2025 (4) TMI 1358 - AT - Income Tax

Addition u/s 69 - deposit of cash in the bank during demonetization period - HELD THAT - When assessee proves that she had on relevant date a large sum of money sufficient to cover the deposit of cash in the bank during demonetization period this Tribunal/Hon ble Courts in the absence of something which showed that the explanation was inherently improbable has accepted the explanation that the assessee had such amount in SBNS which was deposited in the bank account. Assessee was held to have prima facie discharged the initial burden upon him/her which was upon him in such cases. Moreover once the AO has accepted the genuineness of the source as source from the withdrawals AO can t be expected to reject part of the explanation i.e. Rs. 12.10 lakhs as source from the very same source viz. withdrawal of Rs. 40 lakhs without cogent reason or adducing any material to show that the withdrawn amount of Rs. 40 lakhs had been spent by assessee or invested in immovable/movable assets of which is not the case of the AO. Therefore the action of the AO rejecting in part the explanation given by the assessee can t be accepted. Explanation which was held to be reasonable by the AO as to a part must be good for the whole because there is no material on which it could be held that the balance constituted income from some undisclosed source to distinguish case about the part rejected from the part accepted. We are of the view that the assessee has prima facie discharged her burden about the source which has not been rebutted by the Ao/Ld.CIT(A) which is merely based on no evidence rather it is based on conjectures surmises and suspicion; and furthermore is vitiated by failure of lower authorities in not taking into consideration relevant materials bearing on the fact in issue. Thus the assessee s appeal is allowed and the addition made u/s.69 is directed to be deleted.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

- Whether the addition of Rs. 12.10 lakhs under Section 69 of the Income Tax Act, 1961, on account of unexplained cash deposits during the demonetization period, was justified.

- Whether the assessee had satisfactorily explained the nature and source of the Specified Bank Notes (SBNs) amounting to Rs. 14.60 lakhs deposited during the demonetization period from earlier withdrawals.

- Whether the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT(A)) erred in rejecting the explanation partly on the basis of conjectures and surmises without any material evidence.

- The applicability of settled legal principles regarding the burden of proof and the reasonableness of the assessee's explanation in cases involving unexplained cash credits under Section 69.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Justification of addition under Section 69 of the Act for Rs. 12.10 lakhs unexplained cash deposits during demonetization period

Relevant legal framework and precedents: Section 69 of the Income Tax Act empowers the AO to treat any sum found credited in the books of an assessee as income if the assessee fails to satisfactorily explain the nature and source of such sum. The burden lies on the assessee to explain the source of cash deposits. The Supreme Court in Sreelekha Banerjee & Ors. v. CIT [1963] 49 ITR 112 (SC) held that the department cannot unreasonably reject a plausible explanation and convert good proof into no proof. The explanation must be plausible and probable from a prudent person's point of view and cannot be rejected without material to disbelieve it.

Court's interpretation and reasoning: The Tribunal noted that the assessee, a retired professor drawing pension, had declared income of Rs. 6,14,920 for AY 2017-18 and had withdrawn Rs. 40.95 lakhs from her bank account between May 2014 and October 2016. She explained that she kept Rs. 15 lakhs as a cash reserve at home for medical emergencies, supported by medical records from 2005-2010. The sudden demonetization announcement forced her to deposit Rs. 14.60 lakhs in SBNs into her bank account between 11th and 14th November 2016.

The AO accepted the explanation for Rs. 2.50 lakhs but rejected the balance Rs. 12.10 lakhs, reasoning that an educated person would not keep such a large sum at home, and that hospitals now accept digital payments, making cash reserves unnecessary. The AO further speculated that the assessee might have spent 90% of the withdrawn Rs. 40.95 lakhs, thus disbelieving the source of Rs. 12.10 lakhs.

The Tribunal found this reasoning to be based on conjecture and surmise, lacking any material evidence. The AO's contradictory observation that the assessee might have expended the withdrawn amount despite earlier medical history supporting the need for cash reserves was noted as illogical. The Tribunal emphasized that once the AO accepted part of the explanation (Rs. 2.50 lakhs from withdrawals), it was unreasonable to reject the rest without cogent reasons or evidence showing that the withdrawn amount was spent or invested elsewhere.

Key evidence and findings: The assessee produced bank statements showing withdrawals of Rs. 40.95 lakhs, medical records from 2005-2010 substantiating the need for cash reserves, and income details confirming pension receipts and declared income. There was no material to show that the withdrawn funds were spent or invested. The AO did not rebut the plausibility of the source but relied on assumptions.

Application of law to facts: Applying the principle from Sreelekha Banerjee, the Tribunal held that the assessee had discharged the initial burden of proof by providing a plausible and probable explanation supported by documentary evidence. The AO and CIT(A) failed to provide any material to discredit the explanation, making the addition under Section 69 unsustainable.

Treatment of competing arguments: The AO and CIT(A) argued on the basis of the improbability of keeping large cash sums at home and the availability of digital payments in hospitals. The Tribunal rejected these arguments as speculative and not supported by evidence. The Tribunal noted that the assessee's husband's income was used for household expenses, reducing the likelihood of the withdrawn cash being spent, and that the medical history justified the cash reserve.

Conclusions: The Tribunal concluded that the addition of Rs. 12.10 lakhs under Section 69 was not justified. The assessee had satisfactorily explained the source of the cash deposits, and the AO's rejection was without material basis, relying on conjecture and suspicion.

3. SIGNIFICANT HOLDINGS

"It is settled position of law that when the assessee has given an explanation regarding source of the credit/currency, which is plausible/probable from prudent persons point of view, then, it can't be rejected by the AO without having any material to rebut the plausible explanation given by assessee."

"The department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof."

"Once the AO has accepted the genuineness of the source of Rs. 2.5 lakhs as source from the withdrawals of Rs. 40 lakhs, the AO can't be expected to reject part of the explanation [i.e. Rs. 12.10 lakhs as source from the very same source viz., withdrawal of Rs. 40 lakhs] without cogent reason or adducing any material to show that the withdrawn amount of Rs. 40 lakhs had been spent by assessee or invested in immovable/movable assets."

"The action of the AO rejecting in part, the explanation given by the assessee can't be accepted."

"The explanation which was held to be reasonable [by the AO] as to a part, must be good for the whole, because there is no material on which it could be held that the balance constituted income from some undisclosed source to distinguish case about the part rejected from the part accepted."

"The addition made u/s.69 of the Act of Rs. 12.10 lakhs is directed to be deleted."