Rotations from Auto Sweep A/c not fresh investments-Addition u/s 68 deleted

Rotations from Auto Sweep A/c not fresh investments-Addition deleted

In a recent judgment, ITAT Mumbai has deleted the addition u/s 68 observing that as alleged there were no fresh investments/deposits in bank account except amount along with interest being rotated several times through auto sweep in the current account of the assessee.

ABCAUS Case Law Citation:
ABCAUS 4138 (2024) (07) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in making addition towards unexplained money u/s 68 of the Income Tax Act, 1961 (the Act) for deposits in bank account.

The appellant assessee firm did not file its return of income for the year under consideration. From the information available on insight portal of the department, it was noticed by the Assessing Officer (AO) that the assessee had substantial income and also made investments in time deposit during the year under consideration.

Accordingly, a notice u/s 148A(b) of the Act was issued to the assessee to show cause as to why the proceedings u/s 148 should not be initiated in his case. As no reply was received against the said notice, the AO issued notice u/s 148 of the Act.

In response to notice, the assessee filed its return declaring a meagre income. The AO issued notice asking the assessee show cause as to why the amount of entire of bank deposits as appearing in insight portal be not treated as its unexplained income.

The assessee submitted that the information is incorrect and that it had not made any FD of such high value in the year under consideration. It was further clarified that the amounts displayed in the bank account statement were related to entries from Auto Sweep Account.

However, the AO added the amount credited in the bank statement to the income of the assessee u/s 69A of the Act.

The CIT(A) upheld the addition made by the AO, however, while confirming the addition the CIT(A) held the amount to be unexplained cash credit u/s 68 of the Act instead of unexplained money u/s 69A of the Act.

Before the Tribunal the assessee clarified that the addition was made towards the the opening balance in the flexi-FDR account linked to the assessee’s current account and there was no fresh credit during the year under consideration.

It was also been submitted that the AO had recorded reasons for reopening on the ground of unexplained transactions of specific amount and made addition on a different amount. He contended in view of various judicial pronouncement, that the order of the reassessment was liable to be set aside.

The Tribunal observed that assessee clearly demonstrated through the submissions of bank details that there were no fresh investments/deposits in bank account and amount added to income was indeed the opening balance in flexi FD account. This amount along with interest had been rotated several times during the year through auto sweep in the current account of the assessee.

The Tribunal held that since, no fresh amount has been deposited in the bank account during the year under consideration, the addition made by the AO was not justified. The same was directed to be deleted. 

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