2016 (11) TMI 1685 - AT - Income Tax

Unexplained cash deposits u/s 68 - whether the cash deposited was coming out of the cash available with the assessee being a NRI, which was kept by him for last two years? - HELD THAT - It was not brought on record why he has withdrawn so much of money and what made the assessee to keep such huge money in hand. But, on record, submitted by the assessee, we find that he had sufficient money. Even the AO could not bring any proof that the assessee has in fact utilized or applied the cash withdrawn two years back, except making a remark that there is no possibility of keeping such amount by the assessee being a NRI. He has not brought on record, why he cannot keep so much of cash in hand and no contrary findings were given by him against the submissions of assessee. AO has made the addition merely on conjectures/surmises/suspicion and no proper reasons were given why he cannot keep the cash in hand except the remark of being an NRI. In our view, the Hon ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. 1954 (10) TMI 12 - SUPREME COURT has held that the AO cannot complete the assessment purely on guess and without any reference to evidence or any material at all. Also in the case of Umacharan Shaw Brothers 1959 (5) TMI 11 - SUPREME COURT has held that AO cannot complete the assessment merely on suspicion which cannot take the place of proof in these matters. Thus we hold that the AO made the assessment merely on suspicion and without bringing any cogent material on record to establish that assessee cannot keep the cash in his hand being a NRI. Accordingly, we uphold the order of the CIT(A) in deleting the addition - Decided against revenue.

Summary

Issues Involved:
1. Addition of ?34,70,000 as income from undisclosed sources.
2. Excess claim of mediclaim amounting to ?6,857.

Issue-wise Detailed Analysis:

1. Addition of ?34,70,000 as Income from Undisclosed Sources:

The assessee filed a return of income for AY 2010-11 declaring a total income of ?2,96,450/-. The AO completed the assessment determining the total income at ?37,73,303/- by making additions, including ?34,70,000 as income from undisclosed sources. The AO observed that the assessee had made cash deposits amounting to ?34.70 lakhs in his Savings Bank Account. The assessee claimed that the source of these deposits was cash balances available with him, supported by books of account. However, the AO did not accept this explanation for several reasons, including the failure to file wealth tax returns in time, the unusual pattern of deposits, and the improbability of keeping such a large amount of cash for over a year and a half.

On appeal, the CIT(A) decided in favor of the assessee, stating that the cash deposits were out of cash withdrawals made in the previous year, supported by bank statements and books of account. The CIT(A) found force in the assessee's contentions and relied on several case laws, including Umacharan Shaw & Bros vs CIT and Dhakeswari Cotton Mills Ltd vs CIT, which held that additions cannot be made merely on suspicion.

The Revenue appealed against this decision, arguing that the CIT(A) erred in deleting the addition and that the AO had made the addition based on a proper appreciation of the surrounding circumstances. The Revenue contended that it was improbable for an NRI to keep such a large amount of cash in hand for two years.

The Tribunal considered the rival submissions and found that the assessee had sufficient cash available as per the cash book and wealth tax returns. The Tribunal noted that the AO had not brought any evidence to show that the cash withdrawals were spent for other purposes or that the cash was not available with the assessee when deposited. The Tribunal upheld the CIT(A)'s order, stating that the AO had made the addition merely on conjectures and suspicions without any cogent material. The Tribunal relied on the Supreme Court's decisions in Dhakeswari Cotton Mills Ltd and Umacharan Shaw & Brothers, which held that assessments cannot be completed purely on suspicion or guesswork.

2. Excess Claim of Mediclaim Amounting to ?6,857:

The AO also made an addition of ?6,857 for an excess claim of mediclaim. However, this issue was not elaborately discussed in the judgment, indicating that it was not a significant point of contention in the appeal.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that deleted the addition of ?34,70,000 made by the AO. The Tribunal emphasized that additions cannot be made merely on suspicion and must be supported by evidence. The appeal was pronounced dismissed on 11th November 2016.