2023 (3) TMI 1314 - AT - Income Tax

Tribunal overturns unexplained income addition, rejects retroactive tax rate increase.

The Tribunal allowed the appeal, finding that the assessee adequately explained the source of the cash deposits, leading to the rejection of the Assessing ... Unexplained money u/s 69A r.w.s. 115BBE - during demonetization period, the assessee made a cash deposit - HELD THAT:- On careful perusal of bank statement, find that cash was clearly available from self-withdrawal with the assessee, therefore, the assessee has clearly explained the deposit in part. So far as remaining sum find that the assessee also made cash withdrawal of Rs. 60,000/- on 21/10/2016. Now only a small amount of Rs. 30,000/-is left, considering the smallness of amount that the assessee was having regular withdrawal in his bank account and Rs. 30,000/- is not a big amount which can be doubted on the basis of facts and circumstances of the case and financial transactions of the assessee. Therefore no justification in treating Rs. 6.00 lacs as unexplained cash credit. In the result, the grounds taken by the assessee are allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a cash deposit of Rs. 6,00,000 made during the demonetisation period, when other cash deposits by the assessee were explained, can be treated as unexplained money and added to total income under Section 69A read with charging under Section 115BBE. 2. Whether cash withdrawals from the assessee's bank account (including large cash withdrawals prior to demonetisation and frequent smaller ATM withdrawals) and other credited receipts (gratuity, provident fund, LIC maturity, TDS refund, etc.) satisfactorily explain the source of the cash deposited and discharge the evidentiary burden on the assessee. 3. Whether the Assessing Officer's adverse inference based on absence of books of account and alleged manipulation of cash flow statement is justified in treating the deposit as unexplained, having regard to the available bank records and contemporaneous withdrawals. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality of addition of Rs. 6,00,000 as unexplained money under Section 69A and taxation under Section 115BBE Legal framework: Section 69A deals with unexplained money and provides that where any sum is found credited in an assessee's books and the assessee offers no explanation or the explanation is not satisfactory, the sum may be taxed as income of the assessee. Section 115BBE prescribes special rate/charge for income declared to be unexplained money under provisions like s.69/69A. Precedent treatment: Lower authorities applied s.69A and attracted s.115BBE for taxing unexplained cash deposits during demonetisation. The Tribunal considered but did not rely on any altered precedent to change the legal test; focus was on application of statutory provisions to the facts. Interpretation and reasoning: The Tribunal examined whether the statutory threshold for treating a deposit as unexplained was met. It found that (a) the assessee had substantial documented receipts in the bank (gratuity and provident fund) and (b) cash withdrawals made by the assessee prior to demonetisation demonstrated that cash was available to be redeposited. The Tribunal concluded that, on the facts, the specific deposit of Rs. 6,00,000 was explained by the cumulative effect of prior large withdrawals and other receipts; hence the statutory condition for calling the sum unexplained (absence of satisfactory explanation) was not satisfied. Ratio vs. Obiter: Ratio - where an assessee can demonstrate, by bank records and contemporaneous withdrawals and receipts, that cash was legitimately available for deposit during demonetisation, a specific deposit cannot be treated as unexplained under s.69A. Obiter - general comments on departmental use of ITD portal acknowledgements and broad suspicion arising from absence of books. Conclusion: The addition of Rs. 6,00,000 as unexplained money under Section 69A (and its taxation pursuant to Section 115BBE) was not sustainable on the facts; the Tribunal allowed the appeal and deleted the addition. Issue 2 - Sufficiency of cash withdrawals, bank credits and cash flow statement to discharge assessee's evidentiary burden Legal framework: Once an unexplained credit is shown in bank records, the burden lies on the assessee to provide a satisfactory explanation of the source; bank statements, supporting receipts and consistent cash flow can form acceptable evidence. Where books are not maintained, credible contemporaneous bank records and corroborating proofs may still suffice. Precedent treatment: The Tribunal referred to the general principle that regular bank withdrawals and documented receipts can explain subsequent deposits; it considered but did not rest its judgment on other tribunal rulings cited by the assessee, treating them as supportive factual precedents rather than binding law. Interpretation and reasoning: The Tribunal analysed the bank statement and identified three large cash withdrawals of Rs. 5,00,000 each on 17/08/2016, 19/08/2016 and 23/09/2016, plus other frequent withdrawals aggregating Rs. 20,23,000, and additional credits (gratuity Rs.10,00,000 and PF Rs.22,17,402). The Tribunal found these withdrawals and credits demonstrate that cash of about Rs.15,00,000 was available from self-withdrawals and that the deposit of Rs.15,90,000 during demonetisation was therefore adequately explained. For the specific Rs.6,00,000 deposit, the Tribunal noted the availability of cash and small residual shortfall (approx. Rs.30,000) which was not material given the pattern of withdrawals and household transactions; accordingly, the cash flow statement coupled with bank records was accepted as satisfactory explanation. Ratio vs. Obiter: Ratio - contemporaneous bank withdrawals and clear bank credits of the funds' origin can satisfy the assessee's burden even in absence of formal books, provided the quantum and timing reasonably match the deposit in question. Obiter - skepticism about ATM withdrawals being for household expenses where higher amounts were withdrawn is factual commentary. Conclusion: The assessee discharged the evidentiary burden by producing bank statements showing large prior withdrawals and documented receipts; the cash deposit of Rs.6,00,000 was satisfactorily explained and could not be characterized as unexplained under Section 69A. Issue 3 - Validity of Assessing Officer's adverse inferences based on lack of books and alleged manipulation of cash flow statement Legal framework: Absence of books entitles the Assessing Officer to scrutinise alternative evidence more critically, but does not in itself preclude acceptance of credible bank records and contemporaneous documentary proof. Adverse inference is permissible only if the alternative evidence is shown to be unreliable or inherently implausible. Precedent treatment: The Tribunal weighed the AO's reliance on absence of books and subjective view of manipulation against the objective bank evidence; no precedent was overruled or distinguished in law - the Tribunal applied established evidentiary standards. Interpretation and reasoning: The Tribunal found the AO's negative conclusions were not substantiated by cogent contradictions in the bank records. The AO accepted deposit of Rs.9.90 lacs (from same set of documents) but arbitrarily rejected Rs.6,00,000 without identifying specific inconsistencies or improbabilities in the bank statement or provided receipts. The Tribunal held that generalized suspicion, unsupported by concrete discrepancies, is insufficient to draw an adverse inference and to treat the deposit as unexplained. Ratio vs. Obiter: Ratio - an Assessing Officer must point to concrete inconsistencies or lack of corroboration to justify treating documented cash deposits as unexplained; mere absence of formal books or untested assertions of manipulation is not enough. Obiter - remarks on the department's ITD portal processing and its bearing on AO's failure to consider portal responses. Conclusion: The AO's adverse inference based solely on non-maintenance of books and alleged manipulation of the cash flow statement was not justified in the presence of convincing bank records and supporting receipts; the addition was therefore unsustainable. Cross-reference See Issue 2 for the factual matrix relied upon to reject the AO's finding under Issue 3; the Tribunal's allowance of the appeal under Issue 1 is grounded on the evidentiary analysis set out in Issue 2 and the limits on adverse inference discussed in Issue 3.