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Facts
The assessee, a dealer in food grains, had substantial cash withdrawals from his bank account for payments to farmers. The AO added Rs. 3,14,13,181/- as unexplained money under Section 69A of the Income Tax Act. The CIT(A) upheld the addition of Rs. 1,67,80,000/- related to cash deposits, finding the explanation of withdrawals for payments and re-deposits unconvincing.
Held
The Tribunal held that entries in the cash book need to be disproved with reference to the unavailability of cash, not on perceived unnatural conduct of the assessee. The Tribunal restored the matter back to the CIT(A) for fresh examination of the assessee's explanation with reference to the cash book entries and verification of their authenticity.
Key Issues
Whether cash deposits in the bank account, explained by prior withdrawals, can be treated as unexplained income under Section 69A when the CIT(A) found the conduct of withdrawing and re-depositing to be unnatural. The need for proper verification of cash book entries.
Sections Cited
69A, 115BBE, 40A(3), 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW ‘A’ BENCH, LUCKNOW
Before: SH. KUL BHARAT & SH. NIKHIL CHOUDHARY
A.Y. 2018-19 Vikas Singh, vs. Income Tax Officer, 32, Holi Chauraha, Puranaganj, Assessment Unit, Income Tax Pilibhit-262001 Department PAN:AYSPS9117L (Appellant) (Respondent) Assessee by: None Revenue by: Sh. Sanjeev Krishna Sharma, Addl CIT (DR) Date of hearing: 24.03.2025 Date of pronouncement: 05.06.2025 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the order of the ld. CIT(A) under section 250 of the Income Tax Act, 1961 dated 20.09.2023 in which the appeal of the assessee against the orders of the ld. AO, National E-Assessment Centre, dated 13.03.2023 has been partly allowed. The grounds of appeal are as under:-
1. On the facts and circumstances of the case, the appellate order passed by the learned CIT (Appeals) is bad both in the eye of law and on facts.
2. That the Ld. CIT (Appeals) has erred in law that it defies all logic as to why the appellant has to withdraw cash from bank when it had a huge cash balance as such transaction in the cash book appear to be manipulated and the addition u/s 69A of the Act with regards to credits in the bank account to the extent of Rs. 1,67,80,000/- representing cash deposits into the bank account is upheld. The Ld. CIT (Appeals) has failed to consider that the appellant has deposit cash of Rs. 1,67,80,000/- which was earlier withdrawn from bank account. The appellant attached the summary of cash book but same was not considered.
3. That the Ld. CIT (Appeals) has failed to consider that despite having cash balance in cash books there may be various reasons for withdrawing money Vikas Singh A.Y. 2018-19 from bank, as such entire cash deposit made in bank during the year cannot be treated as unexplained money u/s 69A and cannot be added in appellant income.
4. Any other ground as deem fit at the time of hearing of appeal.”
The facts of the case are that the assessee is a Arhatia (dealer in wholesale and commission sales of food grains), who sells commodities to registered dealers and receives payment from them in banks through RTGS and bank transfer from which he withdraws money to pay in cash to the sellers who are farmers. For this reason, there is substantial cash withdrawal from the books. The ld. AO on perusal of the replies filed by the assessee observed that there was an excess credit of Rs.3,19,81,470/- as per the bank statement, in comparison to the turnover declared by the assessee in his books. After issuing a show cause notice to the assessee, he finally treated an amount of Rs. 3,14,13,181/- as unexplained money in the hands of the assessee and added the same to his total income for the year under section 69A, thereby bring it to tax under the special provisions of section 115BBE. Besides this, he also made a disallowance of Rs.3,44,840/- on account of violation of section 40A(3), which however is not the subject matter of this appeal.
