Rejection of evidence merely because it is in handwritten form is unjustified: ITAT Ahmedabad

Kalpeshbhai Amthabhai Desai Vs ITO (ITAT Ahmedabad)

ITAT Ahmedabad held that rejection of evidence merely because it in handwritten form is unjustified. Accordingly, matter remanded back to CIT(A) for fresh consideration. Appeal allowed.

Facts- The assessee is an individual and engaged in the business of retail milk selling. For the relevant AY 2012-13, the assessee did not originally file a return of income, as the total income was below the basic exemption limit under the Act. Subsequently, a notice u/s. 148 of the Act was issued by the AO on 25.03.2019, prompting the assessee to file a return on 10.04.2019, declaring a total income of Rs.1,66,160/-.

During the assessment proceedings, the AO observed that the assessee had deposited an amount of Rs.16,35,513/- in cash in his bank account with ICICI Bank. The AO, after issuing several notices u/s. 143(2) and 142(1) of the Act and considering the submissions, added the said amount of Rs.16,35,513/- as unexplained cash deposits u/s. 69A of the Act. The assessee explained that the cash deposits were derived from the business of retail milk selling. The assessee further submitted documentary evidence, including a ‘desi hisab’ (cash book in handwritten form), bank book, and statements to justify the cash deposits. However, the AO disregarded these submissions, citing that the evidence was insufficient and lacking in credibility, particularly due to its handwritten nature.

CIT(A) dismissed the appeal. Being aggrieved, the present appeal is filed.

Conclusion- Held that the CIT(A) has failed to independently apply their mind to the facts of the case and has merely endorsed the conclusions drawn by the AO. The order of the CIT(A) lacks detailed reasoning and appears to have dismissed the assessee’s submissions primarily on the basis that the evidence was handwritten. It is well-established that evidence cannot be rejected merely because it is in handwritten form, provided it is authentic and explains the transactions. The CIT(A), as an appellate authority, is required to pass a reasoned order based on the facts and evidence presented, particularly when such evidence is crucial to determining the source of the cash deposits in question.

The CIT(A) has not considered the peculiar nature of the assessee’s business, i.e., retail milk selling, which is typically a business that operates in cash, especially in rural areas. The pattern of cash withdrawals and re-deposits, as reflected in the bank statements, should have been examined in more detail to assess whether the assessee’s explanation was plausible. The appellate authority is duty-bound to consider all material facts and documents submitted by the assessee and cannot simply dismiss the appeal on grounds that are not sufficiently justified.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This appeal by the assessee is directed against the order dated 27.05.2024, passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”], for the Assessment Year (AY) 2012-13. The CIT(A)’s order confirmed the addition of Rs.16,35,513/- made by the Assessing Officer [hereinafter referred to as “AO”] under Section 69A of the Income Tax Act, 1961 [hereinafter referred to as “the Act”], as unexplained money vide assessment order dated 09.12.2019.

Facts of the Case:

2. The assessee is an individual and engaged in the business of retail milk selling. For the relevant AY 2012-13, the assessee did not originally file a return of income, as the total income was below the basic exemption limit under the Act. Subsequently, a notice under Section 148 of the Act was issued by the AO on 25.03.2019, prompting the assessee to file a return on 10.04.2019, declaring a total income of Rs.1,66,160/-.

2.1. During the assessment proceedings, the AO observed that the assessee had deposited an amount of Rs.16,35,513/- in cash in his bank account with ICICI Bank. The AO, after issuing several notices under Sections 143(2) and 142(1) of the Act and considering the submissions, added the said amount of Rs.16,35,513/- as unexplained cash deposits under Section 69A of the Act. The assessee explained that the cash deposits were derived from the business of retail milk selling. The assessee further submitted documentary evidence, including a ‘desi hisab’ (cash book in handwritten form), bank book, and statements to justify the cash deposits. However, the AO disregarded these submissions, citing that the evidence was insufficient and lacking in credibility, particularly due to its handwritten nature.

3. Aggrieved by the order of the AO, the assessee filed an appeal before the CIT(A). The assessee reiterated that the cash deposits were directly related to their business activities and submitted various documents, such as, the profit and loss account, balance-sheet, and bank account statements. The assessee also provided details of cash withdrawals and re-deposits to explain the flow of funds, showing that the cash withdrawn from the bank was subsequently re-deposited. Despite this, the CIT(A) dismissed the appeal and confirmed the addition made by the AO, stating that the documents provided were not reliable, as they were handwritten and did not meet the evidentiary standards.

4. Not satisfied with the order of the CIT(A), the assessee filed an appeal before us with following grounds of appeal:

1. GROUND OF APPEAL REGARDING CASH DEPOSIT OF Rs.16,35,513/-IN BANK TREATED AS UNEXPLAINED MONEY U/S 69A.

ISSUE: THE ORDER OF THE ASSESSING OFFICER THE ADDITION OF RS. 16,35,513/- BEING CASH DEPOSITS IN THE BANK ACCOUNT AND TREATED CASH DEPOSITS AS UNEXPLAINED MONEY U/S 69A OF THE INCOME TAX ACT 1961 IS BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE.

RELEIF SOUGHT:

PLEASE, CONSIDER THE PROOF AND DOCUMENTARY EVIDENCE PROVIDED BY ASSESSEE. AND GIVE US OPPORTUNITY OF BEING HEARD AGAINST THAT ORDER.

