A surprising and very interesting case has come to light from the corridors of the country’s financial and tax system which has left both taxpayers and tax experts speechless. An ordinary taxpayer deposited a huge cash amount of Rs 5.2 crore in his bank account, but when he filed his Income Tax Return (ITR), he showed his annual income of only Rs 7.65 lakh. Seeing this huge difference between the huge amount and the declared income, the Income Tax Department officials were left stunned and they immediately started a thorough investigation into the matter. Considering it to be a clear case of tax evasion and undisclosed assets, the department issued a huge tax and penalty notice, due to which the person lost his ground. However, when the case reached the doorstep of the Income Tax Appellate Tribunal (ITAT), there was a shocking twist that changed the entire scenario. Let us know in detail what solid and valid basis the person presented for his huge deposit due to which the ITAT completely acquitted him of this serious case.
What was the whole matter and how did the taxpayer come on the radar of the Income Tax Department?
During the financial year, when monitoring of bank accounts and data analytics was being carried out with utmost rigor, the attention of the tax authorities was drawn to a bank account in which huge cash transactions worth crores of rupees had suddenly taken place. As a rule, when a person deposits excessive amounts of cash in a bank compared to his normal income, financial intelligence units (FIU) and tax departments automatically get activated. In this case, when the investigating officers matched the PAN card of the person concerned and the ITR filed by him, they were surprised because the person who had deposited a huge amount of Rs 5.2 crore had shown his total income in the return only Rs 7.65 lakh. On the basis of this huge discrepancy, the tax department immediately issued a notice to the taxpayer and sought his reply to prove the source of this undeclared cash. In the absence of a satisfactory and concrete answer, the department started taking strict tax assessment action against him, due to which the legal and financial crisis for the taxpayer deepened.
Claim of huge difference in ITR and bank deposits: Taxpayer’s clarification and documents
When the Income Tax Department asked the taxpayer as to where Rs 5.2 crore came into his bank account despite his limited income, the explanation given by the man further confused the officials. The taxpayer’s argument was that this entire amount was not his personal hidden income, but it included money from certain business and family transactions and liquidation of pre-existing assets. He claimed that he had sold some old properties and this cash was also transferred to his accounts by his business associates in the form of various payments. However, the tax authorities initially rejected his verbal and superficial documents because someone earning Rs 7.65 lakh was suddenly giving accounts of a business worth crores, which prima facie looked suspicious. After this, the authorities took legal action and considered his entire deposit amount as his undisclosed income and imposed heavy tax and penalty on him, against which the taxpayer approached the higher forum.
Historic decision of ITAT: On the basis of which evidence and arguments did the taxpayer get relief?
When this case came up for hearing before the Income Tax Appellate Tribunal (ITAT), the bench reviewed the arguments and documents of both the parties very minutely and from a legal point of view. ITAT observed that even though the taxpayer had under-reported income in his ITR and deposited excess cash in the bank, he had produced certain bona fide and statutory documents in support of his claims which could not be completely ignored. The tribunal stressed that mere deposit of cash in a bank cannot directly amount to tax evasion or illegal earnings unless the department can prove that the money was part of a taxpayer’s hidden earnings. The taxpayer proved through its business ledgers, bank statements and strong evidence from other parties to the transaction that the money was part of the business cycle and a legitimate transaction. Satisfied with these arguments, the ITAT set aside the tax department’s order imposing penalty amounting to crores of rupees, and the taxpayer got a sigh of relief from this huge legal relief.