MANISH RANJAN, DCIT, CENTRAL CIRCLE-1(2), AHMEDABAD, AAYKAR BHAWAN ASHRAM ROAD, AHMEDABAD vs. RASHMIN KANTILAL VAKTA, ELLISBRIDGE AHMEDABAD GUJARAT

During the reassessment proceedings for A.Y. 2013–14, the AO examined the bank account of the assessee maintained with Shri Renukamata Multi-State Urban Co-operative Credit Society Ltd. and noted that a total of Rs.97,53,07,845/- was deposited during the and three Others Rashmin Kantilal Vakta Vs. DCIT 4 relevant financial year. The AO considered the entire amount to be unexplained and sought justification from the assessee. The assessee submitted that the transactions were duly recorded in the books of account, and that a part of the deposits pertained to business receipts and loans from various parties, including loans from the said credit society. It was also submitted that the balance had been squared up through withdrawals and corresponding repayments.

However, on examination of the cash books, ledgers, and related documents, the AO noted certain significant anomalies. It was observed that after large cash withdrawals from the said account, the assessee made several cash payments to third parties of amounts below Rs.20,000/- each. The AO concluded that these payments were not supported by credible evidence and were made in a structured manner to give a colour of genuineness to the underlying entries. The AO highlighted that the modus operandi adopted by the assessee was similar to other cases involving accommodation entries where cash is routed through the books and banks to camouflage unaccounted income.

The AO also noted that the assessee had claimed that part of the amount represented temporary loans from various parties. However, no confirmations or source details were furnished to substantiate the identity, creditworthiness, and genuineness of the said loans. The AO observed that while the ledger accounts and books reflected the inflow and outflow, the underlying nature and source of the amounts remained unverified. The AO relied upon the provisions of section 68/69A and concluded that the assessee had failed to satisfactorily explain the nature and source of the deposits. Further, it was specifically held that the genuineness of the explanation offered and three Others Rashmin Kantilal Vakta Vs. DCIT 5 was not acceptable and the attempt was merely to provide a façade of documentation without actual substance. The AO held that the assessee had wilfully concealed the particulars of income and failed to disclose the said deposits in the return of income filed under section 139(1). Accordingly, the entire deposit of Rs.97,53,07,845/- in A.Y.2013–14 was treated as unexplained cash credit /money under section 68/69A and added to the total income of the assessee. The AO also initiated penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income.

In A.Y. 2014–15, the AO adopted a similar line of inquiry and examined the assessee’s bank account with the same society. The total deposits identified during the relevant year amounted to Rs.88,66,48,200/-. The assessee once again claimed that the deposits represented cash sales, interbank transfers, and loans received from various parties, including from the society itself. However, the AO held that the explanations were not supported by adequate evidence and were not corroborated with primary material or third-party confirmations. Accordingly, the AO treated the entire amount of Rs.88,66,48,200/- as unexplained income under section 69A and added the same to the total income of the assessee.

The AO’s conclusion in both years was that the assessee had entered into a series of complex and large-volume cash transactions with a co-operative credit society, which were not disclosed in the original returns and were not satisfactorily explained during the reassessment proceedings. The AO rejected the assessee’s reconciliation statements, ledger submissions, and explanations regarding business receipts and loans, holding that the same lacked corroborative evidence and credibility. It was ultimately concluded and three Others Rashmin Kantilal Vakta Vs. DCIT 6 that the assessee had engaged in transactions aimed at introducing unaccounted income in the garb of loans and sales, and accordingly, additions were made under section 69A for both years, and penalty proceedings were separately initiated.

The assessee preferred appeals before the learned Commissioner of Income Tax (Appeals)-11, Ahmedabad, challenging the reassessment orders passed under section 147 r.w.s. 144B of the Act for both the assessment years. The assessee not only challenged the addition made under section 68/69A of the Act in respect of the alleged unexplained transactions with Shri Renukamata Multi-State Urban Co-operative Credit Society Ltd. ("the Society") but also assailed the validity of reopening of assessment under section 147 of the Act. The challenge to reopening was raised through written submissions filed during appellate proceedings.

