2025 (3) TMI 1223 - AT - Income Tax

Unexplained cash deposits - assessee failed to satisfactorily explain the source of cash deposits - HELD THT - It is a fact that the assessee is a retired Government servant and earned income from pension. Since the assessee had earns regular income from pension the claim of the assessee that the deposits were from past savings ought to have been believed in absence of any evidence to the contrary. AO has not brought on record anything to disprove the claim of the assessee that the deposit of was from his past savings or has made any allegation about undisclosed expenditure/investment. AO must have concrete reasons based on evidence to reject the assessee s explanation. If the assessee has provided a reasonable explanation mere disbelief or suspicion is not sufficient to make an addition under the Income Tax Act. Once the assessee explains the source of deposits the onus shifts to the AO to prove that such explanation is incorrect or unsatisfactory. If the AO has not brought any contrary evidence to disprove the claim the addition is unwarranted. There are several judicial rulings where Hon ble Courts have held that past savings can be a valid source of deposits unless proven otherwise by the Department.Appeal of the assessee stands allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment were:

1. Whether the addition of Rs. 2,44,000/- as unexplained cash deposits under section 69A of the Income Tax Act, 1961, was justified.

2. Whether the assessee provided a satisfactory explanation regarding the source of the cash deposits.

3. The applicability of section 115BBE and initiation of penalty proceedings under section 271AAC.

4. The validity of the rejection of the rectification application under section 154 of the Act.

ISSUE-WISE DETAILED ANALYSIS

1. Addition of Rs. 2,44,000/- as Unexplained Cash Deposits

- Relevant legal framework and precedents: Section 69A of the Income Tax Act allows for the addition of unexplained money found in the possession of the assessee, unless satisfactorily explained. The burden of proof initially lies with the assessee to explain the source of such deposits.

- Court's interpretation and reasoning: The Tribunal noted that the assessee, a retired government employee, claimed the source of the cash deposit was past savings and withdrawals by his wife. The Tribunal emphasized that mere disbelief or suspicion by the Assessing Officer (AO) is insufficient for additions under section 69A. The AO must have concrete reasons based on evidence to reject the explanation provided by the assessee.

- Key evidence and findings: The assessee provided an explanation that the deposit was from past savings and a withdrawal made by his wife from her bank account. The Tribunal found no evidence provided by the AO to disprove this claim.

- Application of law to facts: The Tribunal applied the principle that once the assessee explains the source of deposits, the onus shifts to the AO to prove the explanation incorrect. In the absence of contrary evidence from the AO, the Tribunal found the addition unwarranted.

- Treatment of competing arguments: The Tribunal considered the AO's reliance on the lack of immediate withdrawals during the assessment year but found this insufficient to counter the explanation of past savings.

- Conclusions: The Tribunal concluded that the addition of Rs. 2,44,000/- was unwarranted and ordered its deletion.

2. Applicability of Section 115BBE and Penalty Proceedings under Section 271AAC

- Relevant legal framework: Section 115BBE imposes a higher tax rate on income referred to in section 69A, while section 271AAC deals with penalties for undisclosed income.

- Court's interpretation and reasoning: Since the Tribunal found the addition under section 69A unwarranted, the applicability of section 115BBE and initiation of penalty proceedings under section 271AAC were rendered moot.

- Conclusions: The Tribunal did not address these sections further due to the deletion of the addition.

3. Rejection of the Rectification Application under Section 154

- Relevant legal framework: Section 154 allows for the rectification of mistakes apparent from the record.

- Court's interpretation and reasoning: The Tribunal noted that the rectification application was filed to correct perceived mistakes in the appellate order. The Tribunal emphasized that rectification is distinct from review and should address clear errors.

- Conclusions: The Tribunal did not specifically rule on the rectification application's merits, as the primary issue of unexplained deposits was resolved in favor of the assessee.

SIGNIFICANT HOLDINGS

- Preserve verbatim quotes of crucial legal reasoning: "The AO must have concrete reasons based on evidence to reject the assessee's explanation. If the assessee has provided a reasonable explanation, mere disbelief or suspicion is not sufficient to make an addition under the Income Tax Act."

- Core principles established: The principle that past savings can be a valid source of deposits unless disproven by the Department was reinforced. The burden of proof shifts to the AO once a reasonable explanation is provided by the assessee.

- Final determinations on each issue: The Tribunal allowed the appeal, deleting the addition of Rs. 2,44,000/- as unexplained cash deposits and rendering the applicability of sections 115BBE and 271AAC moot.