Cash Deposits Cannot Be Treated as Unexplained Merely Due to Use of Old PAN: ITAT

The ITAT Delhi, in a recent case, held in favour of a charitable society, holding that the tax authorities cannot treat cash deposits as unexplained merely based on the reason that they were made in a bank account linked to an old PAN. In conclusion, the tribunal quashed the impugned addition.

The assessee, Rajpal Singh Memorial Education Society, is a charitable society running an educational institute. The assessee was established as an AOP (Association of Persons), for which it possessed a PAN AABAR 6604 F. Later, the assessee sought another PAN AACTR 8770 J. Based on the newly obtained PAN, the assessee filed its Income Tax Return (ITR) for the Assessment Year 2014-15, claiming exemption under section 12AA of the Act for being a charitable society.

The issue arose when the bank in which the assessee was maintaining its account did not update the newly obtained PAN in its records, because of which all the fees submitted by the students were being deposited in the bank account under the old PAN. Since all the fees were deposited under the old PAN in the bank account of the assessee, it did not furnish any ITR under its old PAN.

As a result, the tax authorities reopened the assessee’s case under Section 148 of the Act on the grounds of unexplained cash deposits of Rs 1.85 crore. The aggrieved assessee filed an appeal before the ITAT Delhi, explaining the entire situation. Further submitted that the fees received by it were properly recorded in the books of account.

When the tribunal analysed the case, it noted that holding two PANs simultaneously is illegal as per the law. Such non-compliance is liable for a penalty under Section 272B of the Income Tax Act. However, this was not the issue in the present case; instead, the key issue was whether the cash deposits were genuinely unexplained.

The Tribunal observed that the tax authorities did not find any defects in the society’s books and failed to disprove that the deposits were fee receipts. Further noted that merely depositing funds in a bank account linked to an old PAN does not make them unexplained if they are properly accounted for. Accordingly, the tribunal directed the tax authorities to delete the entire impugned addition and allowed the appeal.