Facts of the Case

The assessee, Rajbir Singh, filed his return of income declaring a total income of Rs. 15,890 for Assessment Year 2014-15. The return was selected for scrutiny assessment and statutory notices were issued.

During assessment proceedings, the Assessing Officer noticed cash deposits in the assessee’s bank account with UCO Bank on various dates and asked the assessee to explain the source of these deposits. The assessee submitted a detailed reply explaining that the cash deposits were made from sources recorded in the books of account.

However, the Assessing Officer did not accept the explanation and observed that the documents produced by the assessee were prepared merely to justify the bank deposits by introducing cash through the cash book showing sales. Accordingly, the Assessing Officer treated the deposits as income from undisclosed sources and made an addition of Rs. 72,00,000.

The assessee challenged the addition before the CIT(A), Rohtak, who called for a remand report and finally sustained an addition of Rs. 25,05,000.

Aggrieved by the order of the CIT(A), the assessee filed an appeal before the Income Tax Appellate Tribunal, Delhi Bench. 

Issues Involved

  1. Whether the addition made by the Assessing Officer on account of cash deposits in the bank account was justified.
  2. Whether the addition could be sustained when the assessee maintained regular books of account and explained the source of cash deposits.

Petitioner’s Arguments (Assessee)

The assessee submitted that:

  • He was engaged in the business of dairy farming.
  • Regular books of account were maintained for the business.
  • The assessee provided month-wise cash summary and a cash flow statement explaining the availability of cash.
  • The deposits were made from cash already available in the books of account and business receipts.
  • The Assessing Officer rejected the explanation without pointing out any specific defect in the books or cash flow statements.

Respondent’s Arguments (Income Tax Department)

The Department supported the orders of the lower authorities and argued that:

  • The explanation provided by the assessee regarding the cash deposits was not satisfactory.
  • The documents submitted appeared to have been prepared merely to justify the bank deposits.
  • Therefore, the addition made by the Assessing Officer and partly sustained by the CIT(A) was justified.

Court Order / Findings

The Income Tax Appellate Tribunal (ITAT), Delhi Bench observed that:

  • The assessee was carrying on the business of dairy farming.
  • Books of account were regularly maintained.
  • The assessee furnished month-wise cash summary along with a cash flow statement.
  • The Assessing Officer rejected the explanation without pointing out any specific defect or error in the books of account.
  • The closing stock of cattle feed and livestock was also disbelieved without any cogent reasoning.

The Tribunal further noted that even in the remand report, the Assessing Officer admitted that amounts were withdrawn from the assessee’s bank account and later deposited again into the bank account.

Considering the facts, the Tribunal held that the assessee successfully discharged the initial burden to explain the source of cash deposits.

Accordingly, the Tribunal directed the Assessing Officer to delete the addition of Rs. 25,05,000 and allowed the appeal of the assessee. 

Important Clarification

The Tribunal clarified that:

  • Additions cannot be made merely on presumptions or suspicion.
  • When an assessee maintains regular books of account and explains the source of cash deposits, the Assessing Officer must identify specific defects or discrepancies before making an addition.
  • Without pointing out any error in the books of account, cash deposits cannot automatically be treated as undisclosed income.

Link to download the order -  https://itat.gov.in/public/files/upload/1703237014-8814%20del%202019.pdf 

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