Case Law Details
DCIT Vs Baashyaam Constructions Pvt. Ltd. (ITAT Chennai)
Introduction: In a landmark ruling that reverberates through the corridors of tax jurisprudence, the Income Tax Appellate Tribunal (ITAT) in Chennai has rendered a decision that underscores the importance of evidence and due process in the adjudication of tax disputes. The case in point, DCIT Vs Baashyaam Constructions Pvt. Ltd., brings to the fore the complexities surrounding cash deposits during the demonetization period and the criticality of establishing a credible source for such deposits under Section 69A of the Income Tax Act.
Detailed Analysis: The crux of the dispute stemmed from the Revenue’s challenge against the Commissioner of Income Tax (Appeals) -19, Chennai’s order, which had earlier deleted an addition of Rs. 3,36,00,000/- attributed to unexplained money under Section 69A concerning cash deposits made by the assessee during the demonetization period. The Revenue’s appeal was grounded on several contentions, notably the alleged erroneous acceptance of the assessee’s explanation for the source of the cash deposits.
Baashyaam Constructions Pvt. Ltd., engaged in the business of development and construction, had made substantial cash deposits into its bank account during the demonetization period announced in November 2016. The Assessing Officer (AO), unconvinced by the assessee’s explanation regarding the source of these deposits, deemed them as unexplained money under Section 69A of the Income Tax Act, thus adding them to the assessee’s taxable income.
The assessee contested the AO’s decision before the CIT(A), asserting that the cash deposits were sourced from previously undisclosed income, which was regularized following an application to the Income Tax Settlement Commission (ITSC). The CIT(A) sided with the assessee, leading to the Revenue’s appeal before the ITAT.
Upon meticulous examination of the submissions, evidence, and relevant legal provisions, the ITAT highlighted several pivotal factors:
- The assessee had disclosed additional income before the ITSC relating to assessment years preceding the demonetization period.
- This disclosure was accepted by the ITSC, which permitted the capitalization of the disclosed income in the assessee’s books for the relevant assessment years.
- The assessee demonstrated that the cash deposits were made from this disclosed income, effectively negating the AO’s presumption of unexplained money under Section 69A.
The ITAT’s ruling emphasized the essence of substantiation and transparency in tax matters. It recognized the legitimacy of the assessee’s claim regarding the source of cash deposits, underscoring the sanctity of the ITSC’s acceptance of the disclosed income and its subsequent utilization in compliance with statutory provisions.
Conclusion: The ITAT Chennai’s decision in favor of Baashyaam Constructions Pvt. Ltd. is a testament to the principle that adherence to procedural norms and the provision of cogent evidence can validly counter allegations of tax evasion. This ruling not only reaffirms the taxpayer’s right to a fair hearing but also serves as a reminder to the Revenue to exercise caution and diligence in the assessment of tax liabilities. By upholding the CIT(A)’s deletion of cash deposit additions under Section 69A, the ITAT has reinforced the legal framework that governs the complex dynamics of tax administration and compliance.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-19, Chennai, dated 04.05.2023, and pertains to assessment year 2017-18.
2. The Revenue has raised the following grounds of appeal:
1 The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.
2 The Ld. CIT(A) erred in deleting the addition of Ps.3,36,00,000/- made towards unexplained money u/s. 69A in respect of cash deposits made by the assessee in the bank accounts during demonetization period.
2.1 The Ld. CIT(A) erred in accepting the assessee ‘s explanation that the amount admitted in the settlement application before ITSC in respect of bogus unsecured loans for AYs 2014- 15 and 2015-1 6 was the source for cash deposits made in the books of account for the AY 2017-18 and the cash was kept idle till the time of deposit (i.e.) nearly three years.
2.2 The Ld. CIT(A) failed to appreciate that the amount admitted as additional income in the settlement application for the AY 2014-15 and 2015-16 claimed to have been utilized for the working capital requirements of the assessee company by the Authorized representative of the assessee during the course of hearing before ITSC and there would be no cash available with the assessee for depositing during demonetization period.