The learned CIT(A), after considering the reassessment orders, written submissions of the assessee, and judicial precedents, rejected the assessee’s challenge to the validity of reassessment. It was held that the Assessing Officer had received credible information from DGIT (System), New Delhi in the form of a dissemination note, and had formed a belief that income had escaped assessment based on such information. The CIT(A) found that the reopening was done after due application of mind and proper satisfaction, and the procedure prescribed under the Act was duly followed, including issuance of notices under sections 148 and 143(2) and granting of opportunity of hearing. The CIT(A) also noted that although the assessee had placed reliance on the decision of the Hon’ble Mumbai ITAT in the case of the Society in to 1724/Mum/2023, order dated 31.01.2024, the said decision, in the opinion of the CIT(A), did not and three Others Rashmin Kantilal Vakta Vs. DCIT 7 render the reassessment in the case of the assessee invalid. The CIT(A) held that the said decision recognised that the documents found during search at the Society’s premises could constitute incriminating material vis-à-vis the members in whose accounts money was deposited, and that the assessee being one such member, the reassessment proceedings were validly initiated. The CIT(A) held that the reasons recorded by the AO for reopening, the material on record, and the steps undertaken by the AO justified reopening under section 147 of the Act. The CIT(A) accordingly dismissed the assessee’s appeal challenging the validity of the reassessment proceedings.

Before CIT(A), on merits, the assessee contended that all the deposits made in its bank account with the Society were duly recorded in its regular books of accounts and were explainable with reference to business receipts, loans, and inter-bank transfers. During the course of appellate proceedings, the assessee submitted detailed break-up of the deposits along with supporting evidence such as copies of bank statements, sales registers, audited accounts of loan creditors, PANs, confirmations, and other documents. The learned CIT(A) examined the total deposits of Rs.97.53 crore and analysed the following components:

The assessee explained this component as temporary loans received from various parties and submitted in support:

The CIT(A) observed that no adverse enquiry was conducted by the AO and in some cases the same parties had deposited funds in other bank accounts of the assessee which were accepted by the AO. It was further observed that purchases and sales with such parties were accepted. Relying on the decision of the Hon’ble Gujarat High Court in DCIT v. Rohini Builders (256 ITR 360), the CIT(A) held that assessee had discharged its burden under section 68/69A and deleted the addition to this extent.

In respect of addition u/s 68/69A relating to A.Y. 2014-15, the AO made an addition of Rs.88,66,48,200/- on the basis of deposits in the Society’s account. The assessee submitted that the actual deposits were Rs.77,23,98,233/-, and break-up of sources was as under:

Final outcome before CIT(A) is tabulated below:

The CIT(A) also directed the AO to verify the exact quantum of deposits considered in assessment versus deposits actually made with the Society in both years and rectify any computational errors accordingly. and three Others Rashmin Kantilal Vakta Vs. DCIT 11

Aggrieved by the common order of the CIT(A) both Revenue and assessee are in appeal before us raising following grounds:

During the course of hearing before us the learned Departmental Representative (DR) strongly relied upon the findings and conclusions recorded by the Assessing Officer in the reassessment order. It was submitted that the AO, after conducting detailed inquiries and analysis of the bank statements of the assessee with M/s. Shri Renukamata Multi-State Urban Co-operative Credit Society Ltd., had clearly unearthed a systematic modus operandi wherein large volumes of cash were deposited and withdrawn in a structured pattern. The AO had recorded a categorical finding that such transactions lacked commercial or business rationale and did not correlate with the declared business activity of the assessee. The DR emphasised that the pattern of repeated cash deposits and immediate withdrawals, often of matching amounts, indicated that the assessee was merely acting as an intermediary or conduit to provide accommodation entries to other parties. It was submitted that the assessee failed to furnish any reliable third-party confirmations, identity and creditworthiness of the alleged loan providers, or the genuineness of transactions, especially with regard to the substantial and three Others Rashmin Kantilal Vakta Vs. DCIT 14 cash deposits running into crores of rupees. The inference drawn by the AO that the assessee was engaged in a money-laundering-like operation by routing unaccounted funds under the garb of business transactions was thus fully justified. The learned DR further contended that the learned CIT(A), while granting substantial relief to the assessee by deleting additions to the extent of Rs.47.43 crore in A.Y. 2013–14 and Rs.69.14 crore in A.Y. 2014–15, has not at all dealt with or addressed the specific findings of the AO in relation to the above modus operandi. The appellate order is completely silent on the AO’s detailed analysis of transaction patterns, source and destination of funds, and the conduct of the assessee as noted during the proceedings.

