ITAT Surat Rules in Favour of Assessee on Cash Deposits and Sundry Creditors
The Surat Bench of the Income Tax Appellate Tribunal (ITAT) in the case of Priya Enterprise Vs ITO has delivered an important ruling on additions made towards cash deposits and sundry creditors, where the assessee’s books of account were neither rejected nor found unreliable. The Tribunal categorically held that once the regular books are accepted and no defects are pointed out, additions for unexplained money or bogus creditors cannot be sustained merely on suspicion or presumptions.
This decision is particularly relevant for assessees facing additions on account of cash deposits and high sundry creditor balances, despite maintaining audited books of account and furnishing explanations for the transactions.
Background of the Appeal
The assessee, Priya Enterprise, filed an appeal before the ITAT Surat against the order passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi under Section 250 of the Income Tax Act 1961, for the Assessment Year 2016-17. The core dispute pertained to:
- Addition of
Rs. 15,12,000/-treated as unexplained money in respect of cash deposits made in the HDFC Bank account, and - Addition on account of sundry creditors on the ground that the level of creditors was disproportionately high compared to total purchases.
The Ld. CIT(A) had upheld both additions made by the Assessing Officer (AO), leading the assessee to approach the Tribunal.
Issue 1: Addition Relating to Cash Deposits in HDFC Bank
Assessment Proceedings and AO’s View
- The AO examined cash deposits in the assessee’s HDFC Bank account totaling
Rs. 15,12,000/-. - In the absence of what the AO considered adequate documentary evidence at the assessment stage, the entire amount was treated as unexplained money under the provisions of the Act.
- The AO concluded that the assessee had failed to substantiate the nature and source of these cash deposits and therefore proceeded to make an addition of
Rs. 15,12,000/-to the total income.
Findings of Ld. CIT(A)
The assessee challenged this addition before the Ld. CIT(A). However, the Ld. CIT(A) confirmed the AO’s action with the observation that:
- The assessee did not submit proper supporting documentary evidence either during assessment or in appellate proceedings, and
- Consequently, the explanation regarding the cash deposits remained unsubstantiated in the opinion of the appellate authority.
Explanation Submitted Before the ITAT
When the matter reached the ITAT, the assessee produced a detailed reconciliation statement (in the form of a chart) setting out the source of each cash deposit. This chart, placed at Page 69 of the paper book, clarified that:
- Part of the cash deposits came from capital introduced by partners.
- Another portion represented amounts received from business creditors.
- A further part was sourced from earlier cash withdrawals from the bank and cash balances already available.
Crucially: