ITAT Ahmedabad Deletes Rs. 20.23 Lakh Cash Deposit Addition, Rejects Unexplained Investment Theory

ITAT Ahmedabad Deletes Rs. 20.23 Lakh Cash Deposit Addition, Rejects Unexplained Investment Theory

The appeal had been filed by a taxpayer named Babubhai Ramanbhai Patel, residing at Jay Mahadev Society, Randheja, Gandhinagar. Through the appeal, the taxpayer challenged an order passed by the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre [CIT(A)/NFAC] on July 11, 2024, for the assessment year 2012-13.

The taxpayer runs a business of kirana retail in his village, Randheja, Gandhinagar. The taxpayer did not file his income tax return (ITR) for the assessment year 2012-13. The tax department received information that the assessee had deposited cash of Rs. 20.23 lakh in his savings bank account with SBI during the relevant financial year. Based on the information, the department issued a notice to the taxpayer under section 148 of the Act, as well as other notices issued under sections 142(1) and 133(6) of the Act. However, the taxpayer did not respond to any of these notices. In conclusion, the tax department issued a final ex parte order treating the cash deposits as unexplained investment under section 69 of the Act.

When the taxpayer filed an appeal before CIT(A). During proceedings, the taxpayer submitted additional evidence, like trading account, profit and loss account, balance sheet, cash book, sales register, bank statements, etc., and stated that the deposits were fully accounted for and the tax department was wrong in treating that amount as an unexplained investment under section 69 of the Act.

The taxpayer argued that these deposits came from his kirana shop sales and that he was eligible for Section 44AD (presumptive taxation). The CIT(A), however, rejected the claim, saying the taxpayer failed to prove that he actually ran a business in the relevant financial year, especially since some documents (like GST registration) related to later years.

The aggrieved taxpayer then filed an appeal before the ITAT Ahmedabad. The Tribunal observed that the bank deposits of the taxpayer were aligned with the daily sales demonstrated in the documents submitted by the taxpayer. Since the department did not have any documents to prove that the deposit was from some other source, the tribunal held that, for a small rural grocery shop, the absence of bills or VAT returns alone cannot be a reason to dismiss the explanation, especially when the sales records and bank entries follow a normal business pattern.

Therefore, in the end, the tribunal held that the cash deposits were from business receipts only, not unexplained investments. It deleted the entire addition of Rs. 20.23 lakh and allowed the assessee’s appeal.