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2025 (6) TMI 1687 - AT - Income TaxAddition u/s 69A - cash deposits on account of sale of vegetables and milk - HELD THAT - No details of persons to whom milk and vegetables were supplied across India were furnished and neither any proof of transportation of milk and vegetables to various locations across India was furnished before us. We note that even for subsequent assessment years though the assessee is claiming that it is engaged in the supply of milk and vegetables there is no documentary evidence maintained by the assessee regarding supply of milk and vegetables to various locations across India. Further we also note that the assessee has given no plausible explanation as to why the cash so deposited in his bank account was withdrawn by the assessee at such short intervals. Thus the assessee has not been able to give any satisfactory explanation regarding the source of cash deposits and credit entries in his bank account. Further assessee submitted that it is a well-established law that in case the Department is unable to demonstrate that the cash withdrawn by the assessee from the same bank account was utilized elsewhere by the assessee then it has to be presumed that the subsequent deposits in the same bank account were sourced out of the withdrawals earlier made by the assessee from the same bank account. We find force in the aforesaid legal contention made of the assessee and are of the considered view that it is well settled law the entire cash deposits / credits cannot be held to be the undisclosed income of the assessee without giving the assessee the credit for the withdrawals made by the assessee from the same bank account (unless the Department is able to demonstrate that the cash was utilized by the assessee for some other purpose and that the said withdrawals made by the assessee in cash were not available for re-deposit). Accordingly the matter is set-aside to the file of the Assessing Officer for carrying out the necessary verification and to decide the issue in accordance with law after due verification. Appeal of the assessee is allowed for statistical purposes.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of additions under Section 69A of the Act on account of unexplained cash deposits and bank credits Relevant legal framework and precedents: Section 69A of the Act empowers the Assessing Officer to treat any sum found credited in the books of an assessee's bank account as income of the assessee if the assessee fails to satisfactorily explain the nature and source of such credit. The burden lies on the assessee to explain the source of deposits or credits appearing in the bank account. The principle that all unexplained credits can be treated as income is well settled, subject to the caveat that the assessee is given an opportunity to explain the nature of such credits. Court's interpretation and reasoning: The Tribunal noted that the Assessing Officer observed cash deposits totaling Rs. 14,74,188/- in the assessee's bank account, which were not satisfactorily explained. The assessee claimed to be a small vendor dealing in milk and vegetables, conducting business largely in cash, and submitted that these deposits represented cash sales. However, the Assessing Officer found the claim unacceptable due to the pattern of deposits at various locations across India and the rapid withdrawal of these amounts within short periods (one day to one week). Furthermore, credits amounting to Rs. 8,78,300/- appearing in the bank account were unexplained. The Tribunal observed that the assessee failed to provide any documentary evidence such as supply invoices, transportation proofs, or details of vendors across India to substantiate the claim of widespread business operations. Absence of such evidence weakened the credibility of the assessee's explanation. The Tribunal also noted the lack of plausible explanation for the quick withdrawals of cash from the bank account. Key evidence and findings: The Assessing Officer's findings on cash deposits, unexplained credits, and the pattern of transactions were undisputed. The assessee's failure to produce corroborative evidence or credible explanation was a critical factor. Application of law to facts: Given the lack of satisfactory explanation and documentary proof, the Tribunal held that the additions under Section 69A were prima facie justified. However, the Tribunal emphasized that the entire deposits and credits cannot be treated as undisclosed income without considering withdrawals from the same bank account. Treatment of competing arguments: The assessee argued that the cash deposits were legitimate business receipts from sales of milk and vegetables and that there was no bar to depositing cash from various locations. The assessee also contended that subsequent years' returns filed on a presumptive basis supported the genuineness of the business. The Tribunal acknowledged these submissions but found that in absence of documentary evidence and plausible explanation, these arguments were insufficient to dislodge the Assessing Officer's findings. Conclusions: The Tribunal upheld the principle that additions under Section 69A are justified in absence of satisfactory explanation but directed that credit must be given for withdrawals from the bank account before making