The Chennai bench of the Income Tax Appellate Tribunal (ITAT) has upheld the decision of the Commissioner of Income Tax (Appeals) [CIT (A)] to delete additions made under section 69A of the Income Tax Act, as it accepted the explanation provided for cash investments.
The brief fact of the case is that the assessee company was in the business of development and construction of residential and commercial properties. The assessee has filed its return of income for AY 2017-18 on 27.12.2017 admitting total income of Rs.8,46,89,930/-. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee had made huge cash deposits into bank accounts during the demonetization period. On perusal of the bank account statement, it was found that the assessee has deposited cash to the tune of Rs.3.78 Crs. in the Axis Bank A/c.
The counsel for the assessee Y. Sridhar submitted that it was an undisputed fact that the application filed by the assessee before the ITSC was accepted and final order has been passed allowing capitalization of additional income for AYs 2014- 15 & 2015-16.
It was also an admitted fact that the assessee has offered additional income before the ITSC towards bogus accommodation entries of unsecured loans received from Kolkata based companies and such additional income offered is on account of survey conducted in the case of the assessee where the Department has ascertained bogus nature of unsecured loans taken from Kolkata based companies.
The assessee had also explained utilization of unaccounted income generated from business for utilization of unsecured loans and also received back cash from said companies on repayment of unsecured loans by cheque.
Although, the assessee received back in the year 2014, but the same has been used for temporary requirements of working capital and once the application filed by the assessee has been admitted by the ITSC, the assessee has introduced cash in the books of accounts of the assessee.
The ITAT bench considered the explanation of the assessee that it has cash in hand amounting to Rs.3.36 Crs. out of repayment of cash by Kolkata based companies and the same has been used for temporary requirement of working capital in the business of the assessee and finally cash in hand available with the assessee, was deposited into bank account immediately after demonetization, appears to be bona fide and reasonable explanation.
Further noted that the only objection of the AO was that once cash in hand was used for working capital requirements, then, the very same cash in hand is not available to the assessee to explain source for cash deposits into bank account is devoid of merits, because, working capital includes cash and cash equivalent, stock and receivables, but it does not include only stock and receivables.
Therefore, the tribunal viewed that, when the assessee explained that he was having cash in hand in the form of working capital of the business and the same has been introduced into bank account, once, the ITSC accepted application filed by the assessee on 19.10.2016 appeared to be bona fide and reasonable.
Once the assessee recorded cash in hand in their books of accounts on 19th October 2016, and this cash was available with the assessee prior to demonetization, the two-member bench comprising Durga Rao (Judicial member) and Majunatha (Accountant member) opined that the explanation provided by the assessee regarding the source of the cash deposits should be accepted. It was further stated that the CIT (A), after carefully considering the relevant facts, correctly eliminated the additions made towards cash deposits amounting to Rs. 3.36 crore under Section 69A of the Income Tax Act. Consequently
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