Additionally, the learned DR drew attention to the balance sheet of the assessee as on 31.03.2013, and pointed out that it disclosed only one trade creditor (Dhananjau Trade Link Pvt. Ltd.) of Rs.34,51,78,742/- and deposits amounting to Rs.51,55,30,810/-, which were not reconciled or co-related with the credits in the assessee’s account with the credit society. It was submitted that these amounts correspond to the accommodation entries unearthed by the Assessing Officer and raise serious doubts about the actual nature of transactions recorded in the books of account. The DR contended that the CIT(A) has failed to examine this aspect of the case from the perspective of the Assessing Officer's suspicion and has granted relief without considering the implications of these large unexplained liabilities shown in the balance sheet.

The learned Authorised Representative (AR) of the assessee reiterated the facts as recorded in the impugned appellate order and submitted a written synopsis to demonstrate that all transactions with M/s. Shri Renuka Mata Multi State Urban Co-operative Credit Society Ltd. were properly recorded in the books of accounts and are duly supported by contemporaneous evidences. The AR explained that the entire addition of Rs.97.53 crores made by the AO was based on a gross misunderstanding of the nature of transactions and that the assessee had explained the source of each transaction. It was submitted that the total credits of Rs.82,04,62,930/- appearing in the assessee’s bank account with the said credit society during the relevant previous year were duly recorded in the books of account and supported by proper evidentiary material. The AR submitted that the entire addition of Rs.97,53,07,845/- made by the AO was factually incorrect and overstated, as the AO had considered certain amounts twice and included extraneous transactions. The AR stated that the CIT(A) has concluded in para 5.3 of the appellate order that the total actual credits involved were Rs.82,04,62,930/- and not Rs.97,53,07,845/- as considered by the Assessing Officer. Consequently, the CIT(A) granted relief of Rs.15,48,44,905/- on this count alone. The balance amount of Rs.82.04 crore was further bifurcated by the CIT(A) into the following heads:

Regarding the remaining amount of Rs.19,46,57,904/- which was confirmed as unexplained under section 69A, being re-deposit of cash withdrawals allegedly not substantiated by sufficient source documentation. The AR contended that the said cash withdrawals and re-deposits were recorded in the books, the cash book was not found defective by the AO, and a chart showing classification of sources of cash was also furnished (paper book page No.113 for the A.Y. 2013- 14). It was therefore submitted that the residual addition of Rs.19.46 crore also deserves to be deleted.

We have carefully considered the rival submissions, perused the orders of the Assessing Officer and the learned CIT(A), and examined the material available on record including the paper book filed by the assessee. The core issue in these appeals pertains to the addition made by the Assessing Officer under sections 68 and 69A of the Act in respect of large deposits aggregating to Rs.97.53 crore for A.Y. 2013–14 and Rs. 88.66 crore for A.Y. 2014–15 in the assessee’s bank account maintained with Shri Renukamata Multi-State Urban Co- operative Credit Society Ltd. (“the Society”). The Assessing Officer and three Others Rashmin Kantilal Vakta Vs. DCIT 17 treated the entire deposits as unexplained, whereas the learned CIT(A) granted partial relief after analysing each component of deposit in detail.

Before we proceed to examine the individual components of the total addition of Rs.97,53,07,845/- made by the Assessing Officer under section 68 of the Income Tax Act, it is pertinent to record that the assessee had not furnished any source-wise bifurcation or supporting documentary evidence in respect of the deposits made in the account maintained with Shri Renukamata Multi-State Urban Co- operative Credit Society Ltd. during the reassessment proceedings. As a result, the Assessing Officer proceeded to treat the entire deposit in the said account as unexplained cash credit, without undertaking any itemised verification of its nature or origin. It is noted from the appellate record that the assessee subsequently submitted a detailed bifurcation of deposits aggregating to Rs.82,04,62,940/- before the CIT(A) vide written submissions dated 22.11.2023 and 05.02.2024. The assessee also claimed that the credits in the said society was only Rs.82,04,62,940/- and not Rs.97,53,07,845/- as added by the Assessing Officer. The bifurcation is already tabulated above with remarks. These submissions were supported by annexures including ledger extracts, sale registers, party-wise confirmations, bank statements, and tabular reconciliations. However, these additional documents and explanations were not available before the Assessing Officer, and the CIT(A), despite relying on the same for granting relief in part, did not call for any remand report or verification from the Assessing Officer. In particular, the major component of cash deposits—claimed to be out of cash sales—was not subjected to independent verification or cross-confirmation. The sales figures were not supported by VAT returns or third-party evidence, and there was and three Others Rashmin Kantilal Vakta Vs. DCIT 18 no examination of stock movement, purchase trail, or field inquiries. In this backdrop, the merits of each component of the source-wise bifurcation furnished before the CIT(A) are now examined independently, taking into account the original findings of the Assessing Officer, the relief granted by the CIT(A), and the respective contentions of the learned Departmental Representative and the Authorised Representative.

