2020 (8) TMI 961 - AT - Income Tax

Sections 69B and 68 additions deleted where unexplained cash deposits shown as proceeds from mother's silver and jewellery sales

Shri Palimar Gopal Shetty Versus ITO Ward 26 (2) (4), Mumbai.

ITAT Mumbai allowed the assessee's appeal and deleted additions under sections 69B/68 relating to unexplained cash deposits claimed to be proceeds of ... Addition u/s. 69B - Unexplained cash as claimed to have been sourced from the sale of silver utensils and jewellery by the mother of the assessee on the ground that the vouchers were not produced - HELD THAT:- Assessee is a retired government employee and source of income consists of salary and other sources - HELD THAT:- We note that the revenue authorities are convinced about the source of deposit of about a sum of Rs. 11,00,000/- in saving account and Rs 1,06,81,872/- in time deposit account by the assessee without much enquiry, but they are disbelieving the deposit of Rs 9,69,565/-. In our considered opinion, when it can be accepted that the assessee is capable of depositing so much money in the bank without any enquiry, the adverse inference for a small amount is strange. The assessee is not required to maintain books of accounts and in this view of the matter addition u/s 68 in this case for sums found in bank statement is not sustainable. Moreover this is over and above our finding as above that the revenue has accepted the assessee being capable of depositing a huge sum without much enquiry or discussion. In this view of the matter, in our considered opinion the addition is liable to be deleted. Accordingly, we set aside the orders of authorities below and delete the addition. Appeal by the assessee stands allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an addition under section 69B/section 68 (unexplained cash deposits) is sustainable where the assessee claims deposits arose from sale of household silver and jewellery but fails to produce sale vouchers. 2. Whether funds reflected in bank accounts (savings and term deposits) can be treated as unexplained income when the revenue accepts, on the facts, that the assessee was capable of making substantial deposits and the assessee is not carrying on any business requiring maintenance of books of account. 3. Whether authorities below correctly relied upon a High Court decision concerning business assessee's obligation to maintain books (and applicability of section 68) in a case where the assessee is not in business. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sustenance of addition under section 69B/section 68 for cash deposits where sale vouchers are not produced Legal framework: Section 68 (as applied/analogous to section 69B reasoning) permits charging to tax sums found credited or unexplained cash deposits where the assessee offers no explanation or the explanation is not satisfactory. The burden lies on the assessee to satisfactorily explain the nature and source of deposits; proof such as sale receipts may be required where relevant. Precedent treatment: Authorities below disallowed the amount for want of documentary proof of sale of jewellery/utensils. The Tribunal examined and distinguished the line of authority that treats deposits as assessable where the assessee is carrying on business and has an obligation to maintain books. Interpretation and reasoning: The Tribunal observed that the assessing officer accepted the source for large portions of deposits but selectively disbelieved a portion (Rs. 9,69,565) claimed to be from sale of household items because vouchers were not produced. The Tribunal found this approach inconsistent where the revenue otherwise accepted that the assessee was capable of making substantial deposits without probing sources. Further, since the assessee was a retired government employee (not carrying on business), there was no statutory obligation to maintain books or to produce business accounting records; bank passbooks are not treated as books of the assessee. Ratio vs. Obiter: Ratio - Where the assessee is a non-business individual and substantial deposits are otherwise accepted on the record, reliance solely on absence of sale vouchers for a small part of deposits to make an addition under section 68/69B is not sustainable. Obiter - Observations on the nature of bank passbooks and their non-status as books of the assessee, while supported by precedent, are applied to reinforce the primary ratio. Conclusion: The addition of Rs. 9,69,565 for want of sale vouchers was deleted; the assessee's explanation (sale of household silver/jewellery) could not be rejected solely on absence of documentary proof when the broader deposit pattern was accepted and the assessee was not required to maintain books of account. Issue 2 - Treatment of bank deposits and the requirement of enquiry when assessee is not in business Legal framework: The taxing provision permits treating unexplained credits as income, but application requires satisfaction that the explanation is unsatisfactory. Distinction exists between deposit evidence in cases of business assessees (where books are required) and non-business individuals. Precedent treatment: The Tribunal referred to binding High Court authority establishing that bank passbooks are not books of the assessee and that presence of deposits in bank accounts, without more, does not automatically convert into undisclosed income where the assessee is not in business and not bound to maintain books. Interpretation and reasoning: The Tribunal compared the revenue's treatment of large deposits (accepted without much enquiry) with its denial of a relatively small sum. It held that accepting capability to deposit large sums but disbelieving a smaller component without adequate inquiry is unreasonable. The Tribunal emphasized that the statutory regime underlying section 68/69B cannot be mechanically applied to bank credits of a non-business assessee absent cogent contrary evidence. Ratio vs. Obiter: Ratio - Revenue must consistently apply scrutiny; if large deposits are accepted on the facts, adverse inference against a small component must be supported by specific contrary evidence, especially where the assessee is not in business. Obiter - Commentary on proportionality of enquiry and practical considerations in evaluating explanations. Conclusion: The entry treating the disputed amount as unexplained income was unsustainable; deletion was warranted because the revenue's selective disbelief lacked adequate basis and the legal position applicable to non-business assessee militated against addition. Issue 3 - Appropriateness of reliance on a business-focused High Court decision by the appellate authority below Legal framework: Precedents construing section 68 differ in application depending on factual matrix - notably whether the assessee is engaged in business requiring maintenance of accounts. Precedent treatment: The appellate authority below relied on a High Court decision addressing a taxpayer engaged in business and obligations to maintain books; the Tribunal examined whether that decision was factually and legally applicable to the present non-business facts. Interpretation and reasoning: The Tribunal held the lower authority's reliance on the business-centric decision to be misplaced, because that precedent's ratio concerned duties of a business assessee and the consequences of absence of books. Since the present assessee was not carrying on business, the distinguishing factual matrix rendered the precedent inapplicable. The Tribunal further noted another High Court authority supporting that bank passbooks are not books of the assessee. Ratio vs. Obiter: Ratio - A decision concerning a business assessee's obligation to maintain books is distinguishable and should not be applied to a non-business assessee's unexplained deposits without careful factual parity. Obiter - Observations about absence of overruling and reliance on jurisdictional High Court authority. Conclusion: The lower authority erred in relying on a business-focused precedent; the correct approach required application of authorities and principles pertinent to non-business individuals, leading to deletion of the addition. Overall Disposition The Tribunal allowed the appeal and deleted the addition of Rs. 9,69,565, holding that (a) selective disbelief of a small portion of accepted deposits without adequate inquiry or contrary evidence is unreasonable, (b) the assessee being a non-business individual was not under a book-keeping obligation that would justify strict application of section 68/69B, and (c) the precedent relied upon by the lower authority was distinguishable on facts and wrongly applied.