ITAT restores Income Tax addition on cash introduced in capital which was bogus

The Tribunal allowed the Income Tax Department’s appeal, holding that the CIT(A) wrongly deleted the addition under Section 68, as the assessee failed to satisfactorily explain the source of cash credits.

The present appeal has been filed by the Income Tax Officer against Late Shri Raghbir Singh, challenging the order dated February 19, 2020, passed by CIT(A) Delhi.

Background of the case

The assessee had originally filed his income tax return on March 31, 2010, declaring a total income of Rs. 21,14,570. The return was processed under section 143(1) of the act, and the case was not selected for scrutiny at that time.

Later, in March 2016, tax authorities received information from the Investigation Wing in Mumbai through the Ludhiana office. During an inquiry into another matter, the taxpayer had submitted a copy of his capital account in a firm. Based on this information, the Assessing Officer formed a belief that income had escaped assessment and sought approval to reopen the case under the law. After receiving the required sanction, a notice was issued to the taxpayer.

During the reassessment proceedings, several notices were issued, and replies were filed by the taxpayer and his representatives. After completing the proceedings, the AO passed an order on December 29, 2016, making an addition of Rs. 1,97,83,000 to the taxpayer’s income. The addition was made under Section 68 of the Income Tax Act on account of unexplained cash credits.

The taxpayer challenged this order before the CIT(A), which allowed the appeal and deleted the entire addition.

Being aggrieved by the CIT(A) decision, the Income Tax Department then filed an appeal before the Tribunal. The Department argued that the CIT(A) had wrongly deleted the addition, despite the fact that the assessee had introduced cash in his capital account, which was proved bogus.

Tribunal’s Decision

At the time of the hearing before the Tribunal, no one appeared on behalf of the taxpayer. After considering all the merits, the Tribunal concluded that the CIT(A) had deleted the addition without properly considering the fact that the taxpayer failed to provide sufficient evidence regarding the source of the investment.

The Tribunal found the order of the CIT(A) to be unjustified and set it aside. As a result, the appeal filed by the Income Tax Department was allowed.