No Proof, No Tax: ITAT Quashes 2.79 Cr Additions Based on Assumptions

In this case, the assessee underwent a scrutiny assessment for AY 2017-18, resulting in the Assessing Officer (AO) adding a total of Rs. 2.79 crores. These included Rs. 42.01 lakh as unexplained cash credits by disbelieving 35% of cash deposits despite the assessee’s explanation of sale proceeds; Rs. 1.10 crore, being 20% of sundry debtors of Rs. 5.53 crore, treating them as bogus sales without pinpointing any specific defects; and Rs. 1.46 crore as unexplained unsecured loans under Section 68, citing unverifiable identity and creditworthiness.

CIT (A) Held: The CIT(A), National Faceless Assessment Centre, deleted all additions, holding them to be presumptive, baseless, and made without a show cause notice. The Revenue has challenged the decision of CIT (A) before the ITAT.

Issue Raised before ITAT: Were additions made of the amount Rs. 2.79 crores by the AO for unexplained cash credits, bogus debtors, and unverifiable loans valid when based on presumptions without a show cause notice or concrete evidence?

ITAT’s Decision: The Tribunal denied the appeal filed by the Revenue, which proved that the AO’s additions were merely conjectural and devoid of hard proof, Portions of debtor balances and cash deposits were deemed unexplained, without specific findings or supporting documentation. Furthermore, the principle of natural justice was breached because no show-cause notice was given before these additions were made.

The Tribunal found that the disallowances made at flat rates of 35% and 20% were arbitrary and lacked support from evidence of bogus or fraudulent entries. It reiterated that mere suspicion cannot take the place of actual proof, referring to Prashant Pratap Ahir v. ACIT and relevant Supreme Court judgments. Consequently, the ITAT upheld the CIT(A)’s order to delete the additions.

To Read Full Judgment, Click On PDF Given Below