Addition towards unexplained deposits unsustainable as confirmation letter from Donor duly filed

Girijamma Krishnappa Praveen Vs ITO (ITAT Bangalore)

ITAT Bangalore held that once the confirmation letter was filed by the assessee from Donor, the burden cast upon assessee is discharged and it would shift to revenue authorities. The Revenue authorities cannot make addition towards unexplained deposits without making any further enquiry.

Facts-

With regard to the cash deposit of Rs.8,87,000 in National Co-operative Bank, the assessee submitted that the cash deposits on 22.01.2015 of Rs.4,99,000 and on 10.03.2015 of Rs.1,50,000 were received from his mother Mrs. Girijamma and that this money was utilized for his mother’s foreign trip but the assessee had not submitted any proof.

In view of the above facts, the entire cash deposit ofRs.1,56,00,060 was treated by AO as unexplained cash credit u/s. 68 of the Act. The bank interest of Rs.2,15,353 received by the assessee but not offered to tax was also added to his total income. The assessee went in appeal before the CIT (Appeals).

The CIT (Appeals) was of the view that the cash book submitted by the assessee during the appellate proceedings is not a reliable explanation for the source of the cash deposts. As regards the confirmation from the assessee’s mother for the sums of Rs.4,99,000 and Rs.1,50,000 apart from stating that she has filed her return, the amount of returned income is not mentioned and hence the creditworthiness of this party is not established. No supporting documents were furnished by the assessee during the appellate proceedings. Hence the explanation given for the cash deposits in Natonal Co-operative Bank is also without merit. The CIT (Appeals) dismissed the appeal of the assessee. Aggrieved by the order of CIT (Appeals), the assessee is in appeal before us.

Conclusion-

In our opinion, when the assessee explained the source of deposit in the bank account with supporting evidences, the CIT (Appeals) ought to have admitted these documents for the purpose of adjudication. In the interest of justice, we admit these documents for adjudication. We have carefully gone through these documents. As per which the assessee received Rs.63 lakhs from the above three parties and this amount has been deposited into Bank account of the assessee with Punjab National Bank. Being so, to that extent it cannot be considered as unexplained deposit by the lower authorities. The assessee has discharged its burden in explaining the source of the deposit into assessee’s Bank account. Hence, to this extent of Rs.63 lakhs, the credit to be given by the AO.

In our opinion, once the confirmation letter was filed by the assessee from Donor, the burden cast upon assessee is discharged and it would shift to revenue authorities. The Revenue authorities cannot make addition without making any further enquiry. Therefore in these circumstances, the lower authorities are not justified in making addition toward unexplained deposits into bank account.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

The assessee has filed an appeal against the order of Commissioner of Income Tax (Appeals)-6, Bangalore DT.08.08.2019 for the Assessment Year 2015­16.

2. The assessee has raised the following grounds of appeal :

3. The facts of the case are that the assessee filed his Return of Income for Assessment Year 2015-16 on 21.11.2015, declaring income of Rs.3,01,000 u/s. 44AD of the Act. The Assessing Officer issued Notices u/s. 143(2) and 142(1) of the Act and the assessee filed letter dt.11.12.2017 that the deposit of Rs.1,47,13,060 related to the sale of ancestral property of 2.04 Acres as per Sale Deed dt.10.06.2016. The Assessing Officer found that the assessee has received a sum of Rs.3,96,00,000 on different dates in the form of cheques and RTGS. This showed that including TDS the assessee had received Rs.4 Crores out of this sale transaction. Therefore the Assessing Officer concluded that the assessee had not received any amount in cash during the F.Y. 2014-15 relevant to the A.Y. 2015-16. Regarding cash deposit of Rs.8,87,000 in National Co-operative Bank, the assessee submitted that the cash deposits on 22.01.2015 of Rs.4,99,000 and on 10.03.2015 of Rs.1,50,000 were received from his mother Mrs. Girijamma and that this money was utilized for his mother’s foreign trip but the assessee had not submitted any proof. In view of the above facts, the entire cash deposit ofRs.1,56,00,060 was treated by the Assessing Officer as unexplained cash credit u/s. 68 of the Act. The bank interest of Rs.2,15,353 received by the assessee but not offered to tax was also added to his total income. The assessee went in appeal before the CIT (Appeals). On appeal, the CIT (Appeals) observed that the assessee filed additional evidences with regard to explanation of source of deposit in the Bank with respect to the following :

