIT(A) did not believe the submission of the assessee that his bank account was credited on account of receipt of salary. We further note the assessee in the computation of income has shown gross salary of 3,94,340/- which is more the amount claimed by the assessee which was credited in the bank account of the assessee on account salary. There is no allegation or finding of the AO that the assessee is holding any other bank account in which receipt on account of salary might have been credited. Therefore, it presumed that the salary must have been credited in the impugned bank account of the assessee. We also note that the AO in his order has reproduced each entry in bank account and on perusal of the same it can be seen there are several credit entries with narration salary. Therefore, we find force on the contention of the assessee and direct to AO delete the addition to the extent of amount claimed to be credited on account of salary.

10.2 The next sources credit claimed by the assessee is for Rs. 1610 on account of bank interest. On perusal of the detail of credit in bank account reproduced by the AO in his order, we find that there were entries aggregating to Rs. 1610/- with narration interest. However, on perusal of computation of income, we note that the assessee has not included interest income in his computation of income. Therefore, the addition to this is extent confirmed.

10.3 Coming next sources claimed by the assessee for an amount aggregating to Rs. 18,34,000/- as receipt from friends and relatives. As such, the assessee in this regard furnished details of 5 persons from whom the assessee bank account got credited on different dates, the summary of the same is available at page 68 of paper book. The assessee also furnished PAN and conformation letter from these persons which are available on pages 39 to 50 of the paper book. Even the assessee also filed the copies ITR-V of the friends and relatives. Thus, in our considered opinion, the assessee has provided primary evidence, and the onus was shifted upon the revenue to make necessary inquiry to find out the genuineness of the claim. However, the AO during the remand proceeding without conducting necessary inquiry or bringing any contrary material rejecting the explanation of the assessee. Thus, considering the fact that the assessee has furnished primary evidence with regard to sources of credit in bank account, but no contrary material brought on record by the AO neither any infirmity was pointed out in these documentary evidence, we hereby direct the AO to delete the addition to the extent of Rs. 18,24,000/- only.

10.4 The next source of credit for an amount of Rs. 51,000/- claimed by the assessee as refund from Max New York Life Insurance. The assessee in support furnished a ledger copy of Max New York Life Insurance which is placed on page 13 of the paper book. On perusal of same, we note that the assessee on 21^st July 2010 made payment of Rs. 51,000 to Max New York and subsequently same amount was received back by the assessee as on 6^th August 2010. In this regard we further perused the entries in the bank account which has been reproduced by the AO in his order, we note that same is matching with the debit and credit entry in bank account on respective dates and the bank narration against the entry also reads “Max New York”. Therefore, we find force in the claimed of the assessee that impugned amount represents refund of payment made on earlier occasion. Hence, we hereby direct the AO to delete the addition made by him to the extent of Rs. 51000/- received from Max New York.

Cash Deposit amounting to Rs. 30,34,000/-:

10.5 The assessee with respect to the sources of cash deposit claimed that the majority amount of Rs. 21,71,000/- was cash received from M/s Deep Enterprises which was deposited in his bank account for issuance of demand draft in favour of Indian Oil Corporation. The assessee in support furnished a ledger copy of M/s Deep Enterprises, copy of confirmation, purchase of summary of Deep Enterprises from IOC, invoices issued by the IOC to Deep Enterprises. However, the AO and the learned CIT(A) rejected the claim of the assessed without making any independent inquiry or bringing contrary material merely for the reason that there were minor differences in amount of cash deposited viz-a-viz amount of demand draft and the amount of invoices which is detailed as under:

10.6 In our considered opinion, the approach of the revenue for rejecting the explanation of the assessee merely for minor difference in the invoice amount and demand draft viz-a-viz cash deposit is not justified. As such the assessee was able to demonstrate that cash of Rs. 21,71,000/- was deposited by M/s Deep Enterprises. If the revenue had doubt, then the AO should have carried out independent inquiry from M/s Deep Enterprise, but the AO failed to do so. Therefore, we hereby set aside the finding of the learned CIT(A) in this regard and direct the AO to delete the addition made by him for Rs. 21,77,000/- only.

10.7 Coming to the remaining amount of cash deposit for Rs. 8,63,000/-. The assessee claimed that the above amount was deposited out of opening cash balance of Rs. 1,47,965/- and withdrawal made from the bank for Rs. 8,69,500/- only. The assessee in support of claim furnishes copy of cash book and bank book. Considering the smallness of the amount of opening balance i.e. 1,47,965.00 only, we are of the view that such amount should be available for deposit. Likewise, we also note that there were frequent withdrawals from the bank account which were sufficient to deposit the remaining cash in the bank account. The revenue has also not brought anything on record that the cash withdrawal was utilised by the assessee for some other purposes.

10.8 In view of the above detailed discussion, we hereby direct the AO to delete the addition made by him on account of credit entry in bank account of assessee to the extent of Rs. 52,37,823/- and confirmed the addition for Rs. 1610/- only on account of interest income not offered by the assessee. Hence. the ground of appeal raised by the assessee is hereby partly allowed.

10.9 In the result, the appeal of the assessee partly allowed.

Coming to ITA No. 379/Ahd/2017 by the assessee for AY 2011-12 against the penalty proceeding under section 271(1)(c) of the Act.

11. At the outset, we note that quantum addition on which the AO has levied penalty under section 271(1)(c) of the Act has been deleted by us vide paragraph number10 of this order in ITA No 378/Ahd/2017. In other words, the quantum additions made by the AO and confirmed by the learned CIT(A) were deleted by the us. Thus, the question of concealment of income or furnishing inaccurate particular of income does not arise and therefore the penalty cannot be sustained. Under the provisions of section 271(1)(c) of the Act, the amount of penalty has been specified which shall not be less than hundred percent of the amount of tax sought to be evaded subject to the maximum limit of 300% of such amount. Under explanation 4 to section 271(1)(c) of the Act, the manner for quantifying the amount of tax sought to be evaded has been specified which has direct nexus with the additions/ disallowances made during the quantum proceedings. Therefore, when the quantum additions/disallowances have been deleted, then the manner of quantifying the amount of penalty under explanation 4 to section 271(1)(c) of the Act as discussed above fails. Accordingly, we are of the view that that there cannot be any penalty with respect to the quantum additions which have been deleted by us. Regarding the confirmation of addition for Rs. 1600.00, considering the smallness of amount, we hereby delete the penalty. Hence the ground of appeal raised by the assessee is hereby allowed.

11.1  In the result, the appeal filed by the assessee is hereby allowed.

12. In the combined results, the appeal filed by the assessee bearing ITA No.378/Ahd/2017 for A.Y. 2011-12 is partly allowed whereas the ITA  No.379/Ahd/2017 for A.Y. 2011-12 is allowed.

Order pronounced in the Court on 30/10/2023 at Ahmedabad.