2025 (5) TMI 607 - AT - Income Tax

Taxpayer Wins Partial Relief: Section 69A Challenge Succeeds, Bank Deposit Dispute Remanded for Fresh Scrutiny

The AT partially allowed the appeal challenging an income tax addition under Section 69A. The tribunal found the Assessing Officer's addition of Rs. ... Addition u/s 69A - deposits in current account during the demonetization period - as alleged by the AO that assessee has failed to explain the nature and source of the same - HELD THAT:- The contention of the assessee is that the account in which the cash deposits were made during demonetization period appears to be correct. Therefore, the addition made by the AO u/s 69A in the hands of the assessee cannot be sustained. For the limited purpose of the verification of the facts and contentions of the assessee the issue is restored to the file of the AO to verify the contentions of the assessee and if the contentions of the assessee are proved to be correct the addition u/s 69A of the Act in the hands of the assessee cannot be made. Appeal of the Assessee is partly allowed for statistical purpose. Issues Presented and ConsideredThe core legal questions considered by the Appellate Tribunal (AT) in this appeal are:Whether the addition of Rs. 29,50,000/- made under Section 69A of the Income Tax Act, 1961 ('the Act') as unexplained money, based on alleged cash deposits in the assessee's bank account during the demonetization period, is justified.Whether the Assessing Officer (AO) correctly identified the bank account and the assessee as the person responsible for the alleged cash deposits during demonetization.Whether the assessee has satisfactorily explained the nature and source of the alleged cash deposits, thereby negating the applicability of Section 69A.The procedural correctness and evidentiary basis of the addition, including adherence to principles of natural justice.Issue-wise Detailed AnalysisIssue 1: Validity of Addition under Section 69A Based on Alleged Cash DepositsRelevant Legal Framework and Precedents: Section 69A of the Income Tax Act empowers the AO to treat unexplained cash credits or deposits as income of the assessee if the assessee fails to satisfactorily explain the nature and source of such credits. The burden lies on the assessee to prove the legitimacy of such deposits. Precedents emphasize that the AO must establish that the deposits were made by the assessee and that the explanation offered is unsatisfactory.Court's Interpretation and Reasoning: The AO made the addition of Rs. 29,50,000/- on the basis that this amount was deposited in the assessee's current account (account no. 2159002101007525) during the demonetization period, and that the assessee failed to explain the source of these funds. The CIT(A) confirmed this addition.The assessee contested the addition, submitting that the said bank account did not belong to him and that no such amount was deposited in any of his bank accounts during the demonetization period. The assessee furnished multiple bank statements and replies to demonstrate that only Rs. 1,96,000/- was deposited in his accounts during the relevant period, and none in the disputed account.Key Evidence and Findings: The assessee produced:Bank statements of his own accounts (Punjab National Bank, HDFC Bank, YES Bank) showing minimal or no cash deposits during the demonetization period.Bank statement of the disputed account (no. 2159002101007525) showing that the cash deposits were made in the account of a different entity, M/s Global Aura Sports Private Limited.Replies and annexures submitted during assessment proceedings supporting the above.Application of Law to Facts: The AO's addition under Section 69A requires that the cash deposits be attributable to the assessee. Since the evidence shows that the disputed deposits were made in an account not maintained by the assessee, and that the assessee's accounts did not reflect such deposits, the foundational basis for the addition is undermined.Treatment of Competing Arguments: The AO and CIT(A) relied on the assumption that the disputed account belonged to the assessee and that the deposits were unexplained. The assessee rebutted this by providing documentary evidence to the contrary. The Tribunal found merit in the assessee's contention but noted that the AO's verification was necessary to conclusively establish the facts.Conclusions: The addition under Section 69A lacks basis if the deposits are not in the assessee's accounts. However, the Tribunal restored the issue to the AO for verification of the assessee's contentions and directed the AO to pass appropriate orders after such verification.Issue 2: Procedural and Evidentiary Compliance and Principles of Natural JusticeRelevant Legal Framework: The principles of natural justice require that any addition or penalty be based on material evidence and that the assessee be given a fair opportunity to explain. The AO must verify facts and not make additions on presumptions or incorrect assumptions.Court's Interpretation and Reasoning: The Tribunal observed that the addition was made without any basis or material evidence linking the deposits to the assessee's bank accounts. This was held to be in gross violation of natural justice principles.Key Evidence and Findings: The assessee's bank statements and replies provided a clear trail negating the AO's claim. The Tribunal emphasized that the AO must verify these documents before making any addition.Application of Law to Facts: The AO's failure to verify the ownership of the bank account and the source of deposits before making the addition was procedurally improper.Treatment of Competing Arguments: The AO's reliance on incorrect bank account details was countered by the assessee's documentary evidence. The Tribunal sided with the assessee's right to a fair inquiry.Conclusions: The addition cannot stand without proper verification and adherence to natural justice; hence, the matter was remanded for fresh verification.Significant Holdings'The above all evidences clearly show that no such alleged cash deposit of Rs. 29,50,000/- was made by assessee in any of his bank account during the period of demonetization, therefore, such addition made by Ld. AO and confirmed by Ld. CIT(A) is without any basis, material or evidence and in gross violation of principles of natural justice and deserves to be deleted.''For the limited purpose of the verification of the facts and contentions of the assessee the issue is restored to the file of the Assessing Officer and the Assessing Officer shall verify the contentions of the assessee and if the contentions of the assessee are proved to be correct the addition u/s 69A of the Act in the hands of the assessee cannot be made.'The Tribunal established the principle that additions under Section 69A must be based on verified facts and that mere assumptions or incorrect attribution of bank accounts to the assessee cannot justify unexplained money additions.Final determination on the issue was that the appeal was partly allowed for statistical purpose, with the matter remanded to the AO for verification and fresh decision.