2025 (5) TMI 209 - AT - Income Tax

Unexplained cash credits u/s 69A - assessee not produced any cogent evidences to prove that the deposits made in the Bank accounts represent the business receipts - HELD THAT - As the appellant had filed various details which are mentioned in the copy of e-Proceedings Response Acknowledgement of Income-tax Department before the CIT(A). After considering the details submitted by the appellant before AO and CIT(A) we find that the appellant has duly explained the nature and source of the cash deposited in his bank account. He has also explained the source of the repayment of loan to various parties during the year. CIT(A) has duly considered the explanation and details filed by the assessee and has rightly observed that the AO made the addition on the basis of assumption only. On appreciation of the explanation and details furnished by the appellant he has deleted the additions made u/s 69A and 68 of the Act. Therefore we do not find any infirmity in the order of the CIT(A) passed u/s 250 of the Act. Accordingly the ground Nos.1 2 and 3 raised by the revenue are dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

(a) Whether the addition of Rs. 1,69,10,000/- made by the Assessing Officer (AO) under section 69A of the Income-tax Act, 1961 ("the Act") on account of unexplained cash credits during the demonetization period was justified, given the assessee's failure to produce cogent evidence that such deposits represented business receipts.

(b) Whether the deletion of the addition under section 69A by the Commissioner of Income Tax (Appeals) [CIT(A)] was erroneous, considering the statutory onus on the assessee to explain the source of cash deposits.

(c) Whether the addition of Rs. 1,03,11,221/- made by the AO under section 68 of the Act on account of unexplained repayment of unsecured loans was justified, in light of the assessee's failure to substantiate the source of repayment with adequate documentary evidence.

(d) Whether the CIT(A) erred in deleting the additions and whether the AO's order should have been upheld.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Legitimacy of addition under section 69A on unexplained cash credits

Relevant legal framework and precedents: Section 69A of the Act permits the AO to make additions to income where cash credits or deposits are unexplained to his satisfaction. The burden lies on the assessee to satisfactorily explain the nature and source of such credits or deposits. The principle is that unexplained cash credits are presumed to be income unless satisfactorily explained.

Court's interpretation and reasoning: The AO made an addition of Rs. 1,69,10,000/- on the ground that the assessee failed to produce purchase registers, ledger of purchases, and other supporting documents to prove that the cash deposits in bank accounts were derived from business receipts. The AO noted that the assessee did not adequately respond to notices and failed to explain the source of cash deposits during the demonetization period.

The CIT(A), however, examined the submissions and documents filed by the assessee, including purchase registers, ledger of purchases, and other accounting records. The CIT(A) found that the assessee had indeed submitted replies to all notices and provided detailed explanations, including the opening cash balance, cash sales during the year, and cash deposits during the demonetization period. The assessee's explanation was that the cash deposits were out of cash sales of two-wheelers during the relevant period, supported by purchase registers and ledger entries.

Key evidence and findings: The assessee filed a detailed reply dated 20.12.2019 before the AO, explaining opening cash in hand of Rs. 1,67,79,584/- as on 09.11.2016, cash sales amounting to Rs. 6,80,31,190/- from 01.04.2016 to 08.11.2016, and cash sales of Rs. 22,83,288/- during 09.11.2016 to 30.12.2016 (demonetization period). The assessee also deposited Rs. 1,62,30,000/- in bank accounts from the opening cash balance. The CIT(A) observed that the AO ignored these submissions and made additions on assumptions without properly considering the evidence.

Application of law to facts: The Tribunal noted that the assessee had discharged the onus by furnishing detailed explanations and supporting documents, including audited books of account under section 44AB. The CIT(A) rightly held that the AO's additions were based on assumptions and failure to consider the evidence on record.

Treatment of competing arguments: The revenue argued that the assessee did not provide details of purchasers and failed to discharge the onus under section 69A. The assessee contended that all relevant details and documents were filed before the AO and CIT(A), and the AO ignored these submissions. The Tribunal sided with the assessee, finding the AO's approach flawed.

Conclusions: The Tribunal upheld the CIT(A)'s deletion of the addition under section 69A, confirming that the assessee satisfactorily explained the source of cash deposits.

Issue (c): Legitimacy of addition under section 68 on repayment of unsecured loans

Relevant legal framework and precedents: Section 68 deals with unexplained cash credits, including loans. The assessee must prove the identity of the lender, genuineness of the transaction, and creditworthiness. Repayment of loans, if unexplained, can be treated as income.

Court's interpretation and reasoning: The AO added Rs. 1,03,11,221/- as unexplained income on account of repayment of unsecured loans, holding that the assessee failed to substantiate the source of repayment with documentary evidence. The assessee claimed that repayments were made out of business income and secured bank loans, supported by bank statements, contra-confirmations from parties, PAN details, and ITRs of lenders.

The CIT(A) examined the submissions and found that repayments were made through proper banking channels, and the assessee had furnished confirmations from parties, their PANs, ITRs, and bank statements. The CIT(A) concluded that the AO's addition was based on assumptions and that the assessee had adequately explained the source of loan repayments.

Key evidence and findings: The assessee submitted audit reports under section 44AB, bank statements evidencing repayments, contra-confirmations from loan parties, and their tax returns and PAN details, all supporting the genuineness of repayments.

Application of law to facts: The Tribunal found that the assessee discharged the onus under section 68 by furnishing sufficient documentary evidence to establish the source and genuineness of loan repayments.

Treatment of competing arguments: The revenue contended that the assessee failed to provide adequate proof of source of repayments. The assessee argued that all relevant evidence was furnished and accepted by CIT(A). The Tribunal agreed with the assessee's position.

Conclusions: The Tribunal upheld the CIT(A)'s deletion of the addition under section 68 relating to loan repayments.

Issue (d): Whether CIT(A) erred in deleting additions and AO's order should be upheld

The Tribunal observed that the CIT(A) had carefully considered the evidence and submissions, and found the AO's additions to be based on assumptions and failure to consider the detailed evidence. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the revenue's appeal.

3. SIGNIFICANT HOLDINGS

"The appellant has duly explained the nature and source of the cash deposited in his bank account. He has also explained the source of the repayment of loan to various parties during the year. The CIT(A) has duly considered the explanation and details filed by the assessee and has rightly observed that the AO made the addition on the basis of assumption only."

"The AO has not gone through the submissions and details made by the AO during assessment proceedings. Therefore, the CIT(A) directed AO to delete the addition made of Rs. 1,69,10,000/- on account of cash deposits and Rs. 1,03,11,221/- on account of repayment of loan."

Core principles established include the requirement that additions under sections 69A and 68 cannot be made solely on assumptions or failure to consider detailed evidence and explanations furnished by the assessee. The burden of proof lies on the assessee, but once satisfactorily discharged through credible documentary evidence and explanations, additions cannot be sustained.

Final determinations on each issue were that the additions under section 69A and section 68 were rightly deleted by the CIT(A), and the Tribunal upheld these deletions, dismissing the revenue's appeal.

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