2025 (7) TMI 1435 - AT - Income Tax

Unexplained cash deposits - unexplained business transactions - HELD THAT - We find that the total cash deposit in Axis Bank A/c which is sustained by FAA is Rs. 12, 62, 991/- and at the same time we find that the total withdrawals through the entire year tantamount to Rs. 12, 61, 845/- which means the cash deposits and cash withdrawals are almost the same. As such for proper appreciation of facts we find that the entire cash deposits in the said bank account cannot be sustained and it is also admitted that the assessee is engaged as a trader in trading of fruits and vegetables and has also admitted to have been earning commission. As such in our opinion we determine the assessee to have earned profits from this transaction as recorded in Axis Bank A/c@ 8% of the total deposits which comes to Rs. 1, 01, 039/-. As such we restrict the addition on this ground to Rs. 1, 00, 000/- (one lakh only) instead of Rs. 12.61 lakhs and the assessee gets consequential relief. Appeal of the assessee is partly allowed.

Summary

ISSUES:

Whether unexplained cash deposits in a bank account can be added to the income of the assessee under the Income Tax Act.Whether additions on account of alleged unaccounted business transactions with a particular party are justified without considering the commission income already declared.Whether the Assessing Officer (AO) can make additions under section 68 or section 69A of the Income Tax Act for unexplained credits without rejecting the books of accounts.Whether the total cash deposits and withdrawals in a bank account should be considered in determining unexplained cash deposits.The extent to which profits should be presumed from banking transactions when the assessee is engaged as a commission agent in trading of perishable goods.

RULINGS / HOLDINGS:

The addition of Rs. 12,44,129/- on account of business transactions with a party was deleted because the assessee had already credited Rs. 7,02,565/- as commission income and the AO failed to deduct this amount or provide comparable profit figures; thus, the claim of the assessee was accepted and no addition was required.The addition of Rs. 12,61,845/- on account of unexplained cash deposits in the Axis Bank account was upheld by the first appellate authority under section 69A of the Act, noting that "there is nothing in the Act which prevents the AO from adding the unexplained credits in the hands of the assessee without rejecting books of accounts."The Tribunal held that since total deposits and withdrawals in the bank account were almost the same, the entire cash deposits could not be sustained as unexplained; instead, it restricted the addition to 8% of total deposits (Rs. 1,01,039/-), recognizing the assessee's business as a commission agent and the nature of transactions.

RATIONALE:

The Court applied provisions of the Income Tax Act, specifically sections 143(3), 147, 250, 44AB, 68, and 69A, to examine the validity of additions made by the AO and upheld or reduced them based on documentary evidence and business nature.The Tribunal emphasized that additions under section 69A can be made without rejecting books of accounts, consistent with statutory provisions.The Tribunal adopted a pragmatic approach by considering both deposits and withdrawals in the bank account, reflecting the cash flow in the business of a commission agent dealing in perishable goods, thereby limiting the addition to a reasonable presumed profit margin (8%).The decision reflects a doctrinal approach that unexplained cash deposits must be examined in light of corresponding withdrawals and business realities rather than mechanically adding the entire amount.