AS OUR BUSINESS IS “RETAIL SELLING OF MILK” FOR THAT WE HAVE ALSO PROVIDED EVIDANCE BUT AEESSING OFFICER AND COMISSONER OF INCOME TAX (APPEALS) HAS NOT CONSIDERED THAT AND REJECTED OUR APPEAL IN CIT(A). OUR REQUEST IS TO PLEASE CONSIDER OUR DOCUMENTRY EVIDANCE (CASH BOOK, BANK BOOK, SALE CARD) AND GIVE A REFLIF AGAINST CIT ORDER. AS OUR BUSINESS IS OF MILK AND OUR PROFIT MARGIN IS ALSO LOW AND MAJORLY OF OUR BUSINESS RECEIPT IS ALSO IN CASH AND THAT CASH WE HAVE DEPOSITED AND WITHDRWAN FROM BANK WHICH CAN BE SEEN THROUGH OUR BANK BOOK. ON GOING THROUGH THE SAID STATEMENT YOUR GOOD HONOUR WILL FIND THAT WHATEVER THE CASH HAS BEEN WITHDRAWAL HAVE BEEN RE-DEPOSITED IN THE BANK AND THERE IS NO MINUS PIG AMOUNT IN THE SAID STATEMENT. SO HERE WE ARE REQUESTING PLEASE CONSIDER OUR REPLY AND WITHDRAW ORDER AMOUNT OF RS.11,03,720/- (INCULDING TAX, INTEREST AND PENALTY AMOUNT). AS ASSESING OFFICER ADDITION IN NOT ACCORDING TO LAW.

2. GROUND OF APPEAL REGARDING PENALTY IMPOSE U/S 271(1)(C)

RELEIF SOUGHT: AGAINST INITIATION OF PENALTY IN UNDER SECTION 271(1)(C). AS OUR BUSINESS IS RETAIL SALE OF MILK OUR PROFIT MARGIN IS VERY LOW AND OUR INCOME IS ALSO LESS THAN TAXABLE INCOME SO WE DID NOT FILED INCOME TAX RETURN FOR SAID AESSEESMENT YEAR. BUT AS OUR RECEIPT IS IN CASH AND WE ALSO DEPOSITED THAT CASH IN OUR BANK A/C BUT ASSESSING OFFICER HAS CONSIDERED THAT AMOUNT AS UNEXPLAINED MONEY AND ALSO IMPOSE PENALTY ON IT. SO HERE WE ARE REQUESTING TO DISCARD PENALTY FOR THE SAME AS LEVEY OF PENALTY U/S 271(1)(C) OF THE ACT WHICH IS HARD ON US.

5. During the course of hearing before us the Authorised Representative (AR) of the assessee, reiterated the facts and stated that the assessee did not originally file a return of income as the total income was below the basic exemption limit. The AR contended that despite providing the documents available and explanations, the AO did not consider the evidence submitted during the course of the assessment proceedings. Similarly, the AR, contended that, the CIT(A) dismissed the appeal and confirmed the assessment without appropriately considering the submissions.

6. We have heard the AR and perused the material on record. The assessee has consistently argued that the cash deposits were from the business of retail milk selling and had provided explanations during the assessment and appellate proceedings. It is observed that the CIT(A), while dismissing the appeal, has heavily relied on the order of the AO and has not provided adequate reasons for rejecting the explanations and documentary evidence submitted by the assessee. The core issue before us is whether the CIT(A) has adequately considered the merits of the case and provided a reasoned order, as required by the Act.

6.1. We note with concern that the CIT(A) has failed to independently apply their mind to the facts of the case and has merely endorsed the conclusions drawn by the AO. The order of the CIT(A) lacks detailed reasoning and appears to have dismissed the assessee’s submissions primarily on the basis that the evidence was handwritten. It is well-established that evidence cannot be rejected merely because it is in handwritten form, provided it is authentic and explains the transactions. The CIT(A), as an appellate authority, is required to pass a reasoned order based on the facts and evidence presented, particularly when such evidence is crucial to determining the source of the cash deposits in question.

6.2. The assessee has submitted documents such as the ‘desi hisab’ (handwritten cash book), bank statements, and other financial records, which, if properly considered, may offer a valid explanation for the cash deposits. The CIT(A) has not demonstrated why this evidence was not adequate, nor has the CIT(A) provided substantive reasons to refute the assessee’s claims. Instead, a summary rejection of the assessee’s evidence based on form (handwritten nature) rather than substance (content of the records) does not conform to the principles of natural justice.

6.3. Further, the CIT(A) has not considered the peculiar nature of the assessee’s business, i.e., retail milk selling, which is typically a business that operates in cash, especially in rural areas. The pattern of cash withdrawals and re-deposits, as reflected in the bank statements, should have been examined in more detail to assess whether the assessee’s explanation was plausible. The appellate authority is duty-bound to consider all material facts and documents submitted by the assessee and cannot simply dismiss the appeal on grounds that are not sufficiently justified.

6.4. In light of the above discussion, we are of the view that the matter requires a fresh examination by the CIT(A). The CIT(A) should evaluate the evidence submitted by the assessee on its merits and provide a reasoned and detailed order explaining why the evidence is or is not acceptable. The handwritten nature of the records should not be the sole reason for rejection, and the CIT(A) must examine the assessee’s explanation in the context of the nature of his business and the supporting documents provided. The Departmental Representative (DR) did not raise any objection to restore the matter back to the file of CIT(A).

7. We, therefore, set aside the order of the CIT(A) and restore the matter back to his file for fresh adjudication. The CIT(A) is directed to pass a fresh order after providing the assessee with a reasonable opportunity of being heard and after duly considering all the submissions, explanations, and documentary evidence presented by the assessee.

8. In the result, the appeal filed by the assessee is treated as allowed for statistical purposes.

Order pronounced in the Open Court on 23 October, 2024 at Ahmedabad.