Unexplained Cash Credit In Bank Account Would Be Treated As Income : Chhattisgarh High Court

The Chhattisgarh High Court recently upheld an ex-parte assessment under Section 144 of the Income Tax Act, 1961, against an assessee who failed to participate in assessment proceedings or explain the source of a cash deposit of ₹11,44,070 in his bank account.

The bench comprising Justices Sanjay K Agrawal and Amitendra Kishore Prasad noted that under Sections 68 and 69A if an assessee does not provide a satisfactory explanation for unexplained credits, those amounts can be treated as taxable income. Despite multiple notices from the Assessing Officer, the appellant did not respond or appear before the authorities, leading to an ex-parte assessment order being issued.

The Assessing Officer, Commissioner of Income Tax (Appeals), and Income Tax Appellate Tribunal (ITAT) all ruled against the appellant, stating that he failed to substantiate his claims with credible documentary evidence. The appellant challenged the ITAT's decision, arguing that he was not obligated to maintain books of account as per Section 44AA of the IT Act and provided some explanations related to recoveries made from clients of a third party.

However, the court affirmed the ITAT's ruling, emphasizing that the appellant's inability to explain the source of the cash deposit warranted a presumption of it being income.

“A careful perusal of the aforesaid provision would show that where any sum is found credited in the books of an assessee maintained for any previous year, same may be charged to income-tax as the income of the assessee of that previous year, and if the explanation offered by the assessee about the nature and source of sums found credited in the books is not satisfactory, in such cases, there is, prima facie, evidence against the assessee, viz., the receipt of money, and then the burden is on the assessee to rebut the same, and if he fails to rebut, it can be held against the assessee that it was a receipt of an income nature.”, the judgment authored by Justice Agrawal observed.

The High Court dismissed the appellant's claim that a cash deposit in his bank account belonged to a third party for whom he acted as a collection agent. The court noted that the appellant should have called the third party to explain the deposit. Citing the Supreme Court's ruling in Commissioner of Income Tax, Salem v. K. Chinnathamban (2007), the court emphasized that when deposits are in a third party's name, that person must be called to explain the source of the funds. The responsibility for proving the source of the deposit lies primarily with the individual whose name appears on the account.

Additionally, the court referenced Vijay Kumar Talwar vs. Commissioner of Income Tax, Delhi (2011), where the Supreme Court supported previous findings that unexplained cash credits could be considered taxable income due to the assessee's failure to provide evidence to counter the presumption under Section 68 of the Income Tax Act.

“Reverting to the facts of the present case in the light of the aforesaid principles of law laid down by their Lordships of the Supreme Court in the aforementioned decisions, it is quite vivid that in the instant case, despite number of notices having been issued by the Assessing Officer to explain and to furnish the nature and source of the cash deposits of 11,44,070/- in the bank account of the ₹ appellant herein / assessee, the appellant chose not to appear and did not furnish any explanation either before the Assessing Officer or before the appellate authority i.e. the CIT (Appeals), NFAC, however, the appellant has furnished some explanation in shape of additional documents holding that it is the amount of M/s. Shriram Transport Finance Company Limited stating that the amount of ₹ 11,44,070/- was collected by him (appellant/assessee) as a recovery agent from its borrowers who were located in naxal affected areas and deposited in his account. However, this explanation, for the reasons mentioned in the shape of affidavit, has not been found to be the reasonable explanation and the ITAT has rightly come to the conclusion that the assessee has failed to substantiate the nature and source of the cash deposits in his bank account.”, the court added.

“In that view of the matter, in our considered opinion, the Assessing Officer; the CIT (Appeals), NFAC; and the ITAT, all, have concurrently and correctly concluded that the assessee did not produce any evidence to rebut the presumption drawn under Section 68 read with Section 69A of the IT Act and in light of the decision of the Supreme Court in Vijay Kumar Talwar (supra), we are of the considered opinion that the finding of the ITAT is the correct finding of fact based on record and the appellant has failed to demonstrate any substantial question of law in this appeal and as such, no substantial question of law arises from the order of the ITAT requiring formulation for consideration.”, the court held.

Accordingly, the appeal was dismissed.

Appearance:

For Appellant: Mr. Siddharth Dubey, Advocate.

For Respondent: Mr. Amit Chaudhari, Advocate.

Case Title: Shri Dinesh Singh Chouhan vs. The Income Tax Officer, Ward Jagdalpur

Case No.: TAXC No. 179 of 2024

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