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Facts
The assessee, an individual, deposited Rs.11,41,000 in demonetized currency into her proprietorship firm's bank account and Rs.2,50,000 into her savings account during the demonetization period. The Assessing Officer treated the entire Rs.11,41,000 as unexplained investment, while the CIT(A) confirmed this.
Held
The Tribunal held that the Rs.2,50,000 deposit in the individual savings account was genuine. However, they estimated 20% of the Rs.11,41,000 deposit in the proprietorship firm's account as unexplained income.
Key Issues
Whether cash deposits made during the demonetization period, from a discontinued business, are to be treated as unexplained investment, and if so, to what extent.
Sections Cited
143(3), 143(2), 142(1)
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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: HON’BLE SHRI MANOJ KUMAR AGGARWAL & HON’BLE SHRI MANU KUMAR GIRI
आदेश / O R D E R
PER MANU KUMAR GIRI (Judicial Member)
This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in order No.ITBA/NFAC/S/250/2024-25/1065954734(1) dated 24.06.2024. The assessment was framed by the Income Tax Officer, Non Corporate Ward 4(5), Chennai for the assessment year 2017-18 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’), vide order dated 26.11.2019.
The registry has noted delay of 56 days in filing the appeal. Considering the period of delay and reasons deposed in the affidavit given by assessee, we find it sufficient cause, hence condone the delay and admit the appeal for adjudication.
The assessee is an individual and filed her return of income for the Asst. year 2017-18 admitting income of Rs.6,34,390/-, the case was selected under Limited Scrutiny in CASS for verification of cash deposits made during demonetization period. A notice u/s 143(2) of the Act dt.21.9.2018 was issued and served on the assessee. Subsequently, notice u/s 142(1) dt. 13.5.2019 was issued to the assessee calling for the nature and source of the cash deposits during demonetization period along with documentary evidence. The ld. Assessing Officer found that in the assessment year 2017-18, the assessee had made cash deposits in demonetized currency of Rs.11,41,000/- in the bank account of M/s. Foto House, of which the assessee is the proprietrix and Rs.2,50,000/- in her savings bank account. The ld. Assessing Officer obtained a copy of the bank statement from Indian bank held in the name of the assessee and in the name of M/s.Foto House. Since there was no response to the notices issued, a letter dt 22.6.2019 was issued to the assessee to furnish the details called for. In response, the assessee vide letter dt. 14.8.2019 stated that deposits made during the demonetization period are through opening cash in hand from the proprietorship concern which was discontinued in F.Yr.2015- 16". The assessee also submitted the capital account, statement of affairs and computation of income for the year ended 31.3.2017 and year ended 31.3.2016.
The ld. Assessing Officer found from the statement of affairs for the year ended 31.3.2016 that the assessee had cash balance of only Rs.26,898/- whereas the assessee had made cash deposit of Rs.1,45,000/- on 15.11.2016 and Rs.9,96,000/- on 22.11.2016, thus totaling to Rs. 11,41,000/-. The ld. Assessing Officer found that since the assessee did not have sufficient opening cash balance in the statement of affairs submitted for the year ended 31.3.2016, a show cause notice dt.12.10.2019 was issued to the assessee as to why the cash deposit to the tune of Rs.11,41,000/- made during the demonetization period should not be treated as her unexplained investment, as the assessee had not explained the source for the income and had also not recorded in the books of account. The assessee submitted that that until the preceding previous year, assessee had a business namely M/s.Foto House which was discontinued in the preceding previous year. The data such as capital account, balance sheet, profit and loss account and other schedules which were maintained in the above stated business were not merged with her individual balance sheet for the sole reason that the creditors and the debtors of the business were yet to be settled. This was the same reason why the bank accounts were still active in order to receive such receivables and payables of the business in the business itself.
However, the ld. Assessing Officer was not impressed by the reply of the assessee and made an addition of Rs.13,91,000/- as cash deposits in demonetized currency.
Aggrieved, assessee preferred an appeal before the ld. CIT(A).
The ld. CIT(A) confirmed the action of the Assessing Officer. Aggrieved, assessee is in appeal before us.
Before us, the ld.AR has filed cash flow (cash book) from 01.04.2016 to 31.03.2017 of individual and M/s Foto House. The ld. AR argued that the assessee had deposited cash to the tune of Rs.13,91,000/- out of the closing balance of cash till the date of deposit. He further stated that the closing cash balances were already charged to income tax in the form of sales. In support of claim, the appellant has filed cash book from 01.04.2016 to 31.03.2017 of individual and M/s Foto House. However, the AO completely neglected the cash balances of the proprietary concern.
Per contra, the ld.DR has vehemently relied upon the impugned order and prayed for the dismissal of the appeal.
We have heard the rival submissions and perused the cash book and orders of the lower authorities. It is not in dispute that the assessee operated a proprietary concern in the name and style of M/s Foto House and the financial records of the firm and the individual were maintained separately. It is the plea of the assessee that the balances of loans payable (loans-liability), loans receivables (loans & Advances) and fixed assets as mentioned in the audited financial statements were appropriately transferred to proprietor’s personal accounts & creditors, cash and bank balances were continued in the books of accounts of the business in order to enable a clearer picture of receipts and payments directly associated with the business activities. However, the AO only considered the balances in the financials of individual and completely ignored the cash balances of the proprietary concern.
We are also of the view that AO should have taken into consideration the cash