2023 (8) TMI 1663 - AT - Income Tax

Addition under s.68 of Rs.44 lakh quashed; cash bank deposits accepted as sale proceeds of agricultural land

Onkar Singh S/o Sh. Atma Singh Versus Income Tax Officer, Ward- 3, Hoshiarpur

ITAT allowed the appeal and quashed an addition under s.68 of Rs.44 lakh. The tribunal found the assessee had substantiated that the bank deposits arose ... Addition u/s 68 - unexplained cash deposits - assessee has explained that he is doing agriculture farming and have no other source of income - Also the deposit in the bank was made out of sale proceeds of agriculture land against which the purchaser paid Rs. 15 lakh through cheque (executing for Sale Deed) and paid in cash Rs. 44,00,000/- in token of the receipt of sale - HELD THAT:- The revenue authorities never confronted the affidavit of the assessee duly filed both the stages. We respectfully relied on the order Mehta Parikh & Co [1956 (5) TMI 4 - SUPREME COURT] Both the payments are coherent in nature. The cash was even deposited on the date of execution of sales i.e., on dated 23/05/2006. In our considered view, the revenue has not taken any pain to complete the verification or has not confronted the affidavit of the assessee during assessment and appeal stages. We further relied on the order Shri Mangat Singh [2019 (1) TMI 1836 - ITAT CHANDIGARH] We find that the assessee was able substantiate the source of cash deposit in bank amount to Rs. 44 lakh which is part of consideration of sale proceed. We dismissed the appeal order. The addition u/s 68, amount of Rs. 44 lakh is quashed. Accordingly, Grounds of appeal of the assessee are allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether unexplained cash deposits in a savings bank account can be treated as unexplained income under section 68 where the assessee claims the deposits are sale consideration of agricultural land. 2. What is the evidentiary value of self-made affidavits and plain paper receipts produced by the claimant to establish source of cash deposits, and when such documents must be accepted or rejected. 3. Whether the revenue is obliged to cross-examine or otherwise effectively test the affidavit/witnesses relied upon by the assessee and to make independent enquiries from purported purchasers before making additions under section 68. 4. Whether failure to file computation of capital gains or to adduce proof of the nature of land sold is fatal to the claim that bank deposits represent sale proceeds for the assessment year in question. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Treatment of cash deposits as unexplained income under section 68 where claimed to be sale proceeds of agricultural land Legal framework: Section 68 permits treating credited amounts as unexplained where the assessee fails to satisfactorily explain the source of such credits. The legal enquiry focuses on whether the explanation offered is credible and supported by evidence. Precedent treatment: The Court considered precedent authority holding that unexplained cash deposits can be taxed under section 68 if not satisfactorily explained. It also considered decisions tempering wholesale rejection where credible corroboration exists. Interpretation and reasoning: The Tribunal examined the totality of facts - timing of sale deed (same date as deposit), bank credit pattern (cheque and cash credited on deed date), affidavit and receipt produced by the assessee, and the absence of effective confrontation of those documents by revenue. The Court found coherence between the sale deed execution and the credit entries, and noted that the Assessing Officer did not robustly test the affidavit or take adequate steps against the purchaser despite having means (PAN) to make enquiries. Ratio vs. Obiter: Ratio - where the assessee produces contemporaneous documentary indicators (sale deed, deposit entries on deed date) and files affidavits/receipts which are not effectively controverted by the revenue or tested by cross-examination, the addition under section 68 may not be sustainable. Obiter - general observations on investigative duties of revenue in differing factual matrices. Conclusion: Addition of the impugned cash amount under section 68 is quashed where the claimed source (sale proceeds) is coherently supported by timing and documentary indicia and where the revenue failed to adequately verify or rebut the claimant's evidence. Issue 2 - Evidentiary value of self-made affidavits and plain paper receipts Legal framework: Affidavits and receipts are admissible evidence but their probative weight depends on surrounding circumstances, corroboration, and whether they are challenged or subjected to verification. Precedent treatment (followed/distinguished): The Tribunal considered the Supreme Court decision recognizing that affidavits may require further scrutiny and are not inviolably binding; however, it also recalled authority where uncontested affidavits and unexplained non-challenge of cash book entries were accepted. The Tribunal distinguished situations where affidavits remain the only uncontroverted evidence and revenue did not exercise means to test them. Interpretation and reasoning: The Tribunal held that a blanket characterisation of affidavits as self-serving is insufficient if the revenue had opportunities and tools to rebut (e.g., summon purchasers) and did not pursue them. Where affidavits are supported by other contemporaneous facts (sale deed, bank credits on deed date), and revenue fails to confront the affidavits or call the deponents for cross-examination, the affidavits acquire greater cogency. Ratio vs. Obiter: Ratio - unchallenged affidavit/receipt coupled with contemporaneous documentary evidence may be accepted unless the revenue positively disproves or reasonably disputes the claim. Obiter - cautionary remarks that affidavits are not per se conclusive and must be examined case by case. Conclusion: Self-made affidavits and plain paper receipts can be accorded probative value sufficient to negate an addition under section 68 where they are temporally and factually coherent and where the revenue fails to meaningfully contest or verify them. Issue 3 - Duty of revenue to investigate: cross-examination of deponents and enquiries from purchasers Legal framework: Revenue has statutory powers (e.g., under section 133(6)) to examine third parties and gather information. The adequacy of departmental enquiries is relevant to the credibility assessment of the assessee's explanation. Precedent treatment: The Tribunal relied on prior orders where appellate bodies criticized the revenue for taking an 'easy route' of disbelief without exercising investigatory powers, and where remand or rejection of addition was warranted for failure to probe purchasers or property value. Interpretation and reasoning: The Tribunal held that where the assessee lacks control over purchasers and the revenue has sufficient means (PAN, addresses) to obtain confirmations or cross-examine deponents, it is incumbent upon revenue to make reasonable efforts. Mere denial by the purchaser, without further verification of documentary or circumstantial aspects, does not automatically validate an addition if the revenue failed to test the assessee's evidence. Ratio vs. Obiter: Ratio - departmental failure to exercise available powers to verify the assessee's explanation weakens the basis for additions under section 68. Obiter - specific investigative steps that revenue ought to take may vary with facts. Conclusion: The revenue must actively verify the assessee's explanation by cross-examining deponents or interrogating purchasers where feasible; failure to do so can justify acceptance of the assessee's explanation and quashing of the addition. Issue 4 - Relevance of absence of capital gains computation or proof of agricultural character of land Legal framework: Computation of capital gains and proof of nature of property are relevant for assessing tax consequences of a sale but are distinct from the narrow question whether a bank deposit is explained for section 68 purposes. Precedent treatment: Authorities recognize that assessment may not, on the same facts, require immediate determination of capital gains in order to accept that a deposit arises from sale proceeds; however, absence of relevant filings can bear on credibility in some contexts. Interpretation and reasoning: The Tribunal noted that neither the Assessing Officer nor the CIT(A) raised or adjudicated the issue of capital gains or the urban/agricultural character of the land in the impugned proceedings; those matters were not integral to the exercise of determining whether the cash deposit represented sale consideration. The Court found the absence of a capital gains computation not fatal to accepting the contemporaneous explanatory documents for the limited purpose of section 68 scrutiny. Ratio vs. Obiter: Ratio - absence of capital gains computation or evidence on land nature is not necessarily decisive against acceptance of sale proceeds as explanation for deposits under section 68 when contemporaneous and corroborative indicators exist and revenue fails to rebut. Obiter - where tax chargeability of gains or stamp duty escapement is separately relevant, revenue may raise those issues in appropriate proceedings. Conclusion: Failure to file capital gains computation or to prove land characterization does not automatically render a claim that deposits are sale proceeds unacceptable for section 68 purposes; acceptance depends on the totality of evidence and on whether the revenue has meaningfully challenged the claim. Overall Disposition The Court held that on the facts the claimed cash deposit was satisfactorily explained as part of sale consideration for agricultural land, that the affidavit/receipt and timing of bank credits provided cogent corroboration, and that the revenue's failure to adequately verify or confront the evidence rendered the addition under section 68 unsustainable; accordingly the addition was quashed and the appeals allowed.