Now we examine each component of the deposit, for the A.Y. 2013-14, individually to reach at the findings and conclusion.

We first deal with the component of Rs.3,64,53,850/- claimed to be business receipts deposited in the account held by the assessee with Shri Renukamata Multi-State Urban Co-operative Credit Society Ltd. The assessee submitted before the CIT(A) that this amount represents sales proceeds received by cheque from various parties, and such sales are duly recorded in the books of account and offered to tax. It is further submitted that ledger copies and the sales register reflecting the said transactions were also produced before the CIT(A) for verification, along with a party-wise list of cheque receipts aggregating to Rs.3,64,53,850/-. As noted earlier, no such bifurcation or documentary support was furnished before the Assessing Officer at the reassessment stage. The AO, therefore, made the addition under section 68 on a wholesale basis, treating the totality of the credits in the society’s account as unexplained cash credit, without opportunity to verify or examine the source-wise explanation. The said cheque receipts, ledger copies, and sales register were placed for the first time before the CIT(A) during the appellate proceedings vide submissions dated 05.02.2024. and three Others Rashmin Kantilal Vakta Vs. DCIT 19

The learned CIT(A), after referring to the party-wise details and sales register, accepted the assessee’s contention and observed that the sales were made to known parties and offered to tax, that the purchases were not doubted by the AO, and that the receipts are supported by banking instruments. Accordingly, the CIT(A) held that there was no reason to treat the said business receipts as unexplained, and deleted the addition of Rs.3,64,53,850/-.

While the reasoning of the CIT(A) proceeds on the premise that the parties were identifiable and the receipts were routed through cheques, it is pertinent to note that the cheque receipts constitute only a small fraction of the total deposits in the society’s account. Further, as evident from the record, the CIT(A) did not subject the supporting documents to any third-party confirmation, nor were VAT returns or stock movement records examined, despite the sales being VAT-free and lacking quantitative cross-verification. We also take note of the submission made by the learned Departmental Representative, who drew attention to the balance sheet of the assessee as on 31.03.2013, showing disproportionately high trade creditors and deposits, and pointed out that these liabilities were not reconciled with the alleged sources of credits in the society’s account. The DR submitted that the failure to co-relate these ledger entries and verify the trail of transactions renders the acceptance of these sales as genuine, without proper examination, wholly unsustainable.

In our considered view, the explanation furnished by the assessee with respect to business receipts merits verification. It is a matter of record that all supporting documents and bifurcation were furnished for the first time before the CIT(A), and no remand report and three Others Rashmin Kantilal Vakta Vs. DCIT 20 was called for. The mere fact that the receipts were by cheque and reflected in the sales register is insufficient in the peculiar circumstances of this case, particularly when the AO had categorically doubted the genuineness of transactions on the ground of accommodation entry routing, and the CIT(A) has not conducted any field-level or third-party verification. Further, the percentage of cheque receipts is significantly low as compared to the total sales and cash deposits claimed, casting serious doubt on the veracity of the recorded sales.

Accordingly, we are of the view that the deletion of Rs.3,64,53,850/- by the CIT(A) cannot be sustained without independent verification. The matter is therefore restored to the file of the Assessing Officer for limited purpose of examining the genuineness of these business receipts afresh in light of the documents furnished before the CIT(A), after giving due opportunity to the assessee. The assessee shall cooperate and produce all necessary documents, including confirmations from parties, VAT returns (if any), bank statements, and invoices with quantitative details, to establish the identity of the parties, nature of transactions, and genuineness of the receipts.

