2025 (7) TMI 1379 - AT - Income Tax

Addition on account of cash deposit in bank - assessee failure to explain the identity creditworthiness and genuineness of such credits HELD THAT - Since the assessee failed to explain the source of the cash deposits in his bank accounts and as no justification for the nature and source of the cash deposits was made either before the Ld. AO or even before the CIT(A) and the money deposited has been transferred to Paramount Trader Pvt. Ltd. Sumita Exports Pvt. Ltd. Kaushal Co. Bhilai Pvt. Ltd. and S.H. Investment Pvt. Ltd. the same remained unexplained. Assessee was not able to substantiate the source of the deposits and the assessee was changing his stance while making deposition u/s 131 of the Act before the DDIT(Inv.) and subsequently at the time of scrutiny proceeding before the Ld. AO and both the submissions were contradictory as earlier he had stated that Mr. Prem Narayan Khandelwal a practicing CA had directed him to open this account in PNB and the transactions made in PNB was neither related to him nor to his business the account was fully operated by Mr. Khandelwal and the appellant only used to get some commission from Mr. Khandelwal in cash which is very negligible of total transaction and he used to sign on blank cheques as per direction of Mr. Khandelwal; but at the time of assessment proceedings he stated the same to be out of his sale proceeds of different items but he failed to furnish any supporting documents and books of account to prove that deposits in bank pertain to his business transactions. Bank account was not disclosed to the Revenue therefore the source of the cash deposited in the undisclosed bank account was not satisfactorily explained nor this account was disclosed in the return of income for AY 2009-10 therefore Ground relating to the addition made is hereby dismissed and the order of the CIT(A) is confirmed. Decided against assessee.

Summary

ISSUES:

Whether the addition of cash deposits in bank account amounting to Rs. 58,14,000/- without satisfactory explanation constitutes unexplained income under the Income Tax Act, 1961.Whether the notice issued under section 148 of the Income Tax Act, 1961 was valid and within limitation period.Whether the theory of peak credit is applicable for addition of unexplained cash deposits in absence of simultaneous cash withdrawals.Whether the credits appearing in bank accounts can be treated as unexplained cash credits under section 68 when the assessee fails to explain the identity, creditworthiness, and genuineness of such credits.Whether the phrase "books of an assessee" under section 68 includes electronic records such as computer data and CDs.Whether an assessee engaged in providing accommodation entries can avoid addition of unexplained credits by failing to disclose details of beneficiaries.Whether the burden of proof lies on the assessee to explain the nature and source of bank deposits.Whether the Assessing Officer has jurisdiction to reopen assessment when notice under section 148 is issued within the limitation period, notwithstanding the timing of service.

RULINGS / HOLDINGS:

The addition of Rs. 58,14,000/- as unexplained cash deposits was upheld as the assessee "failed to explain the sources of these cash deposits" and "the cash deposit appearing in the bank statement remained unexplained," warranting inclusion in income.The notice under section 148 issued on 29.03.2016 was validly issued within the six-year limitation period, and "service under the 1961 Act is not a condition precedent to conferment of jurisdiction in the ITO to deal with the matter but it is a condition precedent to making of the order of assessment"; hence, the additional ground challenging notice validity was dismissed as "not pressed."The theory of peak credit is not applicable where there is no evidence of simultaneous cash withdrawals correlating with deposits; the assessee failed to establish such correlation, thus full addition was justified.Section 68 requires the assessee to explain credits by providing "the identity, creditworthiness and genuineness of the credits"; failure to provide such details permits addition of the entire unexplained credits as income.The phrase "books of an assessee" under section 68 includes electronic records and data stored in computers and CDs, as supported by section 2(12A) definition, and thus data extracted from computer records constitutes books of account for assessment purposes.An assessee engaged in providing accommodation entries cannot avoid addition by refusing to disclose beneficiary details; "any interpretation which would make admitted unaccounted income tax free based on the denial by the assessee/persons to give details has to be rejected."The burden of proof lies on the assessee to explain the nature and source of bank deposits; absence of cogent and relevant evidence justifies addition.Jurisdiction to reopen assessment vests upon issue of notice within limitation period; "once a notice is issued within the period of limitations, jurisdiction becomes vested in the ITO to proceed to reassess," even if service occurs later.

RATIONALE:

The Court applied the statutory framework of the Income Tax Act, 1961, particularly sections 147, 148, 143(3), and 68, alongside judicial precedents including the Supreme Court ruling distinguishing issue and service of notice under section 148, emphasizing that "service is a condition precedent to making of the order of assessment" but not to jurisdiction.The Court relied on the principle that unexplained cash credits in bank accounts are taxable income under section 68 when the assessee fails to provide satisfactory explanation or evidence regarding the nature, source, and genuineness of such credits.The interpretation of "books of an assessee" was expanded to include electronic records, consistent with technological developments and statutory definitions under section 2(12A), thereby validating use of computer data and CDs as evidence.The Court rejected attempts to evade tax liability by claiming accommodation entry business without disclosing beneficiary details, underscoring the obligation to provide verifiable information to the revenue authorities.The Court affirmed the principle that the burden of proof lies on the assessee to produce primary facts and relevant material to substantiate claims, citing the Supreme Court decision in Calcutta Discount Co.In addressing the theory of peak credit, the Court clarified that it applies only where there is evidence of simultaneous cash withdrawals and deposits, which was not demonstrated.The Court noted the seriousness of admitted fraudulent conduct and directed relevant authorities to investigate potential offences under the Indian Penal Code and Prevention of Money Laundering Act, indicating a doctrinal emphasis on enforcement against economic offences linked to tax evasion.The Court's reasoning reflects a doctrinal shift towards stricter scrutiny of unexplained cash credits and accommodation entries, reinforcing the revenue's power to assess unexplained income and the necessity of full disclosure by the assessee.