Entire credit entries appearing in bank without considering debit entries cannot be taxed as Cash Credits: ITAT

The Tribunal upheld the reopening of the assessment but remanded the matter to the AO for fresh verification due to possible duplication in additions.

The present appeal has been filed by Money Assurance Services against the Income Tax Officer, challenging the order dated 21/11/2024 passed by CIT(A) for AY 2014-15.

Background of the Case

The assessee failed to file its income tax return for AY 2014-15. The case was reopened under Section 147 of the Income Tax Act following information that the firm had received interest income of Rs. 1,44,64,000. During assessment proceedings, the assessee did not respond to notices. The AO obtained bank statements and found total credits of Rs 34,148,620 in an HDFC Bank account, along with cash deposits of Rs 50,00,000. It was also alleged that the assessee received accommodation entries of Rs. 2,35,50,000. The AO treated the total amount of Rs. 7,71,62,620 as unexplained income and completed the assessment under Sections 147 read with 144.

The assessee filed an appeal before the CIT(A). However, it dismissed the appeal due to non-compliance by the assessee.

Being aggrieved by the CIT(A) decision, the assessee then filed an appeal before the Tribunal, challenging the reopening of the assessment and the various additions made by the AO.

Tribunal’s Decision

The Tribunal rejected the legal grounds challenging the reopening of the assessment, noting that the assessee had neither filed a return nor responded to statutory notices.

The Tribunal observed that there appeared to be a possibility of duplication in the additions. It was further noted that interest income and accommodation entries were received through bank accounts, and at the same time, the AO had added the entire bank credits separately. This raised the possibility that certain amounts may have been counted twice.

The Tribunal further held that adding the entire bank credits without considering corresponding debit entries was not justified. The tribunal directed the AO to re-examine the matter, verify whether there was duplication in the additions, and obtain statements of other bank accounts.

As a result, the appeal of the assessee was allowed for statistical purposes.