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Deposit of cash in the bank & Loss of Memory due to Old age & Surgery: Validity of Addition u/s 68
An interesting case came before Bangalore bench of ITAT in Smt. Anasuya Basi Reddy Vs ITO wherein Assessing Officer had made addition of Rs. 50,000/- as unexplained cash credits in the bank account of the assessee besides two other additions. Deposit of Rs. 50,000/- of Rs. 50,000/- in Karnataka Bank saving bank account on 07.04.2007 was done by way of cash only.
While calling for information from the assessee during assessment proceeding, assessee submitted that the assessee was unable to recollect the source of cash deposit due to old age and the recent surgery she had undertaken which had resulted into loss of memory.
Assessee further submitted that the cash deposit of Rs. 50,000/- made by the assessee may be explained as part of past savings and other receipts. AO rejected the claim of the Assessee and made an addition as the assessee has not given any details with regard to the cash deposits of Rs.50,000 on 07.04.2007. CIT (A) confirmed the order of the AO and assessee preferred an appeal before ITAT.
The observation in ITAT Bangalore in the case of Smt. Anasuya Basi Reddy Vs ITO [Appeal Number: ITA No.193/Bang/2020, Order Dated 02/03/2021]is worth reading and so reproduced fully as under:
Here is a complete text of the interesting judgment before Bangalore ITAT.
Smt. Anasuya Basi Reddy Vs ITO [Appeal Number: ITA No.193/Bang/2020, Order Dated 02/03/2021)
- This appeal at the instance of the assessee is directed against CIT(A)’s order dated 14.11.2019. The relevant assessment year is 2008-2009.
- There is a delay of 5 days in filing this appeal. The assessee has filed petition for condonation of delay. I have perused the reasons stated in the application for condonation of delay and I am of the view that there is sufficient cause in filing this appeal belatedly by 5 days. Hence, I condone the delay of 5 days and proceeded to dispose of the same on merits.
- Three additions are challenged in this appeal, viz.,
(i) Unexplained investment u/s 69 of the I.T. Act amounting to Rs.17,10,000;
(ii) Unexplained investment u/s 69 of the I.T. Act amounting to Rs.5,00,000;
(iii) Addition u/s 68 of the I.T. Act amounting to Rs. 50,000.
I shall adjudicate each of the above additions as under:
Unexplained investment u/s 69 of the I.T. Act amounting to Rs.17,10,000.
- The Assessing Officer in the order dated 28.09.2010 passed u/s 143(3) of the I.T. Act, had made an addition of Rs.17,10,000 as unexplained investment u/s 69 of the I.T.Act. The relevant observation of the A.O. in making the above addition reads as follow:-
“4. On verification of the Balance Sheet, the assessee has shown Advance paid towards purchase of land to Shri. H.T. Narayana Reddy of Rs.17,10,000/- and out of this amount an amount of Rs.4,00,000/- is stated to have received during the year and the net balance due from Shri H.T.Narayana Reddy is shown at Rs.13,10,000/-. The assessee’s representative has not explained in his letter dated 17.08.2010 anything about the details of investment and the details and to which bank account the amount of Rs.4,00,000/- stated to have received is credited. In the letter dated 17.08.2010 the assessee’s authorized representative has stated in para 5 as under:
“….the assessee is a Senior Citizen and solely dependent on the interest received by her from Fixed deposit in the Karnataka Bank Ltd., She does not have any dependents and she is looked after by Ashram inmates in Swamy Vivekananda Ashram, Hoody Village, Bangalore.”
By the above words the assessee’s representative appear to impress on the assessing officer to show mercy on the assessee by his above explanation, without explaining the following basic questions.
- How the amount of Rs.17,10,000/- was earned by the assessee?
- When this amount was earned by the assessee?
- How the amount has come to the credit of the assessee?
- What is the agreement between the assessee and Shri H.T.Narayana Reddy to this extent?
- What is the name, address, PAN No., Income tax details of Shri H.T.Narayana Reddy?
- How the amount of Rs.4,00,000/- is received during the year by cash or by cheque?
- As the assessee has stated that the only bank account is Karnataka bank and since all the entries in Karnataka Bank stands verified, then to which bank this amount of Rs.4,00,000/- is credited?
- The reasons for lending the amount of Rs.17,10,000/-without any interest?
The above clarification was sought from the assessee’s representative during the course of scrutiny hearing and till date the above questions was neither answered in the explanation dt.17.8.2010 nor answered till date. Since the assessee has furnished inadequate and inaccurate particulars penalty u/s 271(1)(c) is initiated. In the absence of the assessee’s explanation, I hold that the assessee has no explanation to the investment of amount of Rs.17,10,000/-shown as amount given to Shri H.T.Narayana Reddy, and the assessee offers no explanation about the nature and source of investments, the same is brought to tax as unexplained investment u/s 69 of the Income Tax Act, 1961.”
4.1 Aggrieved, the assessee preferred an appeal to the first appellate authority. The CIT(A) confirmed the view taken by the Assessing Officer.
4.2 Aggrieved, the assessee has filed this appeal before the Tribunal. The learned AR has filed a paper book comprising of 59 pages enclosing therein copies of the written submissions filed before the CIT(A), the return of income for assessment year 2008-2009, copy of sale deed dated 25.06.2003, copy of sale deed dated 25.08.2004, return of income and statement of computation of income for assessment years 2005-2006, 20062007 and 2007-2008, Affidavit filed by Shri H.T.Narayana Reddy, etc. The learned AR reiterated the submissions made before the Income Tax Authorities.
