2024 (4) TMI 1301 - AT - Income Tax

Additions under Section 68 for demonetisation-era cash deposits deleted where assumptions lacked material evidence and linkage

ITAT allowed the appeal and deleted additions made under s.68 relating to an abnormal rise in cash deposits during demonetization. The Tribunal held that ... Addition u/s 68 - extra ordinary and abnormal rise in the cash deposit in his bank account during demonetization period - HELD THAT:- It is not the case of trading additions where past history is used for estimations. Hence in this case, the past years withdrawals history cannot be used in this type of cases. It is the settled law that no addition can be made on the basis of assumption, presumption, suspicion and guess work, without any material evidences. As decided in Krishna Agarwal [2021 (9) TMI 625 - ITAT JODHPUR] mere absence of supporting documentation cannot be a reason enough to allege any malafide in explanation so submitted especially where assessee has explained and duly disclosed source of deposits in bank account out of which withdrawals have been made and has thus established necessary linkage and availability of cash in hand - Mere time gap between withdrawals and deposits cannot be a sole basis for rejecting explanation of assessee regarding availability of cash in hand where there is no material that amount so withdrawn has been utilized somewhere else and thus supports case of assessee-Addition so made be deleted-Assessee's appeal allowed'. Thus entire additions made by the AO is deleted. ISSUES PRESENTED AND CONSIDERED 1. Whether the delay in filing the appeal by the assessee (19 days) should be condoned having regard to the explanation offered. 2. Whether the Assessing Officer acted without jurisdiction, in violation of natural justice, or otherwise improperly in making the assessment and confirming notices leading to challenged additions (grounds 1 and 2) - specifically, whether the first appellate authority erred in passing an ex parte order without adequate opportunity. 3. Whether cash deposits of Rs. 14,87,500 made during the demonetization period in the assessee's bank account can be treated as unexplained income under section 69A where the assessee explains deposits as re-deposits of earlier cash withdrawals. 4. Whether invocation of tax at higher rate under section 115BBE and charging of interest under sections 234A/B/C were legally sustainable in the absence of requisite show-cause notice or proper application of the provisions. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of delay in filing appeal Legal framework: Principles permitting condonation of delay require the Appellate Tribunal to consider the explanation offered by the appellant and to exercise discretion judicially where there is sufficient cause. Precedent Treatment: The Tribunal applied settled discretionary principles (no specific external precedent invoked in this judgment) in assessing bona fides and reasonableness of the explanation. Interpretation and reasoning: The assessee produced an affidavit explaining that the delay resulted from a genuine oversight by staff who failed to hand over the appellate papers to counsel; counsel prepared the appeal promptly upon becoming aware. The Revenue objected. The Bench found merit in the explanation and exercised discretion to condone the 19-day delay. Ratio vs. Obiter: Ratio - A short, bona fide delay caused by staff oversight which is promptly remedied may be condoned; exercise of discretion is warranted where explanation is reasonable. Conclusion: Delay of 19 days condoned; appeal admitted for consideration. Issue 2 - Validity of assessment/violation of natural justice (grounds 1 & 2) Legal framework: Assessments must be within jurisdiction, not barred by limitation, and comply with principles of natural justice (opportunity to be heard). First appellate authority must afford adequate hearing before passing orders; ex parte orders without opportunity are subject to challenge. Precedent Treatment: No fresh precedent overruled or distinguished; Tribunal applied ordinary principles of natural justice and procedural fairness to find that the assessee did not press grounds 1 & 2 at final hearing. Interpretation and reasoning: At hearing before the Tribunal, the assessee's representative did not advance submissions on grounds alleging lack of jurisdiction, barred limitation, or ex parte order. Consequently, those grounds were dismissed for want of prosecution/argument. The Tribunal did not reach the substantive merit of those procedural complaints because the assessee failed to press them. Ratio vs. Obiter: Ratio - Procedural or jurisdictional grounds abandoned at hearing may be dismissed; an appellate forum need not decide issues not argued by a party. Conclusion: Grounds alleging invalid notices, limitation, lack of approval, and ex parte disposal were dismissed for want of argument; no substantive adjudication on those points. Issue 3 - Addition under section 69A for cash deposits during demonetization Legal framework: Under section 69A, cash found to be unexplained