The CIT (Appeals) observed that admission of additional evidences cannot be claimed as a matter of right and it is the duty of the assessee to explain the circumstances which prevented him submitting such documents before the lower authorities. According to CIT (Appeals) the assessee has not given bona fide explanation for not admitting the additional evidences at the stage of agreement. Thus he has not admitted the additional evidences filed by the assessee. Further he observed that the assessee has not linked the cash deposits with earlier withdrawals. The assessee also not stated for what purpose the cash was withdrawn why it was redeposited. Further from the cash book, it is seen that the lease deposit of Rs.20 lakhs is received from Shri Lokesh and Rs.21 lakhs received from Shri Rajashekar but there are cash deposits of Rs.26.5 lakhs from 4.8.2014 to 5.8.2014. On 9.8.2014, lease deposit ofRs.22 lakhs is stated to have been received form Shri Dharmendra but there are cash deposits of Rs.27 lakhs. In all the three instances, the cash deposits exceed the stated source being the lease deposits and there is no explanation given for the excess. The CIT (Appeals) was of the view that the cash book submitted by the assessee during the appellate proceedings is not a reliable explanation for the source of the cash deposts. As regards the confirmation from the assessee’s mother for the sums of Rs.4,99,000 and Rs.1,50,000 apart from stating that she has filed her return, the amount of returned income is not mentioned and hence the creditworthiness of this party is not established. No supporting documents were furnished by the assessee during the appellate proceedings. Hence the explanation given for the cash deposits in Natonal Co-operative Bank is also without merit. The CIT (Appeals) dismissed the appeal of the assessee. Aggrieved by the order of CIT (Appeals), the assessee is in appeal before us.

4. The learned Authorised Representative submitted that the assessee has deposited a sum of Rs.1,47,13,060 into his bank account with Punjab National Bank out of sale consideration. According to learned Authorised Representative the assessee frequently withdrawn the cash from the bank account for his business purpose and when it was not expended, the same was redeposited into bank account on various occasions. He drew our attention to the para 3.5 of assessment order which is in contradictory nature where the Assessing Officer stated that he has accepted the source of deposit into PNB account at the same time in last line of the same para stated that he has not accepted the source of deposit. The ld. AR read out the para 3.5 of assessment order as under :

“ 3.5 In view of the foregoing he assessee’s explanation of source for the cash deposit of Rs.1,47,13,060 in Punjab National Bank and Rs.8,87,000 in National Co-operative Bank is accepted and the entire cash deposit of Rs.1,56,00,060 (Rs1,47,13,060 + Rs.8,87,000) is treated as unexplained cash credit u/s. 68 of the IT Act and brought to tax.”

4.1  Further he submitted that the Assessing Officer committed an error in computation of tax liability also. The ld. AR submitted that the CIT (Appeals) ought to have admitted the additional evidences showing the receipt of Rs.63 lakhs from various parties on leasing out and house properties as discussed in the facts of the case. The assessee during the appellate proceedings has filed an application under Rule 46A of the IT Rules for admission of the Additional Evidence being the lease deeds and the Cash Book. The learned CIT (Appeals) has not admitted the additional evidence on the ground that the said documents were not produced before the Assessing Officer. He submitted that the assessee prevented by sufficient cause in producing the following documents required for assessment :-

“Documents/Books of Accounts required to be produced

1. Complete set of return of income for the A. Y 2015-16.

2. All Books of Accounts supporting vouchers to the expenditure debited in the P&L A/c for the year ending 31­03-2015

3. Copy of the Bank/s Account statement for the period from 01.04.2014 to 31.03.2015.

4. Confirmation from Loan Creditors, indicating their sources of income, date/mode of payment, PAN, etc

5. Proof for deduction claimed under Chapter VIA i.e., LIC Payment, Tuition fees, Medical Insurance premix etc

6. Copies of TDS Certificates, Advance Tax Paid, Self assessment tax paid challans, claimed in the return of income”.

The ld. AR submitted that the AO issued a letter dtd: 05-12-2017 in which he has directed the Assessee not to produce the certain details and the relevant para is reproduced as under :

“Please refer to the above and notice u/s. 142(1) of the Income Tax Act, 1961 dated 07/07/2017, issued to you by this office. Please note that the details called for in the notice dated 07/07/2017 in respect of para 2 & 3 of annexure may need not be sent”

In view of the above directions, the assessee has not produced the information called for in para 2 and 3 of Letter Dt. 07-07-2017 which includes primary evidence such as P & L Account, supporting vouchers and bills, Bank Accounts and relevant details in support of Bank Credits including Cash Book and Lease Deeds which were the basic evidence for the source of Cash Deposit. The ld. Counsel for the assessee submits that the additional evidence being the lease deeds and Cash Book were verifiable with reference to the Bank Credits but the Ld. CIT(A) has neither verified the genuineness of the lease deeds nor called for a remand report to meet the ends of justice. Therefore the assessee is aggrieved with the Appellate Order in so far as rejection of the Additional evidence is concerned.

