2025 (6) TMI 1691 - AT - Income Tax

Unexplained cash credit u/s 68 - cash deposits made during the demonetization period - HELD THAT - Admittedly all the cash deposits were made during the financial year 2016-17 relevant to assessment year 2017-18 but the ld. AO as well as CIT(A) wrongly added the cash deposits during assessment year 2015-16. Therefore addition made by the AO is not acceptable for the assessment year 2015-16. AO wrongly made the addition and added to the total income of the assessee for the assessment year 2015-16. Therefore the addition made by the AO is hereby deleted. The grounds raised by the assessee are allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

(a) Whether the delay of 63 days in filing the appeal before the Tribunal was liable to be condoned on the grounds of sufficient cause, namely illness of the assessee's wife and consequent inability to file the appeal within time.

(b) Whether the cash deposits amounting to Rs. 25,22,500/- made in the assessee's three bank accounts during the financial year 2016-17 (relevant to assessment year 2017-18) were rightly added as unexplained cash credit under section 68 of the Income Tax Act for the assessment year 2015-16.

(c) Whether the addition of Rs. 25,22,500/- to the total income of the assessee for assessment year 2015-16 was justified, given that the deposits pertained to a later financial year and assessment year.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Condonation of Delay in Filing Appeal

The relevant legal framework governing the condonation of delay in filing appeals before the Tribunal is the principle that delay caused by sufficient cause, preventing the appellant from filing within the prescribed time, may be condoned. The Court examined the affidavit filed by the assessee explaining that the delay of 63 days was due to the serious illness of his wife, requiring hospitalization on a remote island, which prevented timely knowledge and action on the order passed by the Commissioner of Income Tax (Appeals).

The Tribunal accepted this explanation as a sufficient cause, noting that the assessee was genuinely prevented from filing the appeal within time. The Court's reasoning emphasized the human and factual circumstances that impeded the timely filing, thereby justifying the condonation of delay. No competing argument was raised by the Revenue on this point.

Conclusion: The delay of 63 days in filing the appeal was condoned.

Issue (b) and (c): Addition of Cash Deposits as Unexplained Cash Credit under Section 68 for AY 2015-16

The legal framework involves section 68 of the Income Tax Act, which deals with unexplained cash credits. If the assessee fails to satisfactorily explain the source of cash deposits, such amounts may be added to income as unexplained cash credits. The assessment year relevant to the income and transactions is critical in determining the correct year of addition.

The facts revealed that the assessee, engaged in a jewellery business under proprietorship, filed return for AY 2015-16 declaring income under presumptive taxation scheme (section 44AD). The total cash deposits of Rs. 25,22,500/- were made in three bank accounts during the financial year 2016-17, corresponding to AY 2017-18. The Assessing Officer issued notices under scrutiny but the assessee did not comply, leading to assessment under section 144 for AY 2015-16. The Assessing Officer and CIT(A) added the cash deposits as unexplained cash credit under section 68 for AY 2015-16.

The assessee contended that the deposits related to earlier income and savings and that the addition was wrongly made for AY 2015-16 instead of AY 2017-18, since the deposits occurred in the later financial year. The assessee's submissions were that the cash deposits were not unexplained but related to previous income, and that the Assessing Officer and CIT(A) failed to consider these explanations.

The Revenue relied on the orders of the lower authorities without providing additional substantive arguments.

The Tribunal examined the timeline of deposits and the relevant assessment years. It was undisputed that the deposits were made during FY 2016-17, relevant to AY 2017-18. The Tribunal held that the addition of Rs. 25,22,500/- to income for AY 2015-16 was erroneous since the deposits did not pertain to that year. The Court reasoned that income or cash credits must be assessed in the year in which they arise or are made, and the addition for an earlier year without basis was not sustainable.

The Tribunal did not delve into the merits of whether the deposits were explained satisfactorily but focused on the procedural and temporal error of making the addition for the wrong assessment year. The competing arguments about the source of deposits were not extensively analyzed, as the fundamental issue of incorrect assessment year was determinative.

Conclusion: The addition of Rs. 25,22,500/- as unexplained cash credit under section 68 for AY 2015-16 was deleted as unsustainable because the deposits pertained to AY 2017-18.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"Considering the facts and circumstances of the case, I am of the view that the assessee was prevented in filing the appeal within the stipulated time. Therefore, I am inclined to condone the delay of 63 days."

"It is an admitted fact that the assessee has deposited an amount of Rs. 25,22,500/- in his three bank accounts... Admittedly all the cash deposits were made during the financial year 2016-17 relevant to assessment year 2017-18, but the ld. Assessing Officer as well as ld. CIT(Appeals) wrongly added the cash deposits of Rs. 25,22,500/- during assessment year 2015-16. Therefore, I am of the firm view that the addition made by the ld. Assessing Officer is not acceptable for the assessment year 2015-16."

Core principles established include:

- Delay in filing appeals may be condoned if sufficient cause is shown, including medical emergencies affecting the appellant or their close family.

- Additions under section 68 must correspond to the correct assessment year relevant to the financial year in which the cash deposits were made.

- Assessing authorities cannot arbitrarily attribute cash deposits made in one financial year to an earlier assessment year without factual or legal basis.

Final determinations:

- Delay of 63 days in filing the appeal was condoned.

- The addition of Rs. 25,22,500/- as unexplained cash credit under section 68 for AY 2015-16 was deleted.

- The appeal filed by the assessee was allowed accordingly.