We now deal with the component of Rs.12,04,10,000/- claimed to represent inter-bank transfers between the assessee’s own accounts. The assessee submitted a detailed bifurcation of these transactions before the CIT(A) vide page 114 of the paper book, supported by date-wise entries drawn from the Axis Bank statement, clearly identifying them as internal fund movements between current and savings accounts held by the assessee in the same bank. The and three Others Rashmin Kantilal Vakta Vs. DCIT 21 CIT(A), in para 5.6 of the appellate order, has accepted this explanation after noting that these transactions are duly recorded as contra entries and correspond to internal transfers, with no third- party involvement. The entries are supported by bank statements, do not involve any unexplained cash or credit from external sources, and are verifiable from the assessee’s own records. We also note that no adverse finding has been recorded by the Assessing Officer in respect of this component, as the source-wise bifurcation was not before him at the reassessment stage. During appellate proceedings before us, no material has been brought on record by the Departmental Representative to controvert the assessee’s explanation or to dispute the conclusion drawn by the CIT(A).

Accordingly, we find no infirmity in the conclusion of the CIT(A) in treating the amount of Rs.12,04,10,000/- as explained inter-bank transfers. The same does not attract the mischief of section 68 of the Act, and we uphold the deletion to this extent.

The assessee claimed that a substantial portion of cash deposits aggregating to Rs.31,74,63,176/- made in the account with Shri Renukamata Multi-State Urban Co-operative Credit Society Ltd. were sourced from cash sales carried out in the normal course of business and, in part, by redepositing earlier cash withdrawals. In support, the assessee submitted a tabular reconciliation, extracts from the cash book, and bank statements as part of reply dated 05.02.2024, which were placed on record for the first time before the CIT(A). These documents sought to demonstrate the trail of cash withdrawals from Axis Bank and its subsequent redeposit into the Society’s account. and three Others Rashmin Kantilal Vakta Vs. DCIT 22 The CIT(A), in para 5.7 of the order, acknowledged that the assessee had placed on record a summary chart and cash book evidencing cash withdrawals and re-deposits. However, the CIT(A) also expressly recorded that the assessee failed to give a specific breakup as to which portion of the available cash was deposited with the Society and which part constituted current cash receipts. The CIT(A) observed that this bifurcation was material and that the claim was not conclusively established. Nevertheless, while finalizing the computation of unexplained income in para 5.15, the CIT(A) appears to have treated Rs.31,74,63,176/- as explained, without subjecting the claim to independent verification, third-party cross-check, or reconciliation with stock records or VAT returns.

At the outset, we note that the explanation regarding cash deposits is based entirely on internal documents such as the cash book and bank statements. No primary evidence has been placed on record to prove that actual sales took place against which cash was received. The supporting invoices are VAT-free and no VAT returns or sales tax records were submitted either before the AO or the CIT(A). Further, no stock register or inventory movement summary has been filed to establish that there was actual movement of goods justifying such cash sales. It is also not demonstrated whether the goods sold were exempt under VAT laws, or if any exemption certificate was filed.

Furthermore, we also observe that while the sample invoices and purchase bills submitted by the assessee contain quantitative details of goods sold or purchased, no verification of such quantitative particulars was carried out either by the Assessing Officer or by the CIT(A). The movement of goods, which is intrinsic to the claim of genuine trading activity, remains unverified. We also noted from the and three Others Rashmin Kantilal Vakta Vs. DCIT 23 auditor’s report in Form 3CD, specifically Clause 28(a), placed at page 17 of the assessee’s paper book (A.Y. 2013–14), where it is clearly stated as “NIL”. This indicates that the tax auditor too has not verified the quantitative records or movement of inventory. This omission assumes significance in light of the claim of substantial cash sales. In the absence of any contemporaneous evidence such as stock movement register, goods outward register, or transport documents, the assertion that cash was generated from genuine trading operations remains unsupported. We also note that the transportation expenses debited under indirect expenses amount to only Rs.1,81,927/-, which, considering the alleged volume and scale of goods traded, does not align with the claim of actual physical movement of inventory. This aspect, in our considered view, merits specific verification by the Assessing Officer from the standpoint of genuineness of both sales and purchases reflected in the books. Importantly, as already noted earlier, no breakup was provided linking specific cash withdrawals to the deposits made, nor was any business rationale offered for why cash withdrawn was redeposited rather than utilized for cash purchases or operational expenses. The CIT(A)’s own finding that this vital breakup was missing underscores the weakness in the evidentiary foundation of the assessee’s claim.

