The Tribunal ruled that non-filing of returns does not automatically render prior cash balances unexplained, necessitating further verification of the facts by the Assessing Officer.

आदेश/ORDER

PER MAKARAND V. MAHADEOKAR, AM:

This appeal by the assessee is directed against the order dated 20.11.2024 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as “CIT(A)”] under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], for the Assessment Year (A.Y.) 2017-18, whereby the CIT(A) confirmed the addition of Rs. 13,03,738/- made by the Assessing Officer [hereinafter referred to as “AO”] under section 69A of the Act vide his order dated 27.12.2019 passed under section 143(3) r.w.s. 147 of the Act.

Facts of the Case

2. The assessee is a partnership firm, which was engaged in the business of sales and service of Kinetic brand scooters. It was a regular assessee filing its returns up to A.Y. 2013-14. For A.Y. 2013-14, the assessee filed return of income on 28.03.2014 declaring a loss of Rs. 39,49,349/- and the same was accepted. The firm subsequently closed its business operations w.e.f. 01.04.2014 due to disputes among the partners. Consequently, no returns of income were filed for A.Ys. 2014-15 to 2016-17.

3. The AO received information under the Operation Clean Money (OCM) initiative that the assessee had deposited cash of Rs. 13,00,000/- during the demonetization period (09.11.2016 to 30.12.2016) in its bank account no. 1109775504 with Central Bank of India, Paldi Branch, Ahmedabad. Since no return of income was filed for A.Y. 2017-18, the AO issued notice under section 148 on 05.03.2019. The assessee filed return of income in response on 30.03.2019 declaring Nil income.

4. During the course of assessment proceedings, the AO issued several notices under sections 142(1) and 133(6). The AO called for bank statements from the Central Bank of India and verified that total credits of Rs. 13,03,738/- appeared in the bank account for F.Y. 2016-17. The AO sought explanation from the assessee regarding the source of such deposits. As there was no initial response, a final show cause notice was issued on 27.12.2019.

5. In response, the assessee explained that it had a cash balance of Rs. 13,01,345/- as on 31.03.2014, as reflected in the audited balance sheet filed with the return for A.Y. 2014-15. It was submitted that due to disputes among the partners, the assets including cash remained undivided and the cash was retained by one of the partners as custodian. Upon settlement of disputes, the cash was deposited in the firm’s bank account during the demonetization period. The assessee also furnished its cash book, statement of income, and unaudited accounts for A.Ys. 2014-15 to 2016-17 to demonstrate that no business activity had taken place and that the firm had no taxable income during those years.

6. The AO, however, rejected the explanation on the ground that such a large cash balance could not be held unutilized for more than two years. The AO was of the view that the explanation was improbable and inconsistent with human conduct. Consequently, he treated the entire deposit of Rs. 13,03,738/- as unexplained money under section 69A of the Act and taxed the same under section 115BBE. Penalty proceedings under section 271AAC were also initiated separately.

7. The assessee preferred appeal before the CIT(A), and reiterated the submissions made before the AO. Detailed submissions dated 15.07.2023 were uploaded, enclosing the audited balance sheet for A.Y. 2014-15, cash book, and statement of income for A.Ys. 2015-16 and 2016-17. The assessee emphasized that the impugned cash balance was available and disc