Cash deposit explained by contemporaneous land sale documents and surrounding circumstances; addition as unexplained income was deleted.

Contemporaneous sale documents, the timing of the cash deposit, surrounding circumstances, and related bank entries established a direct nexus between the bank deposit and the family's agricultural land sale. Applying the test of human probabilities, the deposit was accepted as explained and not treated as unexplained income. The land was also treated as agricultural land, so once the source of funds was linked to that transaction, the addition could not survive.

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Issues: (i) Whether the cash deposit of Rs. 2.20 crores in the assessee's bank account was unexplained or represented sale consideration from the agricultural land transaction; (ii) Whether the land sold was agricultural land and whether the deposit could be taxed as unexplained income.

Issue (i): Whether the cash deposit of Rs. 2.20 crores in the assessee's bank account was unexplained or represented sale consideration from the agricultural land transaction.

Analysis: The agreement to sell, the timing of the cash deposit on the date of sale, the surrounding circumstances, and the connected bank entries of the family members supported the assessee's explanation that the amount originated from the land transaction. The rejection of the explanation by the lower authorities was found to be unsatisfactory because the material on record, assessed in the light of human probabilities, showed a direct nexus between the sale transaction and the cash deposit. The principles that the apparent state of affairs may be tested against surrounding circumstances and that the burden lies on the party disputing the explanation were applied.

Conclusion: The cash deposit of Rs. 2.20 crores was held to be explained and not assessable as unexplained cash deposit in the assessee's hands.

Issue (ii): Whether the land sold was agricultural land and whether the deposit could be taxed as unexplained income.

Analysis: The Revenue did not dispute the agricultural character of the land, and the sale documents and related evidence showed that the transaction related to agricultural land. Once the source of the deposit was linked to the sale of such land, the addition could not survive as unexplained income.

Conclusion: The land was treated as agricultural land and the addition was deleted.

Final Conclusion: The assessee succeeded in establishing that the deposit arose from the family land sale transaction, and the addition made by the assessing authorities was unsustainable.

Ratio Decidendi: Where the surrounding circumstances, contemporaneous documents, and conduct of the parties establish a direct nexus between a bank deposit and a sale transaction, the amount cannot be treated as unexplained income merely because one version of the transaction is disputed.

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