4.3 The learned Standing Counsel, on the other hand, strongly supported the assessment order and the CIT(A)’s findings.
4.4 I have heard rival submissions and perused the material on record. From the plain reading of section 69 of the I.T. Act, it is clear that investments which are made in the financial year immediately preceding the assessment year can only be subjected to addition under the said section. In other words, the investments made in any other assessment year cannot be brought to tax in the relevant assessment year. From the assessment order and on material on record, it is clear that the investments / advances of Rs.17,10,000 was made by the assessee in the financial year 2005-2006, i.e., assessment year 2006-2007. Therefore, investments made in assessment year 2006-2007 cannot be brought tax u/s 69 of the I.T. Act in the relevant assessment year, namely, A.Y. 2008-2009. For this reason alone, the A.O. was not justified in law in making an addition by invoking the provisions of section 69 of the I.T. Act.
4.4.1 The amount of Rs.13,10,000 (i.e. Rs.17,10,000 – Rs.4,00,000) shown as “advance paid towards purchase of land”, in the balance sheet is the advance amount which was given to one Shri H.T. Narayana Reddy in the financial year 2005-2006 for the purpose of purchasing land. Since the sale did not go through, out of an amount of Rs. 17,10,000, a sum of Rs.4,00,000 was repaid to the assessee by Shri H.T.Narayana Reddy in the relevant assessment year and balance amount was given to the assessee by Shri H.T. Narayana Reddy in the assessment year 2011-2012. This fact is borne out from the affidavit submitted by Shri H.T. Narayana Reddy, which reads as follow:-
“I, H.T.Narayana Reddy aged about 70 years, sone of Sri.Dodda Thayappa Reddy, residing at #231, Hoodi Village, Mahadevapura Post, Bangalore – 560 048, do hereby solemnly affirm and state under oath as follows:
- I state that I am competent to swear to this affidavit.
- I state that I had received a sum of Rs.17,10,000/- in cash during the financial year 2005-2006 from Smt. Anasuya Basi Reddy for purchasing a piece of land in her name.
- I further state that due to lack of interest on part of Smt. Anasuya Basi Reddy to purchase land and subsequent request from them to return the aforesaid land advance, I have repaid part of the aforesaid advance amounting to Rs.4,00,000/- in cash during the Financial year 2007-2008,
- I further undertake to state that the remaining balance of Rs. 13,10,000/- has been repaid by me during the Financial year 2010-2011.
- I further undertake to state that the aforesaid money which was received by me and subsequently repaid as specified above is wholly attributable to advance towards proposed purchase of land for Smt.Anasuya Basi Reddy which did not materialize due the lack of interest and due to diverse reasons on the part of the Smt. Anasuya Base Reddy.
- I further state that the declaration made by me above is without any collusion, extraneous force and are true to the best of my knowledge, information and belief.
- I further state that the name and signature below is that of mine. I further state that the contents in Para 01 to 06 of the affidavit is true and are correct to the best of my knowledge, information and belief.
This affidavit is executed and dated this 25th day of September, 2013, at Bangalore.
4.4.2 The advance paid by the assessee to Shri Narayana Reddy during the assessment year 2006-2007 is stated to be out of sale proceeds of 1 Acre 30 guntas of land belonging to the assessee and her son. Since it is clear that the amount has been advanced for purchase of land in assessment year 2006-2007, addition u/s 69 of the I.T.Act amounting to Rs.17,10,000 cannot be made for the relevant assessment year, viz., 20082009. It is ordered accordingly.
Unexplained investment u/s 69 amounting to Rs.5,00,000.
- The Assessing Officer based on the AIR information, had added a sum of Rs. 5 lakh as unexplained investments in mutual funds and bank deposits. From the facts in para 4.4.1 (supra), it is clear that the assessee had received back a sum of Rs. 4 lakh being part of advance amount paid to Shri Narayana Reddy. This amount of Rs.4 lakh received from Shri Narayana Reddy was invested in mutual funds. With regard to the bank deposit of Rs.1 lakh, the Assessing Officer has erroneously came to the conclusion that the assessee has made bank deposit of Rs. 1 lakh. The A.O. himself in paragraph 5 of the impugned assessment order had found that on verification of assessee’s bank account, there was no such bank deposit on 12.11.2007 of Rs.1 lakh. Therefore, only the investment made during relevant assessment year is with reference to mutual funds amounting to Rs. 4 lakh. The investment in mutual funds was explained by the amount of Rs.4 lakh received by the assessee from Shri Narayana Reddy during the relevant assessment year. Therefore, the addition of Rs. 5 lakh is unwarranted u/s 69 of the I.T. Act and I delete the same. It is ordered accordingly.
Addition u/s 68 of the I.T. Act amounting to Rs.50,000/-.
- The Assessing Officer in the impugned assessment order had made addition of Rs. 50,000 as unexplained cash credits in the bank account of the assessee. The said amount has been deposited in Karnataka Bank saving bank account on 07.04.2007 (cash deposit). Before the Assessing Officer, the assessee had stated that the assessee was unable to recollect the source of cash deposit. This was due to old age and the recent surgery she had undertaken, which had resulted into loss of memory. It was stated that the cash deposit of Rs. 50,000 made by the assessee may be explained as part of past savings and other receipts. Since the assessee has not given any details with regard to the cash deposits of Rs. 50,000 on 07.04.2007, I confirm this addition.
- In the result, the appeal filed by the assessee is partly allowed.
Order pronounced on this 02nd day of March, 2021.