4.2 The Ld. CIT(A) has held that the Lease Deposit of Rs. 20,00,000/- was stated to have been received from Sri. Lokesh on 21-04-2014, but the cash deposits amounts to Rs 26,05,000/- from 21-04-2014 to 23-04-2014. Similar view was also held in other two lease deed deposits. The ld. AR submitted that the Ld. CIT(A) has not appreciated the fact that the assessee also had sufficient cash drawn from the banks earlier and contract receipts and the same was deposited along with the lease amount and the matter is verifiable from the Cash Book. The Assessee has produced the Cash Book before the Ld. CIT(A) in support of the availability of the cash for remittance into the Bank. However the Ld. CIT(A) has held that the cash book produced during the Appellate Proceedings for the first time was not reliable. The ld. AR in this regard submits that all the entries in the Cash Book were verifiable since most of the cash transactions were with the bank and the same was shown as contra entries. The Ld. CIT(A) has neither verified the cash book nor caused any enquires and no remand report was called for. The ld. Counsel for the assessee submits that he was prevented from producing the cash book and other details before the AO in view of his direction in his letter dtd: 05-12-2017 which was not appreciated by the Ld. CIT(A) and therefore it cannot be said that the addition evidence was produced for the first time hence the Ld. CIT(A) was not justified to reject the evidence produced during the Appellate proceedings. The assessee in relation to the cash deposits made into National Co­operative Bank of Rs. 8,87,000/- submitted a confirmation letter issued by the mother confirming the fact that she has gifted a sum of Rs. 4,99,000/- on 22-01­2015 and a further sum of Rs. 1,50,000/- on 10-03-2015. However the Ld. CIT(A) has rejected the explanation on the ground that no evidence was produced as regards the creditworthiness of the Donor even though she was assessed to tax vide PAN: BJFPG1882H. The Appellant submits that the Ld. CIT(A) was not justified in rejecting the explanation without causing any enquiry and also without calling for a report from the AO as to the genuineness of the Confirmation Letter. Therefore the ld. AR submitted that the order of the Ld. CIT(A) is not justifiable and hence the same is liable to be set-aside.

4.3 The assessee in so far as Rule 46A is concerned as regards admission of the Additional Evidence begs to place reliance on the decision of the this Tribunal of Delhi SMC Bench in ITA No. 140/DEL/2018 dtd: 19-06-2018 for the A.Y 2009-10 in the case of Sri. Dharmapal Tyagi v/s. ITO Ward – 1(2) Meerut, this Tribunal placing reliance on the Supreme Court decision in case of Tek Ram v/s. CIT (2013) 357 ITR 113 (SC) and the Hon’ble P & H High Court in the case of Muktha Metal Works (2011) 336 ITR 555 (P&H), held that the additional evidence as being relevant required to be looked into. The Tribunal in para 6.1 held as under

“6. 1 In view of these circumstances, I am of the view that the Ld. CIT(A) should have admitted these additional evidences and decided the appeal of the assessee on merits. In this view of the matter, I set aside the order of the Ld. CIT(A) and direct him to admit the additional evidences as above and decide the appeal of the assessee on merits, giving reasons of decision on merits in accordance with law by giving reasonable, sufficient opportunity of being heard to assessee. “

Under these facts and circumstances the Appellant prays that this Hon’ble ITAT be pleased to set-aside the order of the authorities below and restore the declared income in the interest of equity and justice.

5. On the other hand, the ld. DR submitted that it is the duty of the assessee to explain the source of deposit in the bank account. The ld.DR relied on the orders of lower authorities.

