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July 16, 2022

Cash deposits from the Shroff business cannot be considered undisclosed income

by CA Shivam Jaiswal in Income Tax

Cash deposits from the Shroff business cannot be considered undisclosed income

Facts and issues of the case

The Ld, CIT(A) has erred in law and/or on facts In deleting the addition made on account of unexplained cash deposits of Rs.224,53,23,993/-.The CIT(A) ought to have upheld the order of the A.O. It is, therefore, prayed that the order of the CIT (A) be set aside and that of the A.O, be restored to the above extent. As is evident from the above, the solitary issue in the present appeal relates to addition made to the income of the assessee on account of unexplained cash deposits of Rs. 224.53,23,993/-.

At the outset itself, Ld. Counsel for the assessee pointed out that this issue of huge cash deposits in the bank account of the assessee came up for consideration and was examined in various other assessment years in the case of the assessee and the addition made on account of the same was deleted all along. He pointed out that for A.Y. 2008-09 the assessee’s case was reopened u/s. 148 for identical reason and the assessee had approached the Hon’ble Gujarat High Court with a writ petition against the reopening which was allowed by the Hon’ble Gujarat High Court vide its order dated 28.03.2016 in SCA No. 694 of 2015 quashing the reopening, noting the fact that the assessee was engaged in the business of Shroff and cheque discounting, charging only commission thereon. Ld. Counsel for the assessee pointed out that identical addition made in the A.Y. 2006-07 in the case of the assessee was also deleted though on the technical ground that the reopening was not in accordance with law, after considering the judgment of the Hon’ble Gujarat High Court for A.Y. 2008-09 as above. He therefore stated that the issue was squarely covered in favour of the assessee.

The facts relevant to the case are that for the impugned assessment year, the assessee had shown income of Rs. 28,790/-. The assessment order notes that assessee is engaged in Shroff business and derives income from commission. The A.O. had information that there was cash deposit of Rs. 224.53,23,993/- during the year in 16 bank accounts of the assessee. Accordingly the assessee was asked to explain the same, in response to which submissions were filed by the assessee stating that being in the business of Shroff, the money deposited represented that collected from customers or on behalf of customers and the said cash deposit did not belong to the assessee. The A.O. did not find the explanation of the assessee satisfactory stating that no proof was filed by the assessee that it got only commission on cash deposit, nor any details of customers nor their confirmations owning these deposits were filed. Accordingly he added the entire cash deposit of Rs. 224.53,23,993/- to the income of the assessee as unexplained u/s. 68 of the Act.

Observation by the court

The matter was carried in appeal before the ld. CIT(A) where the assessee pleaded that identical addition sought to be made in assessment year 2008-09 by way of reopening the case of the assessee u/s. 147 of the Act was quashed by the High Court. And further that reopening for the impugned year also, subsequently done by the A.O. with respect to cash deposits in other bank accounts of the assessee, was dropped by the A.O. following the judgment of the Hon’ble Gujarat High Court in the case of the assessee itself. The relevant findings of the Ld. CIT(A) in this regard at Para 8 to 11 of the order is as under:

Court had gone through the order of the ld. CIT(A) and find no infirmity in the same. The ld. CIT(A) has deleted the addition on account of cash deposits of Rs. 224.53,23,993/-. in the bank account of the assessee, noting that identical issue had come up before the Hon’ble Gujarat High Court in the case of the assessee itself in a writ petition filed by the assessee against reopening of the case for A.Y. 2008-09 and the Hon’ble

High Court had noted the fact that the assessee being in the business of Shroff, the cash deposits related to its business and did not represent any unaccounted income of the assessee. Ld. CIT(A), we find also took note of the fact that reopening resorted to by the A.O. for the impugned year on account of cash deposits in some other bank account ,subsequent to passing of the assessment order in the impugned case, was dropped by him taking note of the decision of the Hon’ble Gujarat High Court.

Therefore, it is clear that the issue of cash deposits in the bank account of the assessee has been examined exhaustively at various levels and no merit has been found in the contention of the Revenue that it represented any undisclosed income of the assessee, noting the fact that the assessee was into business of Shroff and earned only commission on the monetary transactions carried out by it; the cash deposits representing money belonging to his customers. Even the AO in reassessment proceedings for the impugned year was convinced that the cash deposits in another bank account of the assessee related to the assessees money lending business. Therefore there is no reason to uphold the original assessment order of the same AO holding them to be unexplained when subsequently he was convinced that the assessee being in money lending business the cash deposits related to the same.In view of the above, Court seen no reason to interfere in the order of the Ld. CIT(A) deleting the addition made of cash deposits amounting to Rs. 224.53,23,993/-.. The grounds of the appeal raised by the revenue is dismissed.

  Conclusion

Appeal filed by the Revenue is dismissed by the court.

DCIT-Vs-Sidhanath-Enterprise-8-A-ITAT-Rajkot

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