ITAT Deletes Rs 8.01 Lakh Addition on Cash Deposits, Accepts Rental Income Explanation

The Income Tax Appellate Tribunal (ITAT) Hyderabad Bench in a landmark order, deleted the addition of Rs 8,01,000 made by the income tax department on account of cash deposits in the bank account of a taxpayer.

This is the case of Mr Krishna Reddy Pagidi, Hyderabad, for Assessment Year 2021-22. During the scrutiny assessment, the AO noticed that the taxpayer deposited Rs. 20,01,000 in cash in his bank account. The taxpayer claimed Rs 12 lakh was received from parents on account of family expenses, and the remaining Rs 8,01,000 was rental income received from tenants in respect of a commercial property owned jointly by them. The AO accepted the explanation regarding the money received from parents but rejected the claim relating to rental income because rent agreements and rent receipts were not produced.

Consequently, the AO treated Rs 8,01,000 as unexplained cash credit u/s 68 of the Income Tax Act and added it to the income of the taxpayer. This addition was later confirmed by the CIT(A).

The taxpayer, before the ITAT, submitted that he and his brother jointly owned a commercial property in Rangareddy District. Several small businesses were operating from the premises – a medical shop, salon, kirana store, tailoring shop and mobile shop. The taxpayer’s brother was living abroad, and the taxpayer was collecting rent on behalf of both owners and depositing the cash into his bank account.

The taxpayer also submitted documents showing that the property was jointly held, the names of the tenants and their PAN numbers and proof of declaration of their respective rental income by the co-owners in their income tax returns. The Tribunal observed that these facts were not disputed by the department.

The ITAT observed that the revenue had not brought on record any evidence to show that the property was not given on rent, the tenants were non-existent, or the rental income disclosed by the taxpayer was not correct. The Tribunal further held that AO did not make any verification or enquiry in spite of having the details of the tenant and PAN.

The Bench raised up the department’s approach and said that the AO had accepted the rental income declared in the return of the taxpayer under the head ‘Income from House Property’ and at the same time treated the corresponding cash deposits as unexplained. The Tribunal held that such a contradictory stand could not be sustained.

ITAT stated, “The rejection of such an explanation of the assessee merely because formal rent agreements or rent receipts were not produced, without carrying out any further enquiry or placing on record any adverse material, is based on suspicion and surmises and cannot constitute a valid basis for sustaining the addition.”

The Tribunal concluded that the taxpayer’s explanation was reasonable and supported by the available facts. It therefore directed the AO to delete the addition of Rs 8,01,000.

Accordingly, the appeal filed by the taxpayer was allowed, and full relief was granted.