Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: MS. SUCHITRA KAMBLE & SHRI MAKARAND V. MAHADEOKAR
This appeal by the assessee is directed against the order dated 20.11.2024 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as “CIT(A)”] under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], for the Assessment Year (A.Y.) 2017-18, whereby the CIT(A) confirmed the addition of Rs. 13,03,738/- made by the Assessing Officer [hereinafter Ramesh Corporation Automobiles vs. ITO A.Y. 2017-18 2 referred to as “AO”] under section 69A of the Act vide his order dated 27.12.2019 passed under section 143(3) r.w.s. 147 of the Act.
Facts of the Case 2. The assessee is a partnership firm, which was engaged in the business of sales and service of Kinetic brand scooters. It was a regular assessee filing its returns up to A.Y. 2013-14. For A.Y. 2013-14, the assessee filed return of income on 28.03.2014 declaring a loss of Rs. 39,49,349/- and the same was accepted. The firm subsequently closed its business operations w.e.f. 01.04.2014 due to disputes among the partners. Consequently, no returns of income were filed for A.Ys. 2014-15 to 2016-17.
The AO received information under the Operation Clean Money (OCM) initiative that the assessee had deposited cash of Rs. 13,00,000/- during the demonetization period (09.11.2016 to 30.12.2016) in its bank account no. 1109775504 with Central Bank of India, Paldi Branch, Ahmedabad. Since no return of income was filed for A.Y. 2017-18, the AO issued notice under section 148 on 05.03.2019. The assessee filed return of income in response on 30.03.2019 declaring Nil income.
During the course of assessment proceedings, the AO issued several notices under sections 142(1) and 133(6). The AO called for bank statements from the Central Bank of India and verified that total credits of Rs. 13,03,738/- appeared in the bank account for F.Y. 2016-17. The AO sought explanation from the assessee regarding the source of such deposits. As there was no initial response, a final show cause notice was issued on 27.12.2019.
In response, the assessee explained that it had a cash balance of Rs. 13,01,345/- as on 31.03.2014, as reflected in the audited balance sheet filed with the return for A.Y. 2014-15. It was submitted that due to disputes among Ramesh Corporation Automobiles vs. ITO A.Y. 2017-18 3 the partners, the assets including cash remained undivided and the cash was retained by one of the partners as custodian. Upon settlement of disputes, the cash was deposited in the firm’s bank account during the demonetization period. The assessee also furnished its cash book, statement of income, and unaudited accounts for A.Ys. 2014-15 to 2016-17 to demonstrate that no business activity had taken place and that the firm had no taxable income during those years.
The AO, however, rejected the explanation on the ground that such a large cash balance could not be held unutilized for more than two years. The AO was of the view that the explanation was improbable and inconsistent with human conduct. Consequently, he treated the entire deposit of Rs. 13,03,738/- as unexplained money under section 69A of the Act and taxed the same under section 115BBE. Penalty proceedings under section 271AAC were also initiated separately.
The assessee preferred appeal before the CIT(A), and reiterated the submissions made before the AO. Detailed submissions dated 15.07.2023 were uploaded, enclosing the audited balance sheet for A.Y. 2014-15, cash book, and statement of income for A.Ys. 2015-16 and 2016-17. The assessee emphasized that the impugned cash balance was available and disclosed in earlier records and that no adverse material had been brought on record to doubt the genuineness of the balance sheet. The CIT(A) however, confirmed the addition, observing that no return of income was filed for A.Ys. 2014-15 to 2016-17 and that the retention of cash for such a long period was improbable. The CIT(A) found the explanation inconsistent with human probability and not acceptable in absence of ITRs for the intervening years. The addition under section 69A was thus upheld.
“1.1 The order passed by U/s.250 passed on 20.11.2024 by NFAC, (CIT(A)), Delhi (for short “CIT(A)") upholding the addition of Rs. 13,03,738/- as unexplained income u/s 69A made by A.O. is wholly illegal, unlawful and against the principles of natural justice. 2.1 The ld. CIT(A), has grievously erred in law and or on facts in not appreciating that due to the differences and disputes amongst the partners and closure of the business of the firm the final accounts could not be settled amongst the partners, the appellant had not filed its ITR for AY 2014-15 to 2016-17 wherein there was no taxable income. 2.2 The ld. CIT(A) has grievously erred in law and or on facts in upholding the addition of Rs. 13,03,738/- as unexplained income u/s 69A made by A.O. 2.3 That in the facts and circumstances of the case, the ld. CIT(A), ought not to have upheld the addition of Rs. 13,03,738/- as unexplained income u/s 69A made by A.O. It is therefore prayed that the additions of Rs.13,03,738/- upheld by the CIT(A) may kindly be deleted.”