It is settled law that the burden is on the assessee to clearly establish the identity, genuineness, and creditworthiness or the real source of the sums found credited. In the case of cash deposits, the standard of proof is even higher, and a mere reference to the cash book or withdrawal entries does not meet that threshold in absence of an auditable sales trail. In the present case, the assessee’s explanation hinges on an uncorroborated assertion that cash deposited in the Society was either from cash sales or from earlier and three Others Rashmin Kantilal Vakta Vs. DCIT 24 withdrawals, without any external evidence, stock movement proof, or matching entries in third-party ledgers. In our view, such a claim cannot be accepted at face value without detailed field-level verification, especially in a case involving alleged accommodation entries and substantial cash movement. It is also significant that this entire explanation was brought on record only at the appellate stage, and no remand report was called for by the CIT(A), thereby depriving the Assessing Officer of an opportunity to verify the cash flow trail and reconcile it with stock and sales tax compliance.

In view of the foregoing, and considering the incomplete evidentiary backing, absence of bifurcation of cash flow, and lack of third-party validation, we hold that the claim of the assessee that the deposits of Rs.31,74,63,176/- were sourced from genuine cash sales and re-deposits of withdrawals is not conclusively established on the basis of material available on record. The treatment of this amount as explained by the CIT(A), without requisite verification, is therefore unsustainable.

Accordingly, we set aside the finding of the CIT(A) in respect of this component and restore the matter to the file of the Assessing Officer for de novo verification. The assessee shall furnish complete details of cash sales, customer-wise invoice copies, quantitative stock movement, VAT returns, and the breakup of cash withdrawals and deposits with dates and purposes, to establish the claim. The Assessing Officer shall verify the same in accordance with law and decide the issue after giving due opportunity of being heard.

The assessee claimed that deposits aggregating to Rs.15,14,78,000/- in the account held with Shri Renukamata Multi- State Urban Co-operative Credit Society Ltd. represented temporary unsecured loans received from various parties during the relevant assessment year. It was submitted that these loans were received through banking channels, duly recorded in the books of account, and repaid within the year without interest. The list of lenders includes entities such as Sulay Traders, Monark Education Trust, Kartikeya Tradelink Pvt. Ltd., and others. In support of the claim, the assessee filed confirmations, PAN details, copies of income-tax returns, and ledger accounts of the creditors, along with some audited financial statements. These documents were made available to the Assessing Officer during reassessment proceedings. However, it is an admitted position that the AO did not carry out any independent verification of these materials—no enquiries were made under section 133(6), nor were the creditors summoned under section 131 to verify their creditworthiness or the genuineness of the transactions.

The learned CIT(A) accepted the explanation of the assessee and held that the requirements of section 68 had been satisfied. It was observed that the identity of the creditors stood established through PAN and ITRs, the ledger accounts reflected receipt and repayment of loans during the year, and the transactions were routed through regular banking channels. The CIT(A) also relied on judicial precedents, including the judgment of Hon’ble High Court in case of DCIT v. Rohini Builders (256 ITR 360) (Guj). On this basis, the CIT(A) deleted the addition of Rs.15.14 crore made by the AO.

While documentary support such as ITRs, ledger accounts, and bank statements may prima facie establish the identity of the lenders, and three Others Rashmin Kantilal Vakta Vs. DCIT 26 the core legal requirement under section 68 includes satisfaction regarding creditworthiness and genuineness of the transactions as well. In the present case, we find that the AO failed to verify any of the financial statements or ITRs of the creditors. No inquiry was made to assess whether the creditors had sufficient financial capacity to advance loans of such magnitude. Even the bank trail of funds from the lenders to the assessee was not called for or analysed. Further, from the record, it is seen that many of these entities also appeared in the books of the assessee as customers or suppliers. This dual role of the same parties, as creditors and as trading counterparties, raises serious questions regarding the commercial substance and economic reality of these transactions. There is no discussion in the CIT(A)’s order about whether the funds advanced as loans originated from independent sources or were recycled business receipts routed to give the colour of loans. Additionally, the assessee’s balance sheet as on 31.03.2013 discloses “Deposits” of Rs.51,55,30,809.71, the nature of which remains unexplained. It is unclear whether these relate to the same loan creditors, and if so, why such balances remained outstanding. If not, the question arises as to the source and nature of such significant liabilities, and whether they involve overlapping entries or other structured layering. The Assessing Officer is entitled to examine the source of the source. Mere filing of PAN, bank statements, or ITRs by itself does not establish creditworthiness or genuineness. The AO is duty-bound to investigate the matter when a prima facie case of accommodation entry is made. In the present case, the transactions are large in volume, involve parties with potentially circular dealings, are non-interest bearing, and were repaid within the year. These characteristics, taken together, justify a deeper scrutiny to determine whether the loans are real or merely accommodative and three Others Rashmin Kantilal Vakta Vs. DCIT 27 entries designed to explain the otherwise unaccounted cash deposits in the Society.