additions. The matter was remanded to the Assessing Officer for verification and reassessment in accordance with law, after considering withdrawals. Issue 2: Whether credit for withdrawals from bank account should be given before additions under Section 69A Relevant legal framework and precedents: It is a well-established legal principle that unexplained bank deposits cannot be treated as undisclosed income without giving credit for withdrawals made from the same account, unless the Department proves that such withdrawals were utilized for purposes other than redepositing. This principle prevents double counting of the same amounts as income. Court's interpretation and reasoning: The Tribunal accepted the assessee's contention that credit for withdrawals must be given before additions are made. It observed that the Assessing Officer had not demonstrated that the withdrawn cash was utilized for any other purpose. Therefore, the entire deposits cannot be treated as unexplained income without adjusting for withdrawals. Key evidence and findings: The Tribunal noted the absence of any evidence from the Department showing that withdrawals were used for purposes other than redepositing. Application of law to facts: The Tribunal held that the Assessing Officer must verify the bank account transactions comprehensively and give credit for withdrawals before making any addition under Section 69A. Treatment of competing arguments: The Department did not provide any evidence to counter the assessee's argument regarding withdrawals. The Tribunal found merit in the assessee's submission and accordingly remanded the matter. Conclusions: The Tribunal set aside the additions for fresh verification and directed the Assessing Officer to consider withdrawals before confirming any addition. Issue 3: Penalty proceedings initiated under Sections 271(1)(b), 271(1)(c), and 271F of the Act Relevant legal framework and precedents: Penalty under Section 271(1)(b) is attracted for concealment of income or furnishing inaccurate particulars. Section 271(1)(c) relates to failure to comply with provisions regarding maintenance of books of account, and Section 271F deals with failure to furnish return of income within the prescribed time. Court's interpretation and reasoning: The Tribunal did not delve into detailed analysis of penalty provisions but noted the assessee's contention that initiation of penalty proceedings was unlawful and devoid of merit. Key evidence and findings: The record showed that the assessee had not filed the return of income initially and that the Assessing Officer had initiated penalty proceedings. Application of law to facts: Since the substantive additions were set aside for fresh verification, the Tribunal implicitly indicated that penalty proceedings based on those additions could not be sustained without proper adjudication of the primary issues. Treatment of competing arguments: The Department did not advance any detailed submissions on penalty. The Tribunal did not expressly rule on penalty but allowed the appeal on substantive grounds, which would impact penalty proceedings. Conclusions: The penalty proceedings were held to be premature and liable to be quashed in view of the remand and directions for fresh verification. Issue 4: Interest charged under Sections 234A, 234B, and 234C of the Act Relevant legal framework and precedents: Interest under Sections 234A, 234B, and 234C is generally charged for delay in filing return, default in payment of advance tax, and deferment of advance tax installments respectively. Court's interpretation and reasoning: The assessee challenged the interest levied on the ground that the additions were not justified. Key evidence and findings: The Tribunal did not specifically analyze the interest provisions, but since the additions were set aside for fresh verification, the interest levied on such additions was also liable to be reconsidered. Application of law to facts: The interest liability is contingent on the correctness of the assessment. Since the assessment was remanded, the interest charges require reconsideration. Treatment of competing arguments: The Department did not argue separately on interest. Conclusions: The Tribunal directed cancellation of interest charges in line with the remand of the assessment. 3. SIGNIFICANT HOLDINGS The Tribunal succinctly stated the principle regarding bank deposits and withdrawals: "...it is a well settled law the entire cash deposits / credits cannot be held to be the undisclosed income of the assessee, without giving the assessee the credit for the withdrawals made by the assessee from the same bank account (unless the Department is able to demonstrate that the cash was utilized by the assessee for some other purpose and that the said withdrawals made by the assessee in cash were not available for re-deposit). Accordingly, the matter is set-aside to the file of the Assessing Officer for carrying out the necessary verification and to decide the issue in accordance with law, after due verification." The Tribunal established the core principle that unexplained bank credits can be added as income only after proper verification and after giving credit for withdrawals, thereby preventing double counting and ensuring fairness. Final determinations on each issue are:
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