Facts of the Case

Based on AIR information indicating cash deposits of ₹45,16,000 in the assessee’s savings bank account, reassessment proceedings were initiated under section 147 by issuing notice under section 148. The assessee had not originally filed a return as his income was below the taxable threshold.

During assessment proceedings, the assessee explained that the deposits represented sale proceeds collected from customers of M/s Krishi Yantra Udyog, a firm where he was employed and in which his wife was a partner. The amounts were deposited in his account for convenience and later transferred to the firm. Supporting documents including the partnership deed and audited financial statements of the firm were furnished.

The Assessing Officer rejected the explanation as an afterthought and added ₹17,41,000 as unexplained money under section 69A. The CIT(A), NFAC dismissed the appeal for non-prosecution and confirmed the addition.

Issues Involved

  1. Whether bank deposits representing employer’s business receipts handled by an employee can be treated as unexplained money in the employee’s hands.
  2. Whether reassessment based solely on AIR information without proper verification is sustainable.
  3. Whether dismissal of appeal for non-prosecution without examining facts is valid.

Petitioner’s Arguments

The assessee contended that he was merely an employee collecting cash from customers on behalf of his employer and depositing it temporarily into his bank account. The amounts were subsequently passed on to the firm through cash or banking channels.

It was argued that his income was below taxable limits and therefore he was not required to file a return. The explanation had been supported by the firm’s accounts and other documents, which were ignored by the Assessing Officer without pointing out any specific defects.

Respondent’s Arguments

The Revenue argued that the assessee failed to comply with notices under sections 133(6), 148, and 142(1), justifying the addition under section 69A. It was also contended that multiple opportunities were provided during appellate proceedings but not utilized.

Court Order / Findings (ITAT Allahabad)

The Tribunal observed that the assessee had provided a plausible explanation supported by documentary evidence, including the firm’s final accounts, demonstrating that the funds belonged to the employer and not to the assessee personally.

Importantly, the Assessing Officer had not identified any specific defect in these documents nor conducted further enquiry to verify the claim. Similarly, the CIT(A) dismissed the appeal without examining the merits despite being aware of the explanation.

The Tribunal held that rejection of the explanation without cogent reasons was unsustainable. However, to ensure fairness to both sides, the matter was restored to the Assessing Officer for fresh examination of the evidence and verification of the claim.

The assessee was directed to cooperate and produce necessary documentation during the reassessment proceedings. The appeal was allowed for statistical purposes.

Important Clarification

The Tribunal emphasized that funds belonging to third parties cannot be taxed as the assessee’s unexplained money without proper investigation into ownership and flow of funds. Additions under section 69A require clear evidence that the money actually belongs to the assessee.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771066753_SHYAMLODATTSHUKLAALLAHABADVS.ITOWARD23ALLAHABAD.pdf

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