2025 (4) TMI 584 - AT - Income Tax

Addition u/s.69A - treating the cash deposits as unexplained money - HELD THAT - As we find that assessee has submitted all the possible evidences to substantiate its cash deposit in the bank account. However we find that assessee has not been able to prove all its personal expenditure and drawings which was utilized by the assessee out of cash withdrawals from bank and balance was re-deposited by him in the bank account. That is a reconciliation was not submitted by the assessee to that effect. We therefore take into account all these peculiar facts to restrict the impugned disallowance @ 5% of Rs. 17, 98, 000/- which comes to Rs. 89, 900/-. Since the assessee has deposited the cash in the bank account out of recognized sources therefore he is not liable to pay tax under section 115BBE of the Act hence we direct the assessing officer to tax Rs. 89, 900/- by applying the normal rate of income tax. Instant adjudication shall not be treated as a precedent in any preceding or succeeding assessment year. AO is accordingly directed to recompute the impugned disallowance @ 5% afresh as noted by us above. Appeal filed by the assessee is partly allowed

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issue in this case was whether the addition of Rs. 17,92,000/- under section 69A of the Income Tax Act, 1961, by treating the cash deposits during the demonetization period as unexplained money, was justified. The Tribunal considered whether the assessee provided sufficient evidence to explain the source of the cash deposits and whether the Assessing Officer and the Commissioner of Income Tax (Appeals) were correct in their findings.

ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents: Section 69A of the Income Tax Act deals with unexplained money, where any money found in the possession of the assessee and not recorded in the books of account, and for which the assessee offers no explanation about the nature and source thereof, is deemed to be the income of the assessee for that financial year. The Tribunal also referenced the decision of the Coordinate Bench of ITAT Delhi in the case of Om Parkash Nahar, which dealt with similar issues of cash deposits during demonetization.

Court's interpretation and reasoning: The Tribunal examined the evidence submitted by the assessee, including cash books, bank books, and provident fund withdrawal slips. It noted that the assessee had provided a plausible explanation for the cash deposits, stating that the funds were from opening cash balance, past savings, and provident fund withdrawals, which were initially intended for house construction but later deposited back into the bank due to a change in circumstances.

Key evidence and findings: The Tribunal found that the assessee had submitted comprehensive evidence, including a cash book showing sufficient cash in hand, bank statements, and proof of provident fund withdrawals. The Tribunal noted that the Assessing Officer did not discredit any specific evidence but merely found the explanations unacceptable without pointing out specific defects.

Application of law to facts: The Tribunal applied the principles from the Om Parkash Nahar case, emphasizing the importance of considering the assessee's explanations and the absence of evidence to suggest undisclosed sources of income. It found that the assessee's explanations were reasonable and supported by evidence.

Treatment of competing arguments: The Tribunal considered the Revenue's argument that the assessee, being a salaried employee, should not have such large cash deposits. However, it found the assessee's explanation and evidence more compelling, noting that the Assessing Officer had already granted partial relief by accepting Rs. 4,00,000/- as explained.

Conclusions: The Tribunal concluded that while the assessee had provided substantial evidence for the cash deposits, there was a lack of detailed reconciliation of personal expenses and drawings. Therefore, the Tribunal restricted the disallowance to 5% of the disputed amount, recognizing that the deposits were from recognized sources and should be taxed at normal rates rather than under section 115BBE.

SIGNIFICANT HOLDINGS

The Tribunal held that the assessee had submitted all possible evidence to substantiate the cash deposits, but due to a lack of reconciliation of personal expenditures, a partial disallowance was justified. The Tribunal restricted the disallowance to 5% of Rs. 17,98,000/-, amounting to Rs. 89,900/-, and directed that this amount be taxed at normal rates. The Tribunal emphasized that this decision should not be considered a precedent for other assessment years.

Core principles established: The Tribunal reinforced the principle that when an assessee provides reasonable and plausible explanations supported by evidence, such explanations should not be dismissed without specific reasons. The decision also highlighted the importance of considering the entire context, including the assessee's history of income and withdrawals, when assessing the source of cash deposits.

Final determinations on each issue: The Tribunal partially allowed the appeal, reducing the addition under section 69A and directing the Assessing Officer to tax the reduced amount at normal rates. This decision was based on the evidence provided by the assessee and the lack of specific defects identified by the Assessing Officer in the submitted documents.