2025 (5) TMI 1308 - AT - Income Tax

Unexplained cash deposited in bank accounts - unexplained money u/s. 69A - HELD THAT - We have gone through the order of the CIT(A) and with a sense of deep disappointment we find that the order passed in first appeal is sheer waste of assesses right to appeal before the First Appellate Authority. The reason being that the order of the CIT(A) other than reproducing the facts of the case and the contentions of the assessee does nothing else other than arriving at the conclusion that the credits in the bank account are to be deleted while those on account of cash needs to be confirmed. This is evident from the one-page order passed by the FAA. Assessee had explained the source of cash deposit in the bank account as from his business of Charcoal trading and agricultural income - assessee had substantiated the same by furnishing copy of the P L account of his business and agricultural receipts. CIT(A) gives no reason absolutely for finding no merit in the assessee s explanation of the source of cash deposit in the bank account. It is a classic case of a nonspeaking order and as we have stated above it has resulted in waste of the right exercised by the assessee before the First Appellate Authority for addressing his grievances. As assessee has given a reasonable explanation of source of cash deposited in the bank account duly substantiated with evidence and since the Ld.CIT(A) has given no reason absolutely for disbelieving the explanation of the assessee we see no reason to confirm the order of the Ld. CIT(A). Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered in this appeal is whether the addition made by the Assessing Officer (AO) under Section 69A of the Income Tax Act, 1961, regarding cash deposits of Rs. 14,18,000/- in the assessee's bank accounts as unexplained money was justified. Specifically, the issue is whether the assessee's explanation and evidence substantiating the source of the cash deposits, claimed to be from business and agricultural income, were rightly rejected by the Commissioner of Income Tax (Appeals) (CIT(A)) and whether the addition should be sustained or deleted.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Validity of addition under Section 69A on cash deposits in bank accounts

Relevant legal framework and precedents: Section 69A of the Income Tax Act, 1961, empowers the AO to treat any sum found credited in the books of an assessee's bank account as income if the assessee fails to satisfactorily explain the nature and source of such sum. The burden lies on the assessee to provide a credible and verifiable explanation for the source of the cash deposits.

Court's interpretation and reasoning: The AO had made additions aggregating Rs. 23,72,282/- comprising cash deposits of Rs. 14,18,000/- and other credits in the bank accounts, on the ground that the source was unexplained. The AO noted that the cash deposits were made during the demonetization period and that the assessee failed to provide any explanation despite notices. Consequently, additions were made under Section 144 of the Act.

Upon appeal, the CIT(A) partially allowed the appeal by deleting the addition relating to credit entries other than cash deposits but confirmed the addition of Rs. 14,18,000/- on the cash deposits. However, the CIT(A)'s order was a brief, nonspeaking order that merely reproduced facts and contentions without any reasoned analysis or evaluation of the assessee's explanation and documentary evidence.

Key evidence and findings: The assessee submitted that the cash deposits were from his business of charcoal trading and agricultural income. He furnished copies of the Profit and Loss account for the financial year, agricultural bills, bank books, and bank statements showing cash withdrawals and redeposits. These documents were intended to substantiate the genuineness and source of the cash deposits.

Application of law to facts: The Tribunal found that the assessee had provided a reasonable and verifiable explanation for the cash deposits, supported by documentary evidence. Since the CIT(A) failed to provide any reason for disbelieving the explanation or to engage in any meaningful examination of the evidence, the Tribunal held that the CIT(A)'s confirmation of the addition was unjustified.

Treatment of competing arguments: The AO's argument was based on the absence of explanation and verification, and the CIT(A) upheld the addition without detailed reasoning. The assessee argued that the cash deposits were explained by business and agricultural income, supported by relevant documents. The Tribunal found the assessee's explanation credible and the CIT(A)'s order lacking in reasoned analysis, thus siding with the assessee.

Conclusions: The Tribunal concluded that the addition of Rs. 14,18,000/- as unexplained cash under Section 69A was not sustainable. The assessee's explanation was reasonable and substantiated, and the CIT(A)'s nonspeaking order failed to justify the confirmation of the addition. Therefore, the addition was directed to be deleted.

3. SIGNIFICANT HOLDINGS

The Tribunal emphasized the necessity for a speaking order by the first appellate authority and held that mere reproduction of facts and contentions without reasoned analysis amounts to a denial of justice to the assessee. The Tribunal stated:

"We find that the order passed in first appeal is sheer waste of assessee's right to appeal before the First Appellate Authority... other than reproducing the facts of the case and the contentions of the assessee, does nothing else other than arriving at the conclusion that the credits in the bank account are to be deleted while those on account of cash needs to be confirmed."

Further, the Tribunal held:

"Since the Ld.CIT(A) has given no reason absolutely for disbelieving the explanation of the assessee, we see no reason to confirm the order of the Ld. CIT(A). We, therefore, direct deletion of the addition made on account of cash found deposited in the bank account of the assessee to the tune of Rs. 14,18,000/-."

Core principles established include the requirement that an appellate authority must provide reasoned and speaking orders, especially when rejecting an assessee's explanation substantiated by evidence, and that unexplained cash additions under Section 69A must be based on credible failure of explanation rather than mere suspicion or absence of verification.

Final determination: The addition of Rs. 14,18,000/- under Section 69A was deleted, and the appeal was allowed.

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