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Facts
The assessee company, engaged in trading derivatives and real estate, deposited Rs. 71,33,000 in cash into its bank account. The Assessing Officer (AO) treated a portion of this deposit (Rs. 48,10,396) as unexplained income under Section 68 of the Income Tax Act, 1961, despite the assessee's explanation that it represented opening cash balance and cash withdrawals for land purchases. The CIT(A) upheld the addition, terming the assessee's explanation as self-serving.
Held
The Tribunal held that while the AO doubted the nexus between cash withdrawals and deposits during demonetization, he accepted the opening cash balance. The assessee, being a corporate entity with audited accounts, had presented evidence of consistent cash withdrawals over several months to build a corpus for land purchases. The Tribunal found merit in the assessee's explanation and concluded that the impugned amounts were from a maintained corpus.
Key Issues
Whether the addition of Rs. 48,10,396 as unexplained cash deposit under Section 68 of the Income Tax Act, 1961, is justified when the assessee provided a plausible explanation and supporting evidence for the same, and whether the reopening of assessment under Section 148 was valid.
Sections Cited
68, 148, 151, 143(2), 234 A, 234 B, 234 C, 234 D, 250, 148, 151, 143(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “PATNA BENCH” PATNA
SHRI DUVVURU RL REDDY, VICE PRESIDENT SHRI SANJAY AWASTHI, ACCOUNTANT MEMBER Assessment Year: 2017-18 Prerna Agency Private Limited, 46, Flat No. 102, 1st Floor, Durgapore Lane - 700027 [PAN: AAFCP3486K] ...............…...…………….... Appellant vs. Income Tax Officer, Ward 2(2), Patna, Lok Nayak Bhawan, Lok Dak Bunglow Road, Patna (Bihar) - 800001 .......…..…......................... Respondent Appearances by: Assessee represented by : Miraj D Shah, AR Department represented by : Ashwani Kumar, Sr. DR Date of concluding the hearing : 10.02.2025 Date of pronouncing the order : 17.02.2025
ORDER PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
The present appeal emanates from order u/s 250 of the Income Tax Act, 1961 (hereafter ‘the Act’) dated 22.08.2023, passed by the Ld. Commissioner of Income Tax (Appeals) [hereafter ‘the Ld. CIT(A)’], National Faceless Appeal Centre (NFAC), Delhi.
1.1 In this case, the assessee company is seen to be engaged in the business of trading in derivatives and dealing in real estate. During the course of scrutiny assessment, it was noticed by the AO that the assessee Prerna Agency Private Limited had deposited cash of Rs. 71,33,000/- in his bank account maintained with HDFC. On being asked to explain the source of the said cash deposit it was informed to the Ld. AO that the deposits represented opening cash balance (as on 01.04.2016) and cash withdrawals made from time to time. The Ld. AO has depicted in tabular form at pages 2 to 6 of his order about the cash withdrawals from time to time made by the assessee. However, the Ld. AO did not believe the claim of the assessee that considering their business of real estate they needed cash in hand to pay for land purchases. In support of this claim, the assessee filed several agreements entered into with five entities. The Ld. AO is seen to have given a detailed finding as to why this was not acceptable and proceeded to add Rs. 48,10,396/- under Section 68 of the Act, after giving the benefit of opening cash balance of Rs. 23,22,604/-.
1.2 Before the Ld. CIT(A) also, the assessee could not succeed as the Ld. CIT(A) concluded that before him the same set of facts were presented, as were before the Ld. AO, and hence he dismissed the same as “self-serving statement”.
1.3 Aggrieved with the action of Ld. CIT(A), the assessee has filed the present appeal with the following grounds:
“1. For that the Commissioner of Income Tax Appeal erred in invoking the powers u/s 251 of the Income Tax Act, 1961 without notice and opportunity to the assessee. Thus, all actions based on such notice be reversed and held to be bad in law.
2. For that in the facts and circumstances of the case the notice and the assessment order was without jurisdiction and bad in law and hence the entire assessment order is bad in law and the same should be quashed.
3. For that in the facts and circumstances of the case the Commissioner of Income Tax Appeal erred in confirming the addition of Rs. 48,10,396 which was cash deposit in the bank account of the assessee and added u/s 68 of the Income Tax Act 1961. The said addition was uncalled for and the same be deleted.