can be deemed income if the assessee fails to satisfactorily account for it. Where deposits are in the assessee's bank account and the assessee offers explanation that deposits are re-deposits of earlier cash withdrawals, the AO is entitled to enquire and evaluate whether the explanation is reasonable, appropriate and satisfactory in the facts and circumstances. Precedent Treatment: The Tribunal relied on and respectfully followed the ratio of co-ordinate bench decisions which held that mere absence of documentary evidence does not automatically render the assessee's explanation unacceptable where the assessee demonstrates withdrawals in earlier years and there is no material to show those withdrawals were spent or utilized elsewhere. Those co-ordinate-bench conclusions were treated as directly applicable. Interpretation and reasoning: The AO observed an extraordinary rise in cash deposits during demonetization and disbelieved the assessee's explanation that the deposits were re-deposits of earlier cash withdrawals, relying on prior-year bank statements showing larger withdrawals than deposits and inferring utilization of withdrawn cash. The Tribunal scrutinized the record and found: (a) the assessee filed bank statements and a chart showing withdrawals and redeposits; (b) the AO had no independent evidence to demonstrate that earlier withdrawals were expended or applied to other assets or purposes; (c) mere time gap between withdrawals and deposits is not decisive absent material showing utilization elsewhere; and (d) findings of the AO were based on assumption, presumption and suspicion rather than demonstrable evidence. Ratio vs. Obiter: Ratio - Where a taxpayer explains deposits as re-deposits of prior withdrawals and provides bank statements showing withdrawals, and where the AO cannot show that withdrawals were spent or applied elsewhere, an addition under section 69A cannot rest solely on suspicion or on the fact of timing (e.g., demonetization) or comparison with historical deposit patterns; the explanation must be rejected only on cogent contrary material. This reasoning follows co-ordinate bench holdings and constitutes the operative ratio applied by the Tribunal to the present facts. Conclusion: The addition of Rs. 14,87,500 under section 69A was deleted. The Tribunal found the AO's addition unsustainable because it relied on speculation and failed to produce evidence of utilization of earlier withdrawals; the assessee's explanation, supported by bank statements, raised a reasonable explanation that could not be rejected on mere suspicion. Issue 4 - Invocation of section 115BBE and charging interest under sections 234A/B/C Legal framework: Section 115BBE prescribes special rates for taxation of certain undisclosed income; its application requires factual and legal triggers and, where applicable, procedural fairness (e.g., appropriate notices). Interest under sections 234A/B/C is chargeable as per law where tax is outstanding or returns are delayed as per prescribed conditions. Precedent Treatment: The Tribunal noted the assessee's ground challenging invocation of section 115BBE and interest charges but the assessment on appeal dealt primarily with deletion of addition under section 69A. The judgment's operative order deleted the unexplained income addition; consequent applicability of section 115BBE and interest becomes academic in absence of a confirmed addition. Interpretation and reasoning: The assessee argued that section 115BBE was invoked without issuing a show-cause notice and was inapplicable. However, because the Tribunal deleted the addition under section 69A, there remained no undisclosed income on which section 115BBE or interest would validly apply. The Tribunal did not make a detailed separate adjudication on the procedural adequacy for invoking section 115BBE or the merits of interest charges, as the primary source of those charges was the deleted addition. Ratio vs. Obiter: Obiter - The reasoning that, since the primary addition is deleted, consequential invocation of enhanced tax rate and interest is not sustainable in this appeal is an outcome-based conclusion; the Tribunal did not elaborate a standalone legal ratio on procedural requirements for invoking section 115BBE or on interest applicability beyond the consequence of deletion of the addition. Conclusion: As the addition under section 69A is deleted, corresponding invocation of section 115BBE and interest charges (sections 234A/B/C) cannot stand in the present appeal; those consequential additions are effectively removed by deletion of the primary addition. Overall Disposition The Tribunal condoned the delay in filing the appeal, dismissed unpressed procedural grounds for want of argument, deleted the addition of Rs. 14,87,500 under section 69A on the ground that AO's conclusions rested on presumption and suspicion without evidence of utilization of earlier withdrawals, and thereby rendered the consequential invocation of section 115BBE and interest charges unsustainable in the appeal. The appeal was partly allowed to the extent indicated above.