We hold that the relief granted by the CIT(A) in respect of Rs.15,14,78,000/- was premature and not based on thorough verification. The explanation offered by the assessee regarding temporary loans, though supported by some documents, was not adequately tested, particularly with regard to source of funds in the hands of the creditors, creditworthiness as per audited financials, commercial rationale for interest-free temporary loans, correlation (if any) with “Deposits” of Rs.51.55 crore in the balance sheet and whether the creditors were acting independently or in a structured, circular arrangement.

Accordingly, we set aside the decision of the CIT(A) in respect of this component and restore the matter to the file of the Assessing Officer for a de novo examination.

The final component under consideration is the amount of Rs.19,46,57,904/- deposited in the assessee’s account with Shri Renukamata Multi-State Urban Co-operative Credit Society Ltd., which the assessee claimed to have been sourced from cash withdrawn earlier from its Axis Bank account during the year. The assessee contended that these deposits were redeposits of available cash in hand and not unexplained, as the withdrawals were recorded in the books. The CIT(A), in paras 5.11 to 5.14 of the appellate order, rejected the explanation of the assessee and upheld the addition, primarily on the following grounds that the assessee failed to establish and three Others Rashmin Kantilal Vakta Vs. DCIT 28 a nexus between the specific withdrawals and subsequent deposits. The CIT(A) also noted that there was no commercial rationale or business necessity for such frequent cash movements and the cash flow trail was incomplete, with no documentary evidence to prove that the same funds were redeposited. The CIT(A) also noted that the pattern of withdrawals and redeposits reflected possible non-genuine structuring rather than normal trading activity. The explanation remained general and uncorroborated. Accordingly, the CIT(A) confirmed the addition under section 68/69A of the Act to the extent of Rs.19,46,57,904/-.

We have considered the rival submissions and examined the materials placed on record. The explanation offered by the assessee— namely, that the deposits were sourced from earlier cash withdrawals—is prima facie plausible but requires substantive verification. The cash flow summary, reconciliation charts, and books of account may support the availability of funds, but that by itself does not discharge the assessee’s burden under section 68/69A unless a clear and specific correlation between withdrawals and deposits is demonstrated. As observed earlier, the pattern of repeated large cash withdrawals and immediate or proximate redeposits, without identifiable business transactions or necessity, does give rise to doubts regarding the commercial substance of these movements. The nature of the assessee’s business, which otherwise operates largely through banking channels, does not explain the need for such substantial and frequent cash circulation. We further note that the CIT(A), while rightly questioning the absence of nexus, did not call for a remand report or direct the Assessing Officer to verify the explanation through a date-wise cash flow analysis. In a case and three Others Rashmin Kantilal Vakta Vs. DCIT 29 involving large cash movements and allegations of accommodation entries, such verification becomes imperative.

In light of the above, we are of the view that the addition cannot be confirmed outright, nor can the assessee’s explanation be accepted without scrutiny. Therefore, in the interest of justice and fair adjudication, we deem it appropriate to restore this issue to the file of the Assessing Officer for fresh verification of the claim. The Assessing Officer shall examine the date-wise withdrawal and deposit pattern, assess whether the same cash was redeposited and remained unutilised in the interim, evaluate the business necessity for cash withdrawals and draw appropriate conclusions in accordance with law after granting a reasonable opportunity of being heard to the assessee.

The finding of the CIT(A) treating Rs.19,46,57,904/- as unexplained and confirming the addition is set aside, and the matter is restored to the file of the Assessing Officer for fresh adjudication in light of the observations above.