2.3 The Ld. CIT(A) erred in failing to appreciate that the assessee during FY 2016-17 was in acute financial crisis and even not able to pay the advance tax due for AY 2017-18. Further, the assessee company had not paid any advance tax for AY 2016-17, paid self-assessment tax of Ps. 1.50 Crore belatedly and filed return of income on 31/12/2016. This being the financial situation of the assessee, the Ld. CIT(A) ought to have rejected the claim of the assessee that the cash amounting 3.36 Crores was kept idle fora period of three years till the time of demonetization.
2.4 The Id. CIT(A) failed to appreciate that the assessee neither disclosed liquid cash in the ITSC application nor claimed that the amount received back from Kolkata companies was kept in the form of cash. Further the Hon’ble ITSC allowed for capitalization of the same since the assessee claimed that the same amount was utilized for working capital requirements. There was no specific mention of allow ability of capitalization in the form of Cash in the order of ITSC,
2.5 The Ld. CIT(A) failed to appreciate that in this case survey was conducted on 30/12/2015 in the previous year 2015-16 relevant to the assessment year 2016-1 7. The entire amount of unsecured loans introduced in the books of accounts was repaid on or before 23/12/2014 itself. In such a scenario, the cash said to have been received back from the Kolkata companies must have been available on the date of survey itself. But the assessee had not brought to notice of the authorized officer about the availability of liquid cash on the date of survey. Hence, the existence of liquid cash, as received back from Kolkata companies is only an afterthought to cover up cash deposits made during demonetization period.
3. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.
3. The brief facts of the case are that the assessee company is in the business of development and construction of residential and commercial properties. The assessee has filed its return of income for AY 2017-18 on 27.12.2017 admitting total income of Rs.8,46,89,930/-. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer (in short “AO”) noticed that the assessee has made huge cash deposits into bank account during demonetization period. On perusal of the bank account statement, it was found that the assessee has deposited cash to the tune of Rs.3.78 Crs. in the Axis Bank A/c. The AO called upon the assessee to explain source for cash deposits during demonetization period. In response, the assessee submitted that the company had offered additional income of Rs.3.36 Crs. before the Hon’ble Income Tax Settlement Commission (in short “the Hon’ble ITSC”), Chennai, and the Hon’ble ITSC has admitted the application filed by the assessee on 09.09.2016 and passed final assessment order on 29.02.2018 admitting the claim of the assessee. Further, the Hon’ble ITSC had also accepted the prayer of the assessee for capitalization of additional income in the books of accounts for the relevant assessment year. The assessee further explained that it has generated unaccounted profit from its business for AYs 2014-15 & 2015-16 and the same has been used to take accommodation entries from Kolkata based companies for AYs 2014-15 & 2015-16. In the meantime, there was a survey conducted in the business premises of the assessee on 30.12.2015 and during the course of survey, it was ascertained that the company has taken bogus accommodation entries from Kolkata based companies, and accordingly, agreed to offer additional income. Subsequently, the assessee went before the Hon’ble ITSC and offered additional income towards accommodation entries received from Kolkata based companies. Thereafter, the assessee has re-paid loans taken from Kolkata based companies by cheque and received cash and said cash has been used for working capital requirements. Therefore, when the demonetization was announced on 08.11.20 16, the assessee has deposited cash balance available as per books of accounts, and cash received from Kolkata based companies in aggregate totaling to Rs.3.78 Crs.
4. The AO, however, was not convinced with the explanation of the assessee and according to the AO, linking the Hon’ble ITSC’s order with cash deposits during demonetization period, is only an afterthought to circumvent source for cash deposits into bank account. The AO has discussed the issue at length in light of survey conducted in the case of the assessee coupled with application filed by the assessee before the Hon’ble ITSC, and finally concluded that there is a contradiction in the statement of the assessee that one-side claims to have been utilized, cash received from Kolkata based companies for working capital requirements, on the other side, the assessee claims that it has liquid cash in hand and the same has been deposited during demonetization period. Therefore, the AO has rejected the arguments of the assessee and made additions of Rs.3.78 Crs. as unexplained money u/s.69A of the Act. The relevant findings of the AO are as under:
Further the assessee has submitted that it had received back the money from the Kolkata parties in cash after repayment of loan in the same week, i.e., the loans were repaid in September, 2013 and December, 2014 & cash is stated to be received within a week of repayment. The assessee submitted that the cash so received was kept idle from December, 2014 to November, 2016. The above submissions of the assessee are against normal human behavior & could not be accepted due to the following reasons:
- As per para 1.8 of the Hon’ble Settlement Commission’s order, the A.R. of the assessee himself had admitted that the assessee company has utilized the undisclosed income offered for taxation for F. Y. 2013-14 & F. Y. 2014-15 for working capital needs of the assessee company for the respective years. This being the case how the same money will again be available as liquid cash for the assessee to deposit it during demonetization period is a million-dollar question clouded in mystery and left unanswered by the assessee.
