2025 (5) TMI 1411 - AT - Income Tax

Addition towards cash deposits into bank account u/sec.68 r.w.s.115BBE - HELD THAT - Since the appellant company has failed to file relevant evidences in our considered view the explanation of the appellant company with regard to source of cash deposit cannot be accepted. Since the CIT(A) has given a finding that the amount received towards sale of scrap is part of regular books of accounts in our considered view these aspects needs to be examined by the AO more particularly in light of the fact that the appellant company could not furnish relevant bank statements for re-verification. Thus we set-aside the order of the learned CIT(A) on this issue and restore the issue back to the file of the AO. AO is directed to verify the relevant books of accounts and financial statements to ascertain the fact that with regard accounting the amount received towards sale of scrap under the head Direct Income . In case the appellant company is able to prove the amount received from sale of scrap is part of their regular books of accounts and the same is source for cash deposit into bank account then the Assessing Officer is directed to delete addition made towards cash deposit of Rs. 1.43 crores u/sec.68 r.w.s.115BBE of the Income Tax Act 1961. Addition of cash payment - On verification of the relevant show cause notice dated 07.05.2023 the AO has discussed the issue in light of variation proposed on the issue of addition towards cash deposit and also towards cash payment to M/s. Analogics Tech India Ltd. and from the above it is undisputedly clear that Assessing Officer has discussed the issue in light of relevant materials and also gave an opportunity to the appellant company to explain it s case. Therefore reasoning given by the CIT(A) to delete the addition made by the Assessing Officer towards alleged cash payment is contrary to material on record and cannot be accepted. When it comes the issue of cash payment it was explanation of appellant company that since there was change in the management of the company there were no details as regards cash payment of Rs. 43 lakhs to above company viz. M/s. Analogics Tech India Ltd. It is for the appellant company to explain it s case with relevant details to prove to the satisfaction of the AO that the said transaction is neither carried-out by the appellant company nor belongs to the appellant company. Since the appellant company could not explain the transactions and merely stated that it does not belongs to the appellant company in our considered view the matter needs to be set-aside to the file of AO for further verification in light of relevant evidences which is basis for making addition. AO is directed to re-consider the issue and also provide relevant evidences to the appellant company for it s rebuttal and explanation and also decide the issue in accordance with law. Appeal of the Revenue is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the addition of Rs. 1.43 crores made by the Assessing Officer under section 68 read with section 115BBE of the Income Tax Act, 1961 (the Act) towards unexplained cash deposits in the HDFC Bank account of the appellant company is justified, given the appellant's claim that the deposits represent income from sale of scrap duly recorded in the books of accounts.

(b) Whether the addition of Rs. 43 lakhs made under section 69A read with section 115BBE of the Act towards alleged unexplained cash payment to M/s. Analogics Tech India Ltd., based on a receipt found during survey proceedings, is sustainable in law, especially in light of the appellant's contention regarding lack of opportunity to explain and absence of corresponding entries in the books of accounts.

(c) The validity of the notice issued under section 148 of the Act, particularly whether the requisite sanction under section 151 was obtained from the appropriate authority in accordance with the law.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Addition of Rs. 1.43 crores towards unexplained cash deposits under section 68 r.w.s.115BBE:

Relevant legal framework and precedents: Section 68 of the Act deals with unexplained cash credits, allowing the Assessing Officer to treat unexplained credits as income if the assessee fails to satisfactorily explain the source. Section 115BBE imposes a special tax rate on such unexplained income. Further, section 206C mandates collection of Tax Collected at Source (TCS) on sale of scrap, and Form 27EQ is used to report such TCS collections. The Supreme Court's decision in Union of India vs. Rajeev Bansal (2024) addresses procedural requirements for reopening assessments.

Court's interpretation and reasoning: The Tribunal noted that the appellant company admitted the cash deposits of Rs. 1.43 crores in its HDFC Bank account and claimed that these arose from sale of scrap generated from its business operations (implementation of GPS-based e-ticketing system) where electronic waste was sold to local unorganised dealers. The appellant contended that these receipts were recorded under 'Direct Income' in its books and relevant taxes were paid.

However, the Assessing Officer rejected this explanation due to the absence of critical supporting evidence such as the names and addresses of buyers, TCS collection details, and quarterly returns in Form 27EQ. The Assessing Officer's position was that without such evidence, the source of cash deposits remained unexplained, warranting addition under section 68 r.w.s.115BBE.

The learned CIT(A) deleted the addition relying on the appellant's cash flow statement and the assertion that the deposits were reflected in the books of accounts. The CIT(A) also noted that the Assessing Officer did not dispute the cash flow statement or the accounting entries and had not recorded satisfaction under section 145(3) to reject the books.

The Tribunal, upon review, found that the CIT(A)'s deletion was not supported by evidence since the appellant failed to produce TCS details and Form 27EQ returns, which are statutory requirements for sale of scrap transactions. The Tribunal emphasized that the appellant's failure to provide these mandatory evidences undermined the claim that the cash deposits were genuine business receipts. The Tribunal also noted the absence of relevant bank statements and details about the parties from whom the scrap was sold.

Application of law to facts: The Tribunal held that the Assessing Officer's addition was justified in the absence of statutory compliance and supporting evidence. The Tribunal set aside the CIT(A) order and remanded the matter to the Assessing Officer for fresh verification of books of accounts and financial statements to ascertain whether the sale of scrap income was properly accounted for under 'Direct Income' and if it could legitimately explain the cash deposits.

