Facts of the Case

During scrutiny assessment proceedings, the Assessing Officer noticed substantial cash deposits in the assessee’s bank account. The Assessing Officer treated these deposits as unexplained cash credits under Section 68 on the ground that the assessee had failed to satisfactorily explain the source.

The assessee contended that the deposits represented business receipts and withdrawals redeposited in the ordinary course of business.

The additions were confirmed by the Commissioner of Income Tax (Appeals), prompting the assessee to file an appeal before the Tribunal.

 Issues Involved

  1. Whether cash deposits in bank accounts constituted unexplained income under Section 68.
  2. Whether the explanation that deposits arose from business receipts was acceptable.
  3. Whether the lower authorities properly appreciated the evidence on record.

Petitioner’s (Assessee’s) Arguments

  • The deposits were part of regular business transactions.
  • Cash withdrawals and redeposits were duly reflected in records.
  • No independent evidence of undisclosed income was found.
  • Therefore, treating the entire deposits as unexplained was arbitrary.

Respondent’s (Revenue’s) Arguments

  • The assessee failed to produce sufficient documentary proof to establish the exact source of each deposit.
  • Cash transactions lacked verifiable trail.
  • Hence, addition under Section 68 was justified.

Court Order / Findings (ITAT)

  • Cash deposits were reasonably explained as arising from business activities and cash flow movements.
  • The Assessing Officer had not brought on record material demonstrating that the deposits represented undisclosed income.
  • Mere suspicion or lack of exhaustive documentation cannot justify addition when plausible explanation exists.

Important Clarification by the Tribunal

  • Section 68 applies only when the nature and source of credit remain unexplained.
  • Where deposits are linked to business receipts or explained cash flow, addition cannot be made merely on suspicion.
  • Tax authorities must consider the overall financial context and evidence.
  • Banking transactions alone do not establish undisclosed income.

Link to download the order –

https://itat.gov.in/public/files/upload/1652253461-319A2018%20J.P.%20Yadav.pdf

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