Income Tax: ITAT Strikes Down Section 69A Addition on Potato Business

Income Tax: ITAT Strikes Down Section 69A Addition on Potato Business

The assessee, a potato dealer, filed an appeal against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] for AY 2017-18.  The Assessing Officer had invoked Section 69A of the Income-tax Act, adding Rs. 25.50 lakh, including cash deposits of Rs. 17.50 lakh, on the ground that the assessee failed to justify the source.

CIT (A)’s Decision: This addition was upheld by the Commissioner (Appeals), who relied on the absence of a loan certificate to substantiate repayment of a loan. The CIT(A) confirmed the addition on the ground that the assessee did not furnish a loan certificate to substantiate his claim that the deposits were meant to repay a loan taken from RBL Bank.

Before the Tribunal, the assessee maintained that he was engaged in potato trading, where transactions were predominantly in cash. He also submitted that the deposits were consistent with his business activities in earlier years and that the department failed to properly verify his repayment of the RBL Bank loan through bank records. Importantly, the department never disputed his line of business or the agricultural nature of the produce.

Issue Raised: Whether the cash deposits of Rs. 17,50,000/- made by the assessee, a potato dealer, were unexplained money under Section 69A, warranting addition to income.

ITAT Held: After examining the material on record, the Tribunal concluded that the cash deposits were well explained by the nature of the assessee’s trade. Since the authorities had ignored this aspect and mechanically treated the deposits as unexplained, the addition was held to be unsustainable. The ITAT therefore deleted the addition of Rs. 25.50 lakh and allowed the assessee’s appeal in full.

The Tribunal noted that the fact of the assessee being engaged in sale of agricultural produce (potatoes) was not disputed by the department. Considering the nature of the business and the bank statements produced, the Tribunal held that the addition made under Section 69A was unwarranted.

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