Treatment of competing arguments: The appellant's argument on the genuineness of cash deposits and their accounting treatment was weighed against the statutory requirements for TCS and reporting. The Tribunal gave primacy to statutory compliance and evidentiary requirements over mere assertions supported by ledger copies and bank statements without corroborative evidence.

Conclusion: The issue was remanded to the Assessing Officer for further inquiry, with directions to verify the accounting treatment and statutory compliance before deciding on the addition under section 68 r.w.s.115BBE.

(b) Addition of Rs. 43 lakhs towards alleged cash payment to M/s. Analogics Tech India Ltd. under section 69A r.w.s.115BBE:

Relevant legal framework and precedents: Section 69A relates to unexplained expenditure, allowing addition where the assessee fails to explain the source or nature of expenditure. The principles of natural justice require that the assessee be given a reasonable opportunity to explain and rebut any proposed addition, especially when based on third-party evidence.

Court's interpretation and reasoning: The Assessing Officer made the addition based on a receipt found during survey proceedings, which acknowledged cash receipt of Rs. 43 lakhs from the appellant company by M/s. Analogics Tech India Ltd. The appellant company denied knowledge of such a transaction, citing a complete change in management and absence of corresponding entries in the books.

The learned CIT(A) deleted the addition on technical grounds, holding that the show cause notice dated 07.05.2023 did not specifically propose addition for this cash payment, rendering the addition procedurally invalid. The CIT(A) also found that the appellant was not provided with relevant material to explain or rebut the addition, violating principles of natural justice.

The Tribunal examined the show cause notice and found that the Assessing Officer had indeed discussed the issue of cash payment to M/s. Analogics Tech India Ltd. and given the appellant opportunity to explain. Thus, the Tribunal concluded that the CIT(A)'s deletion on procedural grounds was not supported by material on record.

However, on merits, the Tribunal emphasized that the appellant company failed to satisfactorily explain or produce evidence to disprove the transaction. The mere assertion of ignorance due to management change was insufficient. The Tribunal held that it is the appellant's obligation to explain and prove the non-existence or invalidity of the transaction.

Application of law to facts: The Tribunal set aside the CIT(A) order and remanded the issue to the Assessing Officer with directions to provide the appellant with relevant evidence and an opportunity to rebut before passing a reasoned order in accordance with law.

Treatment of competing arguments: The appellant's contention regarding lack of opportunity and absence of transaction records was considered but found inadequate in light of the available receipt and the appellant's failure to provide satisfactory explanation or evidence.

Conclusion: The matter was remanded for fresh adjudication with directions to ensure compliance with natural justice and proper examination of evidence.

(c) Validity of notice issued under section 148 and sanction under section 151:

Relevant legal framework and precedents: Section 148 empowers reopening of assessments, subject to prior sanction under section 151 by the appropriate authority. The Supreme Court's ruling in Union of India vs. Rajeev Bansal clarified that after 01 April 2021, sanction must be obtained from the Principal Chief Commissioner or Chief Commissioner.

Court's interpretation and reasoning: The appellant challenged the validity of the notice dated 29.07.2022 on the ground that sanction was obtained from the Principal Commissioner instead of the Principal Chief Commissioner or Chief Commissioner, rendering the notice invalid.

The Tribunal observed that the appellant did not raise this issue by way of cross-objection or in the grounds of appeal before the Tribunal. Consequently, the Tribunal declined to entertain this argument at the hearing stage and rejected the contention on the validity of the notice.

Application of law to facts: The procedural objection was not adjudicated on merits due to the absence of a formal challenge before the Tribunal.

Treatment of competing arguments: The appellant's legal argument was noted but dismissed for procedural non-compliance in raising the issue.

Conclusion: The validity of the notice under section 148 was upheld for the purposes of this appeal.

3. SIGNIFICANT HOLDINGS

"The appellant company has failed to furnish relevant evidences including details of TCS collected from the dealers and quarterly returns filed in Form-27EQ to report the said transaction of sale of scrap. In absence of any such details, the explanation of the appellant company with regard to source of cash deposit cannot be accepted."

"The Assessing Officer has discussed the issue of cash payment to M/s. Analogics Tech India Ltd. in the show cause notice and has provided opportunity to the appellant company to explain the case. Therefore, the deletion of addition on the ground of absence of show cause notice is not sustainable."

"It is the obligation of the appellant company to explain the transactions with relevant evidences to the satisfaction of the Assessing Officer. Mere statement that the transaction does not belong to the appellant company due to change in management is not sufficient."

"The validity of notice issued under section 148 cannot be raised at the hearing stage if not challenged by way of cross-objection or appeal before the Tribunal."

Core principles established include the necessity of statutory compliance (TCS and reporting requirements) to substantiate claims of cash receipts, the requirement of procedural fairness in making additions based on third-party evidence, and the obligation on the assessee to explain unexplained credits or expenditures with cogent evidence.

Final determinations:

(i) The addition of Rs. 1.43 crores towards unexplained cash deposits is set aside and remanded to the Assessing Officer for verification of books of accounts and statutory compliance regarding sale of scrap income.

(ii) The addition of Rs. 43 lakhs towards alleged cash payment is also set aside and remanded for fresh consideration after providing the appellant with relevant evidence and opportunity to rebut.

(iii) The procedural objection regarding validity of notice under section 148 is rejected for want of formal challenge.