Case Law Details
Shri Mohan Vs ACIT (ITAT Chennai)
Introduction: In a recent case, the Income Tax Appellate Tribunal (ITAT) in Chennai upheld an addition to an individual’s income tax due to their inability to explain the source of a substantial cash deposit in their bank account. This article provides a detailed analysis of the case of Shri Mohan vs. ACIT and the reasons behind the ITAT’s decision.
Detailed Analysis: The case revolves around an individual, Shri Mohan, who was engaged in the business of selling software consultancy services and providing manpower consultancy. Shri Mohan filed his income tax return for the Assessment Year (AY) 2012-13, declaring a total income of Rs. 3,01,75,820. However, his return was belatedly e-filed on April 4, 2013.
The income tax department selected Shri Mohan’s case for scrutiny and issued the necessary notices under Section 143(2) and Section 142(1) of the Income Tax Act. During the scrutiny, the assessing officer (AO) noticed that a significant amount of cash had been deposited into Shri Mohan’s bank account from October 18, 2011, to December 7, 2011, amounting to Rs. 94,75,000.
The AO requested Shri Mohan to explain the source of these cash deposits and provide supporting evidence. In response, Shri Mohan claimed that he had withdrawn the money for the purpose of purchasing land in June 2011. However, as the land deal did not materialize, he re-deposited the cash into his bank account.
The AO conducted a thorough examination of Shri Mohan’s financial records and identified issues with his explanation. First, there was either a very low or negative cash balance in Shri Mohan’s cash book during the relevant period. Second, Shri Mohan failed to produce any documentary evidence, such as an agreement for the land purchase, to support his claim. Additionally, he did not provide the names, addresses, or PAN details of the parties to whom he had given cash advances. The reason for the non-fulfillment of the land purchase was also not adequately explained.
Based on these findings, the AO concluded that Shri Mohan had failed to provide a satisfactory explanation for the source of the cash deposits. As a result, the AO added the entire cash deposit amount of Rs. 94.75 lakhs to Shri Mohan’s total income.
Conclusion: The ITAT’s decision to uphold the income tax addition in Shri Mohan’s case serves as a reminder of the importance of providing comprehensive and verifiable explanations for any significant financial transactions, especially when dealing with cash deposits. Failing to produce relevant documentation and evidence can lead to unfavorable tax assessments. Taxpayers should ensure that their financial records align with their claims to avoid potential disputes with tax authorities.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal by the assessee is directed against the order of the learned Commissioner of Income-Tax (Appels)-15, Chennai [CIT(A)] dated 27-03-2018 and pertains to the Assessment Year [AY] 2012-13. The grounds of appeal are as under:
“1. For that the order of the Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case and at any rate is opposed to the principles of equity, natural justice and fair play.
2. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the order of the Assessing Officer is without jurisdiction.
3. For that the Commissioner of Income Tax (Appeals) erred in upholding the addition of Rs. 94,75,000/- made by the Assessing Officer as unexplained cash deposit.
4. For that the provisions of Section 68 are not in vocable in the facts and circumstances of this case.
5. For that the Commissioner of Income Tax (Appeals) failed to appreciate the explanation offered by the appellant with regard the source of cash deposits 6. For that the Commissioner of Income Tax (Appeals) has erred in not reckoning the withdrawals from bank account while making an addition of credits in the bank account as unexplained credits.
7. For that the Commissioner of Income Tax (Appeals) has erred in upholding the addition of negative cash balance of Rs.47,523/- PRAYER
For these grounds and such other grounds that may be adduced before or during the hearing of the appeal, it is prayed that the Hon’ble Tribunal may be pleased to
(i) Delete the addition of Rs. 94,75,000/- as unexplained cash credit.
(ii) Delete the addition of the negative cash balance.
(iii) pass/such other orders as the Hon ‘ble Tribunal may deem fit.”
2. The brief facts of the case are that the assessee was engaged in the business of sale of software consultancy services and manpower consultancy. The assessee belatedly e-filed return of income on 04- 04-2013 declaring total income of Rs.3,01 ,75,820/- and same was processed under section 143(1) of the Act. Subsequently, the case was selected for scrutiny and statutory notice under section 143(2) of the Act was issued on 02-09-2014 and was served upon the assessee on 11-09-2014. Notice under section 142(1) r.w.s. 129 was also issued to the assessee on 16-01-2015 asking for various details. The assessee in response appeared before the Ld. Assessing Officer [AO] and filed the details as called. The Ld. AO noticed that cash was deposited in the bank account of the assessee from 18-10-2011 to 07-12-2011. The total cash deposited in the bank account during that period is Rs. 94,75,000/-. The Ld. AO asked the assessee to explain the source of the said cash deposits and evidences. The assessee in reply submitted that he had drawn money for purchase of land in June 2011 and re-deposited the same in the bank account as the purpose was not materialized. The ld. AO thoroughly verified the books of accounts of the assessee and noticed that there was either ‘very less cash balance’ or ‘negative cash balance’ in the cash book. The ld. AO also noticed that the assessee did not submit any agreement for purchase of land. Name, address, PAN of parties to whom cash advances was given was also not furnished. Reason for non-fulfillment of the purpose for which amount was withdrawn from the bank was not submitted by the assessee. The ld. AO, therefore, came to the conclusion that the assessee failed to explain the source for cash deposits in the bank satisfactorily and vide order dated 16-03-2015 added the cash deposit amount of Rs. 94.75 lakh to the total income of the assessee.
3. Being aggrieved, the assessee filed 1st appeal before the ld. CIT(A). The ld. CIT(A) vide order dated 27-03-2018 dismissed the appeal of the assessee.
4. Being aggrieved, the assessee filed the present appeal before the Tribunal.
5. Heard both the parties and perused the materials on record. The Ld. AR submitted that assessee withdrawn cash from his bank account for purchasing a plot of land but the purpose was not accomplished. Therefore, the amount was re-deposited in the bank account. Per contra, the Ld. DR submitted that there was negative cash balance in the cash book of the assessee.
6. The Ld. CIT(A) while disposing of the appeal observed that the assessee failed to furnish relevant particulars with documentary evidence. Assessee failed to prove the accounted source of the cash deposit. The ld. CIT(A) also observed that assessee never engaged in real estate transaction before or after the instant assessment year. The claim of the assessee that cash withdrawal from his bank account for the purpose of real estate deal was not supported by any documentary evidence. Accordingly, the ld. CIT(A) observed that the explanation of the assessee is not acceptable.
7. We have considered the submissions of the parties and perused the orders of the lower authorities. We observe that the assessee failed to furnish any agreement to purchase of land so as to prove that cash was withdrawn from bank account for purchasing of land. Why the land could not be purchased was also not explained. Further, the cash book of the assessee told a different fact. The assessee’s cash book was either ‘very less cash balance’ or ‘negative cash balance’ during the relevant period. After discussing the matter as aforesaid, it is our considered opinion that the assessee failed to prove his case. He failed to prove that cash was withdrawn for purchasing of land and re-deposited the cash in his bank account. The assessee did not furnish any reason why land could not be purchased. Even there was no agreement to purchase land. Again, cash book shows negative cash balance. Accordingly, we decide the appeal against the assessee.
8. In the result, the appeal of the assessee is dismissed.
Order pronounced on 13th October, 2023.