- The assessee company would not have predicted demonetization & has such admitted the undisclosed income for A. Y.2014-15 & A. Y 2015-16 to bail itself out of the proceedings post survey.
- The assessee is trying to match the cash deposits with the amount offered for A.Y.2014-15 & A.Y 2015-16 as an afterthought.
- The assessee is trying to derive double benefit out of the Hon’ble Settlement Commission’s order. In the first instance the money introduced in the books of the assessee and utilized for working capital during the FY 2013-14 & F. Y 2014-15 is covered by the money routed through Kolkata parties, which it had admitted before the Hon’ble Settlement Commission as income for the AY 201 4-1 5 & A.Y. 2015- 16. In the first place the assessee has utilized the said undisclosed admitted for the A.Y 2014-15 & A.Y 2015-16 for working capital needs of the company. Now again the assessee is trying to explain the source of cash deposits in November 2016 in specified bank notes as the same money admitted before the Hon’ble Settlement Commission which means the assessee wants to project the Kolkata loan route as the source for both money used for working capital needs during A. Y. 2014-15 & A. Y. 2015-16 and for the cash deposits, which is not the case as clearly and evidentially established by the Settlement Commission Order.
In view of the above discussion it is concluded that by no stretch of imagination it can be agreed that the money deposited during the demonetization period of November, 2016 is the same which was offered as undisclosed income during the A.Y.2014-15 & A.Y 2015-16. Hence the same is treated as unexplained money under section 69A of the Income Tax Act, 1961 & taxed accordingly.
5. Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has filed detailed written submissions on the issue which has been extracted in Para No.12 at Page Nos.8-10 of the Ld.CIT(A)’s order. The sum and substance of the arguments of the assessee before the Ld.CIT(A) are that source for cash deposits is out of cash in hand available as on the date of demonetization. As per the books of accounts maintained by the assessee, source for cash in hand was a sum of Rs.3.36 Crs. received back from Kolkata based companies for return of bogus unsecured loans and balance sum of Rs.42 lakhs was cash in hand available with the assessee. The assessee has explained that source for cash deposits in light of application filed before the Hon’ble ITSC and final assessment order passed by the Hon’ble ITSC and argued that it has generated unaccounted income from business for AYs 2014-15 & 2015-16, and same has been utilized for taking bogus loan entries from Kolkata based companies. Since, the Department has ascertained bogus nature of entries taken from Kolkata based companies during survey proceedings, the assessee has offered loan entries as additional income before the Hon’ble ITSC and also prayed for capitalization of income in the books of accounts for the relevant assessment years. Since, the Hon’ble ITSC has allowed the application and additional income offered by the assessee, the assessee has introduced cash into books of accounts when the application filed by the assessee was admitted by the Settlement Commission, which is source for cash deposits during demonetization period.
6. The Ld.CIT(A) after considering relevant submissions of the assessee and also taken note of relevant facts opined that the AO disbelieved explanation of the assessee with regard to source for cash deposits only on the ground that the assessee claims to have been utilized cash received back from Kolkata based companies for working capital requirements, and thus, the same cannot be considered to have been available with the assessee again in the form of cash in hand in November, 2016 for the purpose of making cash deposits into bank account during demonetization period. But, fact remains that submission of the assessee’s bogus loan entries taken from Kolkata based companies and subsequent return of said loan entries into Kolkata based companies and receipt of cash from them is not disputed. The AO had also not disputed the fact that the additional income offered by the assessee before the Hon’ble ITSC on account of undisclosed income generation for AYs 2014-15 & 2015-16 and utilization of undisclosed income for the purpose of obtaining bogus loan entries is also not disputed. The AO had also not disputed the fact that the ITSC has allowed capitalization of additional income for the relevant assessment year. Therefore, once, the AO accepted the fact that the assessee has offered additional income to tax and said income is available in the form of working capital, then, the AO cannot reject the explanation of the assessee for the simple reason that the application filed before the Hon’ble ITSC did not specify the nature of working capital whether it is in the form of cash in hand or other current assets. Therefore, the Ld.CIT(A) opined that the assessee is able to explain source for cash deposits out of opening cash in hand of Rs.42 lakhs plus a sum of Rs.3.36 Crs. towards capitalization of cash in hand in the books of accounts of the assessee as per order of the Hon’ble ITSC. Thus, accepted the explanation of the assessee and directed the AO to delete the addition made towards cash deposits during demonetization period. The relevant findings of the Ld.CIT(A) are as under:
7. The Ld.DR, Shri D.Hema Bhupal, JCIT, submitted that the Ld.CIT(A) erred in deleting the addition of Rs.3.36 Crs. made towards unexplained money u/s.69A of the Act, in respect of cash deposits made into bank account during demonetization period without appreciating the fact that the additional income admitted in the settlement application filed before the Hon’ble ITSC is in respect of unsecured loans for AYs 2014-15 & 2015-16, whereas, the assessee has made cash deposits in the month of November, 2016, after demonetization period. The Ld.DR further submitted that the Ld.CIT(A) failed to appreciate the fact that in the application before the Hon’ble ITSC, the assessee has offered additional income towards unaccounted profit generated from business and the same has been utilized for working capital requirements, whereas, before the AO the assessee claims that it was having idle cash in hand on account of return of cash by Kolkata based companies and the same has been deposited into bank account, even though, there is a contradiction in statements made by the assessee before the Hon’ble ITSC and before the AO. The Ld.DR further submitted that the assessee neither disclosed liquid cash in the settlement application nor claimed that the amount received back from Kolkata based companies was kept in the form of cash. Further, the Hon’ble ITSC allowed for capitalization since the assessee claimed same amount was utilized for working capital requirements. Since, there was no mention of availability of cash in hand, the entire amount of cash introduced into bank account of the assessee before the demonetization period is only an afterthought to circumvent source for cash deposits into bank account. The AO after considering relevant facts has rightly rejected explanation of the assessee and made addition u/s.69A of the Act, and their orders should be upheld.
8. The Ld.Counsel for the assessee supporting the order of the Ld.CIT(A), submitted that it was an undisputed fact that the application filed by the assessee before the Hon’ble ITSC was accepted and final order has been passed allowing capitalization of additional income for AYs 2014- 15 & 2015-16. It was also an admitted fact that the assessee has offered additional income before the Hon’ble ITSC towards bogus accommodation entries of unsecured loans received from Kolkata based companies and such additional income offered is on account of survey conducted in the case of the assessee where the Department has ascertained bogus nature of unsecured loans taken from Kolkata based companies. The assessee had also explained utilization of unaccounted income generated from business for utilization of unsecured loans and also received back cash from said companies on repayment of unsecured loans by cheque. Although, the assessee received back in the year 2014, but the same has been used for temporary requirements of working capital and once the application filed by the assessee has been admitted by the Hon’ble ITSC, the assessee has introduced cash in the books of accounts of the assessee. Further, in the month of November, 2016, after announcement of demonetization, cash in hand available with the assessee, has been deposited into bank account. These facts have been explained to the Ld.CIT(A). The Ld.CIT(A) after considering relevant facts has rightly accepted the claim of the assessee and directed the AO to delete additions made by the AO towards cash deposits u/s.69A of the Act.
9. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The AO made additions towards cash deposits into bank account during demonetization period amounting to Rs.3.78 Crs. u/s.69A of the Act, as unexplained money on the ground that the assessee could not explain source for cash deposits. According to the AO, although, the assessee explains source for cash deposits out of cash in hand available as on the date of demonetization, but fact remains that source for cash deposits is created on the basis of application filed before the Hon’ble ITSC and final order passed by the Hon’ble ITSC allowing capitalization of additional income for AYs 2014-15 & 2015-16. The AO further was of the opinion that there is no specific reference to cash in hand in the application before the Hon’ble ITSC and further, the Hon’ble ITSC has allowed capitalization of additional income on the ground that it was in the form of working capital of the assessee. The AO has discussed the issue at length in light of survey conducted in the case of the assessee on 30.12.2015 and subsequent additional income offered by the assessee towards bogus unsecured loan taken from Kolkata based companies and also order passed by the Hon’ble ITSC on 26.02.2018 accepting additional income of Rs.3.36 Crs. admitted by the assessee, and finally concluded that explanation offered by the assessee towards source for cash deposits is only an afterthought to circumvent addition made u/s.69A of the Act.