4. For that in the facts and circumstances of the case the Commissioner of Income Tax Appeal erred in confirming the addition of Rs.48,10,396 which was cash deposit in the bank account of the assessee, despite the assessee having explained 2 Prerna Agency Private Limited the source of the said deposit. The said addition was uncalled for and the same be deleted.
For that in the facts and circumstances of the case directions be given to re- compute the income of the assessee as per the provisions of the law and as per the proper rate of taxes.
For that the reopening of assessment u/s 148 of the Income Tax Act, 1961 was bad in law and hence the reopening be declared to be bad in law and the reassessment order be quashed.
For that the reasons recorded before reopening of assessment u/s 148 of the Income Tax Act 1961 did not meet the test of law laid down by various courts and hence the reopening be declared to be bad in law and the reassessment order be quashed.
For that the reopening of assessment u/s 148 of the Income Tax Act 1961 was on borrowed satisfaction and not on any independent application of mind by the assessing officer and hence the reopening be declared to be bad in law and the reassessment order be quashed.
For that the reopening of assessment u/s 148 of the Income Tax Act 1961 was without any relevant material having link to escapement of income and hence the reopening be declared to be bad in law and the reassessment order be quashed.
For that the sanction u/s 151 of the Income Tax Act 1961 before the reopening of assessment u/s 148 of the Income Tax Act 1961 was mechanical and without application of proper mind and the sanction was bad in law and hence the reopening be held to be bad in law.
For that the facts and circumstances of the case the notice u/s 143(2) of the Income Tax Act 1961 was without jurisdiction and bad in law and hence the entire assessment order is bad in law and the same should be quashed.
The appellant craves leave to produce additional evidences in terms of Rule 29 of the Income Tax (Appellate Tribunal) Rules 1963.
For that the interest computed u/s 234 A/B/C/D of the IT Act 1961 is over charged and wrongly calculated and or is not applicable to the assessee case hence the interest be deleted and or correctly computed.
The appellant craves leave to press new, additional grounds of appeal or modify, withdraw any of the above grounds at the time of hearing of the appeal.”
Before us, the Ld. AR vehemently argued that the assessee was a corporate entity and accounts were duly audited. The Ld. AO has not pointed out any error in the books of accounts, and has not even rejected the same. To further strengthen his arguments, the Ld. AR pointed out that while the opening cash balance of Rs. 23,22,604/- was accepted from the same set of facts then it was not understood why the substantial sums 3 Prerna Agency Private Limited of money withdrawn as cash could not be considered in the same positive manner by him. In conclusion, the Ld. AR stated that the assessee had substantial cash withdrawals which were immediately deposited back in the bank account as soon as the demonetization was announced. He stated that all manner of books of accounts and documents had been presented before both the authorities below. 2.1 The Ld. DR argued that it was hard to believe that the assessee was building a corpus of cash to pay for land, which he was intending to purchase from other corporate entities. The Ld. DR also pointed out that the assessee could not prove a direct nexus between cash withdrawn over several months and the sudden deposit during demonetization period. The Ld. DR, in general, supported the action of the authorities below.
We have carefully considered the rival submission and have gone through the documents placing before us. It is clear that there is considerable evidence to show that the assessee had been withdrawing cash consistently over the period of several months. Out of these cash deposits, some Rs. 20 lacs worth of funds have been spent also (as informed by Ld. AR at Bar). There is considerable merit in the statement of Ld. AR that the assessee is a corporate entity and has maintained books of accounts and got its accounts audited also. The Ld. AO has doubted the nexus between cash withdrawals and the cash deposits during the demonetization period but has accepted the opening cash balance. We also find that the book results have not been disturbed by the Ld. AO and he has simply disbelieved the assessee’s contention about there being available a corpus of cash to buy land even when several agreements have been presented before him. Considering the totality of facts and circumstances, it is worth holding that the assessee has managed to prove his case that the impugned amounts were from a corpus maintained after consistent cash withdrawals over a period of time. With these findings, the additions made are directed to be deleted. 4 Prerna Agency Private Limited
In the result, the appeal of the assessee is allowed.
Order pronounced in the court on 17.02.2025