2025 (1) TMI 1395 - AT - Income Tax

Assessee wins appeal as unexplained cash deposits and investments deleted after providing adequate documentation of foreign sources

Rekha Sanjeev Bhatt Versus ITO, Ward-2 International Tax, Ahmedabad.

ITAT Ahmedabad allowed the appeal in favor of the assessee, deleting all additions made by AO regarding unexplained cash deposits and investments. The ... Addition of cash deposited in her bank account - additions made on account of source of cash deposited in bank account of the assessee/ investment in immovable property remaining unexplained - Onus to prove - HELD THAT:- When the assessee and her husband carried the amount immediately after withdrawal from South Africa to India, and deposited the same immediately thereafter in the Indian Bank NRE account of the assessee, jointly held with her husband. The assessee has also filed confirmation of the said facts from the auditors of the “SPPL”. The assessee, we have noted, also explained the relationship between the said company and herself by pointing out that her spouse is a director of the company, which was one director company. All these evidences have not been disputed by any of the authorities below. Thus, it is clearly evident that the assessee had explained the source of 50,000 USD and deposit as being the withdrawals made from a company in SA i.e. “SPPL” in which her spouse was a director. Reason for rejection by the DRP that, it is baffling and beyond one’s logic as to why in this digital era any person would carry dollars physically. We agree with assessee, is absolutely a flimsy reason and of no consequence for rejecting the assessee’s explanation. It is immaterial for the purpose of proving the genuineness of the transaction, we hold, as to why any person would carry dollars in cash ,as long as the fact of the assessee carrying the dollar in cash was duly evidenced with documents which is not disputed by the Department also. DRP has also noted that the assessee has failed to explain the source of 50,000 USD which we find is absolutely incorrect. All the documents filed by the assessee duly explain the source of 50,000 USD as being from withdrawals effected from SSPL. DRP has not pointed out as to how the said documents failed to prove the source of 50,000 USD. Revenue authority had no substantial reasons for rejecting the assessee’s explanation of the source of deposits in cash in her bank account which we find was duly evidenced with proper supporting documents. No reason to confirm the order of the AO and the addition, therefore made of cash deposited in the bank account of the assessee is accordingly directed to be deleted. Investment made in an immovable property - only reason apparently for rejecting the assessee’s explanation is that there is no explanation as to why this amount has been transferred by the said foreign company on behalf of the assessee, and also on account of proper confirmation of the said transaction not being filed by the assessee from the foreign entity - HELD THAT:- As for the reason for rejecting the assessee’s explanation in the absence of any explanation furnished by the assessee, as to why the impugned investment was made by the foreign entity, we do not find any substance in the same. As long as there is no dispute about the fact of the investment being made by the said foreign entity, why the foreign entity made the investment, does not impinge in any way on the genuineness of the transaction. Revenue authorities have not given any reasons as to how this reasoning would in any way effect the genuineness of the transaction. Therefore, this reason for rejecting the assessee’s explanation is dismissed by us, finding no substance in the same. No proper confirmation being filed by the assessee, we have noted that the even the DRP has noted the fact of confirmation being filed by the management of the foreign entity. Having noted so, we see no reason for doubting the genuineness of the same. We find that the addition on account of unexplained investment in the immovable property has been made by the AO for no proper reasons despite the fact that the assessee has given proper explanation of the source of the same, evidenced with proper documentary evidences, substantiating with proper documentary evidences, which have not been doubted by the authorities below. Addition deleted. Unexplained investment - amount paid for registration charges and stamp duty charges for purchase of aforementioned immovable property - HELD THAT:- This is despite the fact that DRP notes credit of 36675 USD in her ICICI Bank account which was utilized for paying stamp duty and registration fee. As noted above, the assessee had explained USD being credited in the bank account as being advanced by her son Kush Bhatt from his bank account in Investec Specialist Bank Account. Even the ITR of son was filed by the assessee. We fail to understand as to what basis the DRP had for recording finding that the assessee had failed to discharge her onus of explaining the source of investment with the supporting documents, when the fact on record are completely to the contrary reflecting that the assessee had filed all supporting evidences, explaining the source of the said investment, as coming out of the advances given by her son to the assessee from his foreign account. Addition made on account of unexplained investment is held to be untenable on the facts, and the AO is directed to delete the same. Addition made to the income of the assessee on account of cash deposited in her bank account, source of which remained unexplained - HELD THAT:- Asessee’s explanation of the credit in her bank account being the reimbursement of her travelling expenses by “SHTL” was rejected for the reason that the assessee failed to explain the relationship between her and the said company and rationale for the said transaction. We have noted that the assessee had explained that she was promoter director of the said company, and she had visited also for the official purpose, and the company, therefore, reimbursed her travelling expenses. Therefore, the assessee, we find, had explained her