The Authorised Representative (AR) of the assessee reiterated the factual background and submitted that the source of cash was fully explained, based on the balance sheet and cash book. The AR submitted that due to closure of business operations w.e.f. 01.04.2014 and internal disputes among partners, the business came to a standstill. As a result, no final settlement of accounts could be arrived at amongst the partners. There was also no taxable income in subsequent years due to cessation of business. The AR further submitted that the unaudited balance sheet as on 31.03.2014 reflects a cash balance of Rs. 13,01,345/-, which continued to remain with one of the partners acting as custodian of undivided assets, pending resolution of internal disputes. This fact has never been disputed by the Revenue. The AR also submitted that there was an entry of cash deposit of Rs. 25,00,000/- on 22.6.2013 out of opening balance of Rs.26,43,652.76 as on 01.04.2013 and after that the cash balance as on 31-3-2014 was Rs.13,01,345.76 and the assessee has deposited Rs.13,00,000/- in the bank account of the firm on 11.11.2016.
Ramesh Corporation Automobiles vs. ITO A.Y. 2017-18 5 10. The learned Departmental Representative (DR), relying on the findings recorded by the AO, particularly paragraph 9 of the assessment order, submitted that the assessee has failed to discharge the initial burden cast upon it under the provisions of the Act to satisfactorily explain the source of cash deposits amounting to Rs. 13,03,738/- made during the demonetization period. The DR emphasized that as per para 9 of the assessment order, the AO has categorically recorded that no books of account were furnished, and the only explanation offered was in the form of a self-serving balance sheet allegedly drawn up for F.Y. 2013-14. It was further contended that in the absence of regular return filing from A.Y. 2014-15 to A.Y. 2016-17, coupled with the lack of books or records, it was reasonable to presume that the cash deposit was not explained, thereby justifying the addition made under section 69A of the Act.
We have carefully considered the rival submissions and perused the material available on record. The sole issue involved in the present appeal is whether the cash deposit of Rs. 13,03,738/- made during the demonetization period (09.11.2016 to 30.12.2016) in the bank account of the assessee–firm can be considered as explained or remains unexplained within the meaning of section 69A of the Act. The assessee is a partnership firm which had carried on the business of sale and service of scooters and had filed return of income for A.Y. 2013-14 declaring a loss of Rs. 39,49,349/-, which was accepted by the Department. Subsequently, no return of income was filed for A.Ys. 2014- 15 to 2016-17. During the year under consideration, based on OCM information, the AO reopened the assessment under section 147, as cash of Rs. 13,03,738/- was found to be deposited during the demonetization period. The assessee filed return in response to notice under section 148 declaring nil income and explained that the source of cash was the cash-in-hand available as on 31.03.2014.
Ramesh Corporation Automobiles vs. ITO A.Y. 2017-18 6 12. In support of this explanation, the assessee relied upon a balance sheet as on 31.03.2014 showing a cash balance of Rs. 13,01,345/-. The explanation further stated that due to disputes among partners and closure of business, the cash remained with one of the partners and was deposited only upon resolution of the dispute.
However, on careful consideration of the material placed on record, we find that the balance sheets for A.Y. 2014-15 and subsequent years filed in support of the cash balance are not audited and not signed by all the partners of the firm. Further, no corroborative evidence has been furnished by the assessee to demonstrate the existence of any inter-partner dispute, nor has any communication, resolution, correspondence, or affidavit from other partners been produced in support of such claim. The explanation that the cash was held back due to disputes, and deposited later after resolution, thus remains unsubstantiated by any reliable or verifiable documentary evidence.
On the other hand, we find that the AO has also not made any effort to verify this claim by recording the statement of any of the partners or by calling for further clarification during assessment proceedings. Thus, the matter appears to have been concluded on presumptive assumptions on both sides without full inquiry into the factual matrix.
It is also noticed that the CIT(A) has primarily rejected the assessee’s explanation based on non-filing of returns for A.Ys. 2014-15 to 2016-17 and the claim of cash retention being improbable. While non-filing of returns alone cannot render the earlier year’s cash balance as unexplained, it is equally true that reliance on unsigned and unaudited balance sheets, not confirmed by all partners, is insufficient to conclusively establish the availability and source of such cash.
Ramesh Corporation Automobiles vs. ITO A.Y. 2017-18 7 16. In the above facts and circumstances, where the assessee has failed to substantiate its explanation with adequate and credible evidence, and at the same time, the AO has not conducted proper inquiry or verification of the facts—particularly in respect of the source of cash claimed to be from earlier years’ balances, we are of the considered opinion that the issue requires re- examination.
In view of the above, and in the interest of justice, we deem it appropriate to restore the matter to the file of the AO for the limited purpose of verifying the claim of availability of cash as on 31.03.2014 and to examine whether such cash can reasonably be said to have been available and carried forward till the date of deposit during the demonetization period. The AO shall afford due opportunity of being heard to the assessee and examine any evidence that the assessee may wish to produce in support of its explanation.
In the result, the appeal is allowed for statistical purposes.
Order pronounced in the Open Court on 11th April, 2025 at Ahmedabad.