The ITAT sustained the addition made by the ITO to the extent of Rs. 20,50,000, reducing it from the original Rs. 23,00,000 by acknowledging the availability of Rs. 2,50,000 as legitimate cash in hand. This means that the ITAT found a portion of the cash deposit to be justified but still held a significant portion of it as unexplained money, subject to taxation under the relevant sections of the Income Tax Act.
To provide a detailed analysis of the case “Nanakchand Agrawal L/H of Kalawati Agrawal versus The Income Tax Officer Ward Dhamtari (C.G.), ITA No. 180/RPR/2023,” dated November 1, 2023, let’s break down the key aspects:
Case Overview
- Parties Involved: Nanakchand Agrawal, legal heir of Kalawati Agrawal, and the Income Tax Officer (ITO), Ward Dhamtari.
- Case Number: ITA No. 180/RPR/2023.
- Date of Judgment: November 1, 2023.
Background
- Context: The case revolves around a dispute regarding a large cash deposit made during the demonetization period in India.
- Demonetization Period: A key event in India where old currency notes of Rs. 500 and Rs. 1000 were rendered invalid.
Facts of the Case
- Cash Deposit: On December 1, 2016, Kalawati Agrawal deposited Rs. 23 lakhs in old notes in her bank account.
- Assessee’s Explanation: The money was claimed to be sourced from cash withdrawals made in the Financial Year 2014-15.
Initial Proceedings
- Income Tax Department’s Action: The ITO issued a notice questioning the nature and source of the deposit.
- Assessee’s Response: The deposit was from cash in hand, totaling Rs. 23,45,301 as of March 31, 2016.
Income Tax Officer’s Analysis
- Inconsistencies Noted: The ITO found discrepancies in the assessee’s tax returns over different years.
- Change in Income Declaration: The assessee had shown part of the interest income as business income in the year of demonetization, differing from previous years.
Assessment Officer’s Decision
- Conclusion of Unexplained Money: The ITO considered the cash deposit as unexplained money under Section 69A of the Income Tax Act.
- Addition to Income: An addition of Rs. 23 lakhs was made to the assessee’s total income for the year.
Appeals Process
- Appeal to CIT(Appeals): The decision was appealed to the Commissioner of Income Tax (Appeals), who upheld the ITO’s decision.
- Contradiction in Submissions: The CIT(Appeals) noted contradictions in the assessee’s submissions regarding the interest income.
Income Tax Appellate Tribunal (ITAT) Ruling
- Partial Acceptance of Appeal: The ITAT partially accepted the assessee’s appeal.
- Adjustment in Addition: The ITAT sustained the addition to the extent of Rs. 20,50,000, reducing it from the original Rs. 23,00,000.
ITAT’s Observations
- Question on Cash Availability: ITAT questioned the availability of the entire cash amount for deposit.
- Acceptance of Some Legitimacy: Acknowledged a portion (Rs. 2,50,000) as legitimate cash in hand.
Conclusion and Implications
- Final Judgment: ITAT upheld most of the ITO’s assessment but acknowledged a small portion as legitimate.
- Implication for Tax Compliance: The case underscores the importance of maintaining clear records and providing consistent explanations for cash transactions, especially during periods of heightened scrutiny like demonetization.
Broader Perspective
- This case is significant as it reflects on the scrutiny of cash transactions during demonetization and the need for taxpayers to substantiate the source of their funds to avoid legal challenges and tax liabilities.
