2023 (8) TMI 23 - AT - Income Tax

Tribunal partially overturns addition of unexplained cash deposits under Income Tax Act

The Tribunal allowed the appeal filed by the assessee, partially overturning the addition of unexplained cash deposits under section 68 of the Income Tax ... Addition u/s 68 - cash deposit in his savings bank account remains unexplained - Assessee explained to be agricultural income - HELD THAT:- As the agricultural income was not denied and he has explained source as he is the owner of agricultural land of 15 acres which was not controverted by AO in his assessment order or CIT(A) or now by the Senior DR before me, except creating some suspicion. We accept this credit as explained for the reason that the assessee has sources of earning i.e., agricultural income from 15 acres of land. Hence, addition of cash credit of Shri P. Karthikeyan is deleted hereby. Cash credit from Shri P. Sakthivel - Going by the ownership of land that Shri P. Sakthivel’s grandfather and mother was the owner of 5 acres of land and Shri M. Muthukumar is owner of 3.2 acres of land, it is not possible to have accumulated Rs. 8,00,000/- each for advancing this amount for purchase of land. However going by the status and holding of land, I estimate that both might have saved a sum of Rs. 4,00,000/- each and advanced these for purchase of land to the assessee. I estimate the balance undisclosed income at Rs. 8,00,000/-. Accordingly, I estimate the explained money of these two cash credits namely Shri P. Sakthivel and Shri M. Muthukumar of Rs. 8,00,000/- and balance Rs. 8,00,000/- to be treated as unexplained. Appeal filed by the assessee is partly-allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the delay of 35 days in filing the appeal should be condoned as reasonable. 2. Whether cash deposits of Rs. 24,00,000 in the assessee's bank account constitute unexplained cash credit under section 68 of the Income Tax Act, 1961, where the assessee asserts the deposits are advances from three persons pursuant to an agreement to sell agricultural land. 3. If section 68 is attracted, whether the claimed sources (the three alleged creditors) are satisfactorily proved in respect of (a) genuineness of transactions and (b) sufficiency of means of the creditors to advance the stated amounts, and what portion, if any, of Rs. 24,00,000 should be accepted as explained. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of delay (35 days) Legal framework: Time-limit for filing appeal prescribed by statute; tribunal has jurisdiction to condone delay upon satisfaction of reasonable cause. Precedent Treatment: No authority cited or relied upon in the order. Interpretation and reasoning: The assessee filed an affidavit attributing the delay to a mistake by the Chartered Accountant's office, specifically that the order was sent to counsel only in mid-November leading to belated filing. The Departmental Representative did not controvert the factual narrative. The Tribunal examined the affidavit and attendant facts and concluded the cause for delay was reasonable. Ratio vs. Obiter: Ratio - discretion exercised to condone delay on demonstration of reasonable cause and absence of contrary objection from revenue; Obiter - none. Conclusion: Delay of 35 days in filing the appeal is condoned and the appeal is admitted. Issue 2 - Applicability of section 68 to cash deposits claimed as advances under sale agreement Legal framework: Section 68 treats unexplained cash credits as taxable unless the assessee satisfactorily explains the nature and source of the credit, including genuineness of transactions and capacity of the creditor to advance the amount. Precedent Treatment: No judicial precedents were cited in the decision; the Tribunal applied statutory tests and fact-based assessment. Interpretation and reasoning: The AO recorded that deposits aggregating Rs. 25,61,000 included Rs. 24,00,000 claimed to be three advances of Rs. 8,00,000 each under an unregistered agreement to sell agricultural land. The AO examined the creditors and, noting deficiencies in documentary proof and improbabilities in claimed means, treated the entire Rs. 24,00,000 as unexplained and added it under section 68. The CIT(A) affirmed. On appeal, the Tribunal re-examined the oral statements, admitted facts about land ownership and agricultural income of the creditors, and evaluated 'human probabilities' and the credibility of explanations. For one creditor (owner of 15 acres), the Tribunal accepted the explanation that savings and withdrawals supported an Rs. 8,00,000 advance. For the other two creditors, the Tribunal concluded their stated means were insufficient to justify advances of Rs. 8,00,000 each and, on the basis of assessment of probable savings, allowed Rs. 4,00,000 each as explained and treated the remaining Rs. 8,00,000 as unexplained. Ratio vs. Obiter: Ratio - where the assessee relies on advances from third parties to explain cash credits under section 68, the tribunal must assess both genuineness of the transaction and the financial capacity of the creditors; oral admission by creditors, coupled with credible indicia of means, can constitute satisfactory explanation for part or whole of the credit. Obiter - reliance on 'human probabilities' as a factor in quantifying explained amounts. Conclusion: Section 68 is not automatically attracted; part of the Rs. 24,00,000 is accepted as explained (Rs. 16,00,000) and part (Rs. 8,00,000) is treated as unexplained cash credit taxable under section 68. Issue 3 - Evaluation of evidentiary sufficiency and quantification of explained vs unexplained amount Legal framework: Burden on assessee to satisfactorily explain cash credits as per section 68 by proving nature/genuineness and source; tribunal may accept oral statements corroborated by circumstances and documentary material; where full proof is absent, reasonable estimation may be applied. Precedent Treatment: No precedents cited; the Tribunal applied statutory standard and fact assessment. Interpretation and reasoning: The Tribunal examined the three creditors' statements and ancillary facts: (a) creditor A's ownership of 15 acres and declared agricultural income of Rs. 2-3 lakhs per annum, corroborated by intention to produce proof, supported acceptance of Rs. 8,00,000 as advanced savings; (b) creditor B lacked documentary proof, had only family land ownership claims and implausible expenditure-to-income ratios, making a full Rs. 8,00,000 advance improbable - Tribunal estimated likely savings at Rs. 4,00,000; (c) creditor C's modest means and lack of produced documents rendered full acceptance improbable - Tribunal estimated likely savings at Rs. 4,00,000. The Tribunal therefore apportioned explained amounts (Rs. 8,00,000 + Rs. 4,00,000 + Rs. 4,00,000 = Rs. 16,00,000) and found Rs. 8,00,000 unexplained. The Tribunal emphasized that absence of registration of the agreement and lack of interest/payment or steps to enforce refund did not, by themselves, conclusively render advances improbable where credible explanation of source existed. Ratio vs. Obiter: Ratio - quantification under section 68 may be made by assessing the credibility of creditors' means and applying reasonable estimation where documentary proof is incomplete; oral admission by creditors combined with credible indicia of means can suffice for acceptance of part or whole of asserted amounts. Obiter - the specific numeric apportionment reflects case-specific factual evaluation rather than a general rule. Conclusion: The Tribunal deleted Rs. 8,00,000 (accepted as explained in respect of one creditor in full and part-accepted for two creditors) and directed the AO to accept Rs. 16,00,000 as explained while making an addition of Rs. 8,00,000 as unexplained cash credit under section 68.