6. We have heard both the parties and perused the material on record. Similar issue was decided by the Tribunal, SMC Bench, Bangalore in the case of Shri Girish V Yalakkishettar Vs. ITO in ITA Nos.354/Bang/2019 Dt.27.01.2020 and the Tribunal observed that the assessee offered income to tax on presumptive basis u/s. 44AD of the Act and even after addition made by the Assessing Officer towards unexplained deposit in Bank Account is Rs.36,26,000 in the A.Y. 2013-14 and Rs.9,16,300 in the A.Y. 2014-15 to the disclosed turnover, the turnover of the assessee is less than Rs.1 Crore. As such, the Tribunal observed that income of the assessee to be assessed u/s. 44AD of the Act. The expenditure to the extent of 92% of gross receipts to be considered and income of the assessee to be estimated at 8% of the gross receipts and there is no applicability of Section 68 or 69A of the Act. For this purpose, the Tribunal relied on the judgement of Allahabad High Court in the case of Smt. Sarika Jain Vs. CIT 407 ITR 254 and also Hon’ble Bombay High Court in the case of CIT Vs. Bhaichand H Gandhi 141 ITR 67 (Bom). However in the present case, the assessee declared meager turnover as per Section 44AD of the Act at Rs.3,94,540 and disclosed profit at 36% of this turnover arrived at Rs.11,00,993. Now if we added the unexplained deposit in Bank Account of the assessee at Rs.1,58,09,656/-, the total turnover will be at Rs.1,62,04,196 and the assessee will have go out of provision of Section 44AD of the Act since the turnover is more than Rs.1 Crore. As such, in our humble opinion, the ratio laid down by the judgement relied on by the ld. Counsel for the assessee in the case of Shri Girish V Yalakkishettar Vs. ITO (supra) and Sarka Jain Vs. CIT (supra) cannot be applied. Further there is no rule that when an amount is credited in the Bank Account, it must be taken as receipt from the business. The amount of deposit added u/s. 68 or 69 is income from business or income from other sources depends on the evidence and explanation furnished by the assessee. If the deposits are found in the Bank account of the assessee and the explanation as to the nature and sources of the amount is rejected by the Assessing Officer, in such an occasion, the Assessing Officer is entitled to treat the deposit as ‘income from other sources’ and not as ‘business income’. It is merely because the assessee is running a business in which found certain unexplained deposit, it does not necessarily show that such deposits represented the suppressed business receipts and there would be no error of law in regarding unexplained deposits as income of the assessee from other sources. Unless there are strong reasons for connecting unexplained deposits with known source of income of the assessee, there will be no alternative to treating them as ‘income from other sources’. Being so, we have to see the nature and sources of each deposit of Rs.63 lakhs into Bank account.

7. In the present case, the assessee pleaded that unexplained deposit in bank account is from the following sources :

To support these claims, the assessee filed copy of lease agreement with the respective parties. These documents were produced by the assessee before the CIT (Appeals) which are not admitted by the CIT (Appeals) holding that there is no reasonable cause for filing the above documents. In our opinion, when the assessee explained the source of deposit in the bank account with supporting evidences, the CIT (Appeals) ought to have admitted these documents for the purpose of adjudication. In the interest of justice, we admit these documents for adjudication. We have carefully gone through these documents. As per which the assessee received Rs.63 lakhs from the above three parties and this amount has been deposited into Bank account of the assessee with Punjab National Bank. Being so, to that extent it cannot be considered as unexplained deposit by the lower authorities. The assessee has discharged its burden in explaining the source of the deposit into assessee’s Bank account. Hence, to this extent of Rs.63 lakhs, the credit to be given by the Assessing Officer.

8. We have also gone through withdrawals and deposits into Bank Account with Punjab National Bank on various dates. As seen from the bank account, there is repeated withdrawals and deposit into same bank account and total receipts of Rs.2,01,92,917 and withdrawals was Rs.1,27,17,850 and closing balance was Rs.74,75,067 as on 31.3.2015. From this we can rightly presume that the assessee has withdrawn the cash from Punjab National Bank account on various dates and it was redeposited by the assessee into the same bank account. There is no presumption that the assessee expended this amount for any other purpose and the lower authorities are not justified in deciding that the assessee has spent the earlier withdrawals for some purpose instead of depositing into same bank account without any material in the hands of authorities. Accordingly, the earlier withdrawals are available to the assessee to redeposit into the said bank account.

From this point of view also, the assessee’s claim has to be allowed. Further it is not the case of the lower authorities that the assessee has not placed any evidence to show that the assessee received the lease deposit from various parties to deposit into the bank account and the evidences produced by the assessee show that the assessee is actually deposited the lease agreement received from above three parties into bank account. Further the earlier withdrawals and deposits have direct nexus and the credit has to be given.

8.1 In the case of National Co-op. Bank Ltd., there was receipt of Rs.12,79,000 and withdrawal of Rs.8,87,000. The assessee explained that there was gift from mother for the sums of Rs.4,99,000 and Rs.1,50,000, the assessee has filed confirmation letter from mother before CIT (Appeals), disbelieved it since the credit worthiness of donor was not proved. In our opinion, once the confirmation letter was filed by the assessee from Donor, the burden cast upon assessee is discharged and it would shift to revenue authorities. The Revenue authorities cannot make addition without making any further enquiry. Therefore in these circumstances, the lower authorities are not justified in making addition toward unexplained deposits into bank account. Being so, we have no hesitation in deleting the addition sustained by the CIT (Appeals) on this issue and the ground of appeal of the assessee is allowed.

9. In the result the appeal of the assessee is allowed.

Pronounced in the open court on the date mentioned on the caption page.