Before we conclude, we may also observe that the learned CIT(A), while granting relief to the assessee placed reliance on various judicial precedents including decisions of the Hon’ble Gujarat High Court. However, on careful examination, we find that the said precedents are distinguishable on facts. In those cases, the additions under section 68 were deleted as the assessee had furnished complete evidentiary support, including confirmations, PANs, ITRs, and bank statements of the creditors, which were duly verified by the Assessing Officer through independent enquiry. Further, there was no allegation of circular transactions, nor was there any finding suggesting that the and three Others Rashmin Kantilal Vakta Vs. DCIT 30 creditors were also functioning as counterparties in trade transactions with the assessee. In the present case, however, the assessee has claimed substantial cash deposits to be sourced from temporary loans, cash sales, and redeposit of cash withdrawals without demonstrating a clear nexus or commercial justification. Several of the creditors also appear in the books of the assessee as customers or suppliers, raising a serious concern of accommodation layering. The alleged transactions were neither verified by the Assessing Officer through independent enquiry nor supported by VAT returns, stock movement, or purchase trail. The outstanding deposits of ₹51.55 crore as on 31.03.2013 also remained unexplained and potentially correlated with the same entries. Thus, in the absence of independent verification and in view of the complex factual setting involving significant cash transactions and potential circularity, we are of the view that the reliance placed by the CIT(A) on those decisions do not assist the assessee in the present case, as the foundational facts necessary to invoke their applicability are not comparable.

The facts and issues involved in A.Y. 2014–15 are identical in material respects to those considered in A.Y. 2013–14. The Assessing Officer made an addition of Rs.88,66,48,200/- under section 68 of the Act on account of deposits in the assessee’s account with Shri Renukamata Multi-State Urban Co-operative Credit Society Ltd., treating the entire credits as unexplained.

During the course of appellate proceedings before the CIT(A), the assessee furnished a detailed source-wise bifurcation of the deposits aggregating to Rs.77,23,98,233/-, comprising: and three Others Rashmin Kantilal Vakta Vs. DCIT 31

These documents and explanations were furnished only before the CIT(A) and were not available to the Assessing Officer at the time of reassessment. The CIT(A) partly accepted the assessee’s explanation and granted relief to the extent of Rs.69,14,74,750/-, and confirmed the balance addition of Rs.19,51,73,450/- as unexplained, holding that the assessee failed to establish the nexus between cash withdrawals and deposits and did not produce reliable corroborative evidence.

For reasons recorded in detail while deciding the appeal for A.Y. 2013–14, we are of the considered view that each component of the assessee’s explanation requires verification, as neither the Assessing Officer had the benefit of the supporting materials, nor did the CIT(A) call for a remand report or initiate any factual enquiry. In particular, the following require re-examination:

We further note that the cash sales were not supported by VAT returns, stock movement records, or quantitative reconciliation. Many and three Others Rashmin Kantilal Vakta Vs. DCIT 32 of the creditors also had trading relationships with the assessee, raising the possibility of circularity. The same concerns regarding layered accommodation entries and lack of commercial rationale for repeated cash withdrawals and deposits apply here as well.

In the interest of justice, we are of the view that the entire matter except interbank transfers amounting to Rs.8.80 crores which is accepted as explained in A.Y. 2014–15 also needs to be restored to the file of the Assessing Officer for fresh adjudication and verification of each component of the explanation furnished by the assessee, in the same manner as directed in A.Y. 2013–14. The assessee shall produce all supporting documentary evidence including books of account, confirmations, ITRs, bank statements, sales registers, VAT returns (if any), stock records, and cash flow statements. The AO shall examine the material in accordance with law and complete the assessment after affording due opportunity of hearing.

Before parting, it would be appropriate to set out the position component-wise for clarity and ease of implementation. Below is a summary table for both A.Y. 2013–14 and A.Y. 2014–15, detailing each component of deposit, the amount involved, the explanation offered by the assessee, and the final direction of the Tribunal pursuant to the remand: Sr. Component A.Y. 2013–14 A.Y. 2014–15 Direction No. (Rs. ) (Rs. ) 1 Business 3,64,53,850 7,10,50,000 Restored to AO Receipts for verification (Cheque Sales) 2 Inter-bank 12,04,10,000 8,80,00,000 Accepted as Transfers explained and three Others Rashmin Kantilal Vakta Vs. DCIT 33

In the combined result, the appeals filed by the assessee as well as the appeals filed by the Revenue for A.Y. 2013–14 and A.Y. 2014– 15 are partly allowed for statistical purposes.