Cash Credit Principles cannot be extended to Unexplained Investments: Telangana High Court

The Telangana High Court has ruled that cash credit rules do not apply to unexplained investments.

Kishan Kothwal, the appellant, claimed that during the demonetization era, he only deposited Rs.10 lakhs and not Rs.13,16,304.00. A review of the bank account statement revealed a cash deposit of Rs.10 lakhs on November 12, 2016, as well as further deposits in tranches. According to the assessee, the cash deposit of Rs.10 lakhs was made from 1/3rd salary savings from his salary since 2006, as well as 1/3rd savings from his son’s salary since 2011. The Assessing Officer did not accept this answer because it was difficult to comprehend that such savings had been maintained at home for so long. A additional sum of Rs.2.75 lakhs was also discovered to be unaccounted for. As a result, the Assessing Officer added Rs.12,75,000.00 to the assessee’s returned income as unexplained bank account deposits, treating it as income under Section 69A of the Act.

The Appellate Authority recorded the assessee’s testimony under Section 131 of the Act in the presence of his authorised agent in an appeal before the Commissioner of Income Tax (Appeals)-7, Hyderabad (for short, ‘CIT (A)’ hereinafter). It was noticed that the assessee is a State Government employee who was supposed to notify the State Government if he made any speculative investments. The first Appellate Authority accepted the Assessing Officer’s addition of Rs.10 lakhs while awarding relief to the extent of Rs.2.75 lakhs, which was alleged to be due to withdrawal from his GPF.

The division bench of Justice Ujjal Bhuyan and Justice P.Madhavi Devi has held that the parameters for making additions under Section 68 of the Act and Section 69A of the Act, while appearing to be similar, are not; as a result, cash credit additions under Section 68 of the Act would be placed on a different pedestal. The criteria that govern monetary credit under Section 68 of the Act do not apply to unexplained investments under Section 69A.

 To Read Judgement Download PDF Given Below: