2025 (2) TMI 1455 - AT - Income Tax

Cash deposits during demonetisation and unexplained loans: IDS declaration accepted, additions under s.68 overturned

Addition under section 68 for cash deposited during demonetisation was examined on whether Income Declaration Scheme (IDS) evidence established source; ... Addition u/s 68 on account of cash deposited in Bank A/c during demonetization period - proof of source via Income Declaration Scheme, 2016 - Burden of proof to establish identity, genuineness and creditworthiness - HELD THAT:- Assessee's cash holding is very much accepted by department. We note that the CIT(A) has rejected assessee's documents of IDS terming the same as additional evidence but those documents are statutory documents forming part of record of Income-tax Department itself and the CIT(A) is neither justified in rejecting the same nor making a wrong/invalid conclusion when the assessee has declared cash of Rs. 40,00,000/- under IDS and paid tax thereon and the same has been accepted by department. Revenue, though dutifully relied upon orders of lower-authorities, is not able to controvert the submission of AR. Being so, we agree that the source of cash deposit stands explained by assessee from cash declared in IDS and hence the addition made by AO is not sustainable. Addition u/s 68 on account of unexplained unsecured loans -Documents were deliberated during hearing and Ld. DR for revenue could not point out any adverse feature. Thus, considering the fact that neither the AO has reported any adverse feature to CIT(A) despite having conducted remand-proceeding nor the revenue is now able to demonstrate any adverse feature in any of the new loans taken by assessee, no addition can be made even for the new loans taken during the year. This brings us to conclude that the entire addition made by AO is not sustainable. Decided in favour of assessee. Issues: (i) Whether addition of Rs. 40,00,000 made u/s 68 on account of cash deposited during demonetization period is sustainable; (ii) Whether addition of Rs. 2,50,37,941 made u/s 68 on account of unexplained unsecured loans is sustainable.Issue (i): Whether the assessee has satisfactorily explained the source of Rs. 40,00,000 deposited in bank during demonetization period.Analysis: Assessee produced statutory records of the Income Declaration Scheme, 2016 including Form No.1 and Form No.4 showing declaration of cash-in-hand of Rs. 40,00,000 and payment of applicable tax/penalty; the department had issued Form No.4 certifying description as 'CASH IN HAND'. The AO had accepted explanation for a different deposit (Rs. 28,00,000) but treated the Rs. 40,00,000 deposit as unexplained. The appellate record shows the IDS documents are departmental/statutory records and were not properly rejected as additional evidence; revenue did not controvert the source established by IDS materials.Conclusion: Addition of Rs. 40,00,000 u/s 68 is deleted and the issue is decided in favour of the assessee.Issue (ii): Whether the assessee has discharged onus to explain unsecured loans totalling Rs. 2,50,37,941 treated as unexplained credits u/s 68.Analysis: The AO's computation included opening balances and fresh loans; opening balances cannot be newly taxed in the current year. The assessee furnished ledger particulars, PAN/addresses, bank statements, ITRs, loan confirmations, proof of payments (account-payee cheques), interest payments with TDS and invoked Rule 46A to place additional documents on record. The AO conducted remand proceedings and there is no adverse remand report to the CIT(A). NBFC loans (Bajaj Finance) were prima facie credible. Revenue could not point to adverse features in the documents for the fresh loans. On the material before the Tribunal, the fresh loans were explained and the AO's addition treating all listed amounts as unexplained credits was not sustainable.Conclusion: Addition of Rs. 2,50,37,941 u/s 68 is deleted and the issue is decided in favour of the assessee.Final Conclusion: Both impugned additions (Rs. 40,00,000 and Rs. 2,50,37,941) are held unsustainable on the facts and material on record; the appeal is allowed.Ratio Decidendi: Statutory declaration under the Income Declaration Scheme, 2016 (Form Nos.1/4) establishing cash-in-hand and admissible corroborative documents placed under Rule 46A, together with absence of adverse remand report, suffice to discharge the assessee's burden under Section 68 to explain source and genuineness of deposits/loans; opening balances cannot be subjected to addition in the assessment year.