relationship with “SHTL” and also rationale for the said transaction. The reasoning therefore by the DRP for rejecting the assessee’s explanation is arbitrary and without considering the facts on record. The addition, therefore made, we hold, in her bank account is not tenable on the basis of facts on record itself, and is directed to be deleted. Cash deposit or amounts invested in immoveable property, were all carried out from her NRE account , which is an Indian Rupee savings account where foreign income earned outside India is parked - Where the transactions whose genuineness is doubted in the case of a non-resident is from NRE account and the assessee has explained the source of the said transactions as either from withdrawals made from companies, in which she/her spouse are associated, outside India or from funds advanced by her son outside India, we have no hesitation in holding that the assessee has sufficiently discharged her onus of proving the genuineness of the transactions. The Revenue, we have noted, has given no proper reason for finding the explanation not satisfactory. Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in the judgment were:Whether the additions made to the assessee's income on account of unexplained cash deposits and investments were justified under the Income Tax Act, 1961.Whether the assessee satisfactorily explained the source of cash deposits in her bank account amounting to Rs. 35,67,644/- under section 69A of the Act.Whether the investment in immovable property amounting to Rs. 2,00,21,362/- was unexplained under section 69 of the Act.Whether the payment of Rs. 26,19,000/- for stamp duty and registration fees was unexplained under section 69 of the Act.Whether the cash deposit of Rs. 2,07,440/- in the assessee's bank account was unexplained under section 69A of the Act.ISSUE-WISE DETAILED ANALYSIS1. Unexplained Cash Deposit of Rs. 35,67,644/-Relevant legal framework and precedents: The issue was considered under section 69A of the Income Tax Act, which deals with unexplained money, investments, etc.Court's interpretation and reasoning: The Tribunal found that the assessee had provided sufficient documentary evidence to explain the source of cash deposits as withdrawals from a company in South Africa, where her spouse was a director. The explanation was supported by bank statements and declarations.Key evidence and findings: The assessee provided currency declaration forms, bank statements, and confirmations from the company's auditors.Application of law to facts: The Tribunal held that the assessee had satisfactorily explained the source of the cash deposits, and the addition made by the AO was not justified.Treatment of competing arguments: The Tribunal dismissed the Revenue's argument that carrying cash was illogical in the digital era, finding it irrelevant to the genuineness of the transaction.Conclusions: The addition of Rs. 35,67,644/- was directed to be deleted.2. Unexplained Investment in Immovable Property of Rs. 2,00,21,362/-Relevant legal framework and precedents: Considered under section 69 of the Act, which pertains to unexplained investments.Court's interpretation and reasoning: The Tribunal found that the investment was made by a foreign entity on behalf of the assessee's spouse, and the assessee had provided sufficient evidence to explain the source.Key evidence and findings: Bank statements of the foreign company, confirmations from the company's management, and related financial documents were provided.Application of law to facts: The Tribunal held that the assessee had demonstrated the source of the investment, and the addition was not warranted.Treatment of competing arguments: The Tribunal rejected the Revenue's claim that the lack of explanation for the foreign entity's involvement affected the genuineness of the transaction.Conclusions: The addition of Rs. 2,00,21,362/- was directed to be deleted.3. Unexplained Payment for Stamp Duty and Registration Fees of Rs. 26,19,000/-Relevant legal framework and precedents: Also considered under section 69 of the Act.Court's interpretation and reasoning: The Tribunal found that the payment was sourced from funds transferred by the assessee's son from his foreign bank account.Key evidence and findings: Bank statements, confirmations from the son, and related financial documents were submitted.Application of law to facts: The Tribunal held that the assessee had adequately explained the source of the funds, and the addition was not justified.Treatment of competing arguments: The Tribunal found the Revenue's rejection of the explanation to be without basis, as the evidence provided was substantial.Conclusions: The addition of Rs. 26,19,000/- was directed to be deleted.4. Unexplained Cash Deposit of Rs. 2,07,440/-Relevant legal framework and precedents: Considered under section 69A of the Act.Court's interpretation and reasoning: The Tribunal found that the deposit was a reimbursement of travel expenses by a company where the assessee was a director.Key evidence and findings: Travel invoices, ledger accounts, and confirmations from the company were provided.Application of law to facts: The Tribunal held that the assessee had satisfactorily explained the source of the deposit, and the addition was not warranted.Treatment of competing arguments: The Tribunal dismissed the Revenue's argument regarding the lack of explanation for the relationship and rationale of the transaction.Conclusions: The addition of Rs. 2,07,440/- was directed to be deleted.SIGNIFICANT HOLDINGSThe Tribunal emphasized the importance of documentary evidence in substantiating the source of income and investments, particularly for non-residents with foreign transactions.The Tribunal held that the Revenue must provide substantial reasons for rejecting explanations provided by the assessee, especially when supported by documentary evidence.The Tribunal underscored that the genuineness of a transaction is not affected by the mode of carrying money, as long as it is evidenced properly.Final determinations were made to delete all the additions made by the AO, allowing the appeal of the assessee in full.