Aggrieved by the order passed by the ld. AO, the assessee went before the ld. CIT(A), NFAC. Before the NFAC, reconciliation was submitted with regard to the total credits of Rs.6,14,51,745.87/- that appeared in his bank account. A sum of Rs.2,42,51,095.87/- was explained by way of payment received from debtors; a sum of Rs.1 Crore was explained by way of inter-bank transfer from Bank of Baroda current A/c No.27020200000256; a sum of Rs.1,67,80,000/- was explained as cash deposits into the Bank of Baroda A/c No.270204000008648 which was stated to be duly recorded in the cash book which have been submitted before the ld. AO; an advance was received from parties amounting to Rs.92,86,191/- for which copies of accounts were produced and realization of sum of Rs.11,26,374/- from debtors’ opening balance was also shown and it was pleaded that therefore, there was no Vikas Singh A.Y. 2018-19 occasion for making additions on any of these sums. The reconciliation submitted by the assessee was forwarded to the ld. AO for his comments but the ld. AO in response simply stated that the assessee had not submitted the details during assessment proceedings and consistently defaulted before the ld. AO. Thus, he did not avail the opportunity to rebut the evidences produced before the ld. CIT(A) and the ld. CIT(A) thereafter proceeded to decide the appeals on the basis of the submissions made by the assessee and as recorded by the ld. AO in the assessment order. The ld. CIT(A) thereafter proceeded to allow relief to the assessee on all issues other than the cash deposited in bank of Rs. 1,67,80,000/-. He noted that the assessee in its submission had stated that the source of these cash deposits was previous withdrawals from the bank account which was reflected in the cash book. The ld. CIT(A) observed that the assessee was withdrawing amounts from the bank when it already had a huge cash balance as per the cash book. He noted that the assessee had claimed that the cash had been withdrawn for making payments to farmers and re-deposited because the payments could not be made. However, he rejected such claim on behalf of the assessee pointing out that no prudent businessman who had a balance of Rs. 1.4 Crores as cash in hand would withdraw money from the bank for no reason and then re-deposit that into the bank. Since, he did not find the explanation of the assessee to be convincing, he rejected the assessee’s claims in this regard and upheld the addition of Rs.1,67,80,000/- under section 69A of the Act.
Aggrieved with the said decision by the ld. CIT(A), the assessee has come in appeal before us. The asessee was offered three opportunities for hearing but he did not appear either in person or through his counsel on any of the appointed dates. Accordingly, in view of the non-cooperation of the assessee, the appeal is proceeded with on the basis of the facts as they emerged from the records.
On the other hand, Sh. Sanjeev Krishna Sharma, Addl CIT DR appearing on behalf of the Revenue pointed out that the ld. CIT(A) had duly considered all the Vikas Singh A.Y. 2018-19 submissions filed by the assessee and observed that the assessee had not been able to provide a satisfactory explanation for the deposit of Rs.1,67,80,000/- in his bank in the Bank of Baroda. Accordingly, the ld. CIT(A) was justified in treating the same as unexplained and adding it back to the income of the assessee.
We have duly considered the facts and circumstances of the case. We find that the assessee has based its submissions on basically two facts; i. That despite having cash balance in cash books, there may be various reasons for withdrawing of money from the bank and as such the entire deposit of cash in the bank cannot be treated as unexplained money and added back to the income of the assessee. ii. That the cash deposits were explained out of earlier withdrawals from the bank.
Ongoing through these two contentions of the assessee and the orders of the ld. CIT(A), we observe that the assessee is maintaining a cash book and that he claims that the cash deposited into the bank is duly explained from the cash book. The ld. CIT(A) has rejected this submission on the basis of his observation of unnatural behavior on the part of the assessee in withdrawing cash, even though he had cash in hand. From the same, he has concluded that the cash book is manipulated. However, to our mind, the entries in the cash book have to be disproved with reference to the unavailability of cash rather than on the basis of perceived unnatural conduct of the assessee, for it is not the job of the Revenue to decide how an assessee should conduct his business. In these circumstances, after considering the facts of the case, we deem it appropriate to restore the matter back to the file of the ld. CIT(A) to consider the explanation of the assessee with reference to the entries in his cash book and after verifying the authenticity of such entries. Accordingly, since the matter stands restored to the file of the ld. CIT(A) for fresh examination and decision, the appeal of the assessee is held to be allowed for statistical purposes.