10. We have given our thoughtful consideration to the reasons given by the AO to add cash deposits u/s.69A of the Act, in light of various averments of the Ld.Counsel for the assessee and we find that there is no dispute with regard to the fact that during the course of survey on 30.12.2015, the assessee has admitted additional income of Rs.3.36 Crs. towards bogus unsecured loans received from Kolkata based companies. In fact, during the course of survey, the Department has ascertained bogus nature of entries received from Kolkata based companies and further, when those entries confronted to the assessee, the assessee has admitted additional income during survey proceedings. Further, the assessee has filed application before the Hon’ble ITSC and the application filed by the assessee has been admitted on 09.09.2016. In the application filed before the Hon’ble ITSC, the assessee has admitted additional income of Rs.3.36 Crs. for AYs 2014-15 & 2015-16. The assessee explained before the Hon’ble ITSC that it has earned unaccounted profit from business for above two assessment years and the same has been used to avail bogus accommodation entries of unsecured loan from Kolkata based companies. Further, when the Department has identified the bogus nature of entries in the case of survey conducted on 30.12.2015, the assessee has admitted additional income of Rs.3.36 Crs. and also agreed to pay taxes. Since, it has filed application before the Hon’ble ITSC, the assessee has decided to offer additional income of Rs.3.36 Crs. for AYs 2014-15 & 2015-16 on account of undisclosed income generated from business activity. The Hon’ble ITSC has accepted application filed by the assessee on 09.09.2016, and order was passed on 19.10.2016 admitting the application filed by the assessee. On admission of the application, the assessee introduced cash of Rs.3.36 Crs. in its books of accounts and said cash was deposited during demonetization period on 11.11.2016 and on 12.11.2016. The Hon’ble ITSC has passed the final order on 26.02.2018 and accepted additional income of Rs.3.36 Crs. and also allowed capitalization of the said income for above two assessment years. From the above, it is undisputedly clear that the assessee was having cash in hand on account of unaccounted income generated from business for AYs 2014-15 & 2015-16 and said cash has been utilized for availing bogus loan entries from Kolkata based companies. It was further noticed that when the Department has noticed bogus entries of unsecured loan, the assessee has agreed to offer additional income of Rs.3.36 Crs. and also filed application before the Hon’ble ITSC and offered additional income of Rs.3.36 Crs. This fact is further strengthened by the books of accounts of the assessee where the assessee has filed the details of loan entries taken from ‘four’ Kolkata based companies and also repayment of such loan in the year 2014 by cheque.
Therefore, we are of the considered view that the explanation of the assessee that it has cash in hand amounting to Rs.3.36 Crs. out of repayment of cash by Kolkata based companies and the same has been used for temporary requirement of working capital in the business of the assessee and finally cash in hand available with the assessee, was deposited into bank account immediately after demonetization, appears to be bona fide and reasonable explanation. Further, the only objection of the AO is that once cash in hand was used for working capital requirements, then, the very same cash in hand is not available to the assessee to explain source for cash deposits into bank account is devoid of merits, because, working capital includes cash and cash equivalent, stock and receivables, but it does not include only stock and receivables. Therefore, in our considered view, when the assessee explains that he was having cash in hand in the form of working capital of the business and the same has been introduced into bank account, once, the Hon’ble ITSC accepted application filed by the assessee on 19.10.2016 appears to be bona fide and reasonable. Once, the assessee has introduced cash in hand into books of accounts on 19.10.2016 and said cash is available with the assessee before the demonetization, in our considered view, the explanation of the assessee towards source for cash deposits needs to be accepted. The Ld.CIT(A) after considering relevant facts has rightly deleted the additions made towards cash deposits of Rs.3.36 Crs. u/s.69A of the Act, and thus, we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the Revenue.
11. In the result, appeal filed by the assessee Revenue is dismissed.
Order pronounced on the 03rd day of January, 2024, in Chennai.
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