Income Tax Department Accepts Cash Deposits Reflected as Sales and Rejects Section 69A Addition

The Ahmedabad ITAT has upheld the order of the CIT(A), which resulted in the deletion of an addition of Rs. 86.75 crore under Section 69A as unexplained income for the assessee. The ITAT held that the cash deposited in the bank account cannot be considered unexplained since the revenue department itself accepted in the remand report and on verification that the entire cash deposited was accounted for as sales in the assessee’s books.

The assessee, an individual engaged in wholesale trading of gold and silver, had deposited cash amounting to Rs. 86.75 crore in a current account maintained at a bank in Jalgaon. During the assessment, the revenue department noticed that this bank account in Jalgaon was not disclosed in the balance sheet, and the sale invoices were issued to customers in Gujarat instead of Maharashtra.

The assessee explained that all the cash deposits made in the Jalgaon bank account were transferred to an Axis Bank account held in Ahmedabad, and the entire deposit amount was duly reflected in the sales account. The CIT(A) admitted additional evidence submitted by the assessee, which included a revised balance sheet and profit and loss account incorporating the Jalgaon bank account. This account was not initially included in the financial statements furnished to the revenue department.

The ITAT noted the assessee’s submission that the cash deposited in the Jalgaon bank account was transferred to the Ahmedabad bank account and accounted for in the books. It also considered the assessee’s explanation for the non-disclosure of the Jalgaon bank account, stating that since all transactions of the Jalgaon account were reflected in the Ahmedabad account, there was an inadvertent omission in accounting for the Jalgaon bank account transactions.

The ITAT agreed with the CIT(A)’s view that the assessee had provided a reasonable cause for not filing the revised financial statements during the assessment proceedings. It found no fault in the CIT(A) order admitting the additional evidence. Even if the additional evidence had not been admitted, it would not have made a substantial difference regarding the explanation of the cash deposits.

The ITAT noted that the revenue department, in its remand report, unequivocally admitted that all cash deposited in the Jalgaon bank account was reflected in the Ahmedabad bank account and was explained. Additionally, the revenue department accepted the assessee’s explanation for cash deposits amounting to Rs. 77.02 crore. The ITAT rejected the revenue department’s contention regarding the remaining deposits of Rs. 9.72 crore, stating that the sales invoices for that amount did not refute the assessee’s claim that the sales were made outside Gujarat since the invoices were raised for clients in Gujarat.

The ITAT observed that all cash deposits in the Jalgaon bank account had already been accounted for as income through sales in the assessee’s books of account. The sales and purchases made were shown to match quantitatively. Therefore, the ITAT concluded that none of the cash deposits could be treated as unexplained income for the assessee and dismissed the revenue department’s appeal in favor of the assessee. The judgment was delivered on 21st April 2023 and pertained to the assessment year 2012-13. (ITO v. Rajeshkumar Chhanalal Patel [TS-209-ITAT-2023(Ahd)])

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