2025 (5) TMI 1775 - AT - Income Tax

Unexplained cash in family lockers cannot be added under section 69 when source already established and taxed

The ITAT Chandigarh ruled against the revenue in a case involving addition under section 69 for unexplained cash found in lockers. The tribunal found that ... Addition u/s 69 - unexplained cash found from the locker No.41 & 42 maintained by the assessee - HELD THAT:- We find it is a fact that the father of assessee, Sh. Tarlok Singh and his wife and two sons and their wives and children have been staying in a common residential house, having common kitchen and, the family has the joint business. Locker of father and two sons with their wives were in one bank. As seen that the department has accepted the cash having been received by Smt. Moninder Kaur out of sale of flat in her name during assessment proceedings, on which, the substantial amount of capital gain tax has been charged and the same cash was found during the course of search concluded on 28.11.2018. It is also a fact that the Gold and diamond jewellery, which were found from the common residential premises and lockers in the names of different family members was considered joint and no adverse view has been drawn by the department and no statement of Smt.Moninder Kaur had been recorded even before the operation of locker, such-facts were intimated to the DDI, Investigation vide letter, dated 21.12.18. Decided against revenue. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this appeal filed by the Revenue against the order of the CIT(A) for the Assessment Year 2019-20 are as follows:(a) Whether the addition of Rs. 1,00,12,500/- made under section 69 of the Income Tax Act, 1961 on unexplained cash found in locker numbers 41 and 42 maintained with SBL Sarabha Nagar, Ludhiana, was justifiedRs.(b) Whether the change in the assessee's statement during the search assessment proceedings and during the operation of the lockers undermined the credibility of the explanation for the cash foundRs.(c) Whether the cash received by the assessee's wife from her sister-in-law, allegedly from sale proceeds of a flat in Delhi, could be accepted in the absence of documentary evidence showing the source of the cash and the transferRs.(d) Whether the fact that the locker was operated by the assessee's wife on 29.10.2018 for depositing the cash was properly considered by the CIT(A)Rs.2. ISSUE-WISE DETAILED ANALYSISIssue (a): Legitimacy of Addition under Section 69 on Unexplained Cash Found in LockersThe relevant legal framework is section 69 of the Income Tax Act, 1961, which permits the addition of unexplained cash found during search or otherwise, if the assessee fails to satisfactorily explain the source of such cash.The Assessing Officer (AO) made an addition of Rs. 1,00,12,500/- on the basis that the cash found in the lockers belonging to the assessee and his wife was unexplained. The AO relied on the fact that the assessee initially stated the cash was out of past savings and money handed over by his late father-in-law but was unable to provide a consistent explanation during the search and operation of lockers. The AO also noted a change in the assessee's stand regarding the joint family nature of the cash and jewellery, which was not disclosed during the search.The CIT(A), however, accepted the assessee's explanation that the cash was part of joint family assets and specifically related to cash received from the sale of a flat in Delhi by the assessee's sister-in-law, Smt. Moninder Kaur. The CIT(A) relied on documentary evidence including the sale agreement, bank certificates, and the fact that the capital gains from the sale were assessed and accepted in the sister-in-law's assessment. The CIT(A) further noted that the family members operated joint business and maintained joint family assets, including jewellery and cash, which was accepted by the Revenue in other assessments.The Tribunal examined the facts that the family resided together, maintained joint lockers, and that the cash found was consistent with the sale proceeds of the flat. It also considered that the department had accepted the capital gains declared by Smt. Moninder Kaur on the sale of the flat, thereby corroborating the source of cash.The Tribunal held that the CIT(A)'s detailed and speaking order sufficiently addressed the issue and that the addition under section 69 was not justified given the credible explanation and documentary evidence provided.Issue (b): Change in Assessee's Statement and Its Impact on CredibilityThe AO contended that the assessee changed his statement during the search assessment proceedings, initially not disclosing the joint family nature of the cash and jewellery, and later claiming it as joint family property. This change was argued to be an afterthought and undermined the credibility of the explanation.The Tribunal noted that the assessee and family members had joint business and joint family assets, which was accepted by the department in other related assessments, including the treatment of jewellery as joint family property. The Tribunal also observed that no adverse inference was drawn by the department regarding the joint family nature of assets in other assessments, and no statements contradicting this were recorded during the search.The Tribunal found that the change in statement did not materially affect the explanation for the cash found, especially given that the cash was linked to the sale proceeds of a flat by a family member and supported by documentary evidence. Thus, the Tribunal held that the change in statement was not sufficient to sustain the addition.Issue (c): Acceptance of Cash Received by Assessee's Wife from Sister-in-Law Without Documentary EvidenceThe AO challenged the acceptance of cash received by the assessee's wife from her sister-in-law, Smt. Moninder Kaur, on the ground that there was no documentary evidence showing that Smt. Moninder Kaur had received cash from the sale of the flat or that she handed over the cash to the assessee's wife.The assessee produced the sale agreement for the flat, bank certificates, and correspondence indicating that the flat was sold for Rs. 3 crores, with Rs. 1.68 crores received in cash on 01.10.2018. The cash was handed over to the assessee's wife, who deposited it in the lockers on 29.10.2018. The department had accepted the capital gains declared by Smt. Moninder Kaur on the sale, and no adverse findings were recorded against her during the search or assessment.The Tribunal found that the documentary evidence and the acceptance of capital gains assessment in the sister-in-law's case constituted sufficient proof of the source and transfer of cash. The absence of a direct statement from Smt. Moninder Kaur during the search was noted but did not detract from the overall credible explanation.Therefore, the Tribunal upheld the CIT(A)'s acceptance of the cash receipt and rejected the AO's contention.Issue (d): Consideration of Locker Operation by Assessee's Wife on 29.10.2018The AO questioned the acceptance of the fact that the assessee's wife operated the locker on 29.10.2018 to deposit the cash. The AO argued that since lockers were individually maintained by family members, it was unlikely that cash from the sale of flat by Smt. Moninder Kaur would be kept in lockers belonging to the assessee and his wife rather than in her own locker.The Tribunal noted that the family had joint business and joint family assets, and that lockers were maintained in the names of different family members but used for common purposes. The assessee's wife's operation of the locker to deposit the cash was consistent with the family's practice of joint management of assets. The Tribunal also observed that the department accepted similar treatment of jewellery and cash found in various lockers as joint family property.Accordingly, the Tribunal found no reason to disbelieve the explanation regarding the operation of the locker by the assessee's wife and upheld the CIT(A)'s findings.3. SIGNIFICANT HOLDINGSThe Tribunal affirmed the following key principles and findings:'The family has the joint business. The Locker of father and two sons with their wives were in one bank.''The department has accepted the cash having been received by Smt. Moninder Kaur out of sale of flat in her name during assessment proceedings, on which, the substantial amount of capital gain tax has been charged.''The Gold and diamond jewellery, which were found from the common residential premises and lockers in the names of different family members was considered joint and no adverse view has been drawn by the department.''The findings given by the Ld. CIT(A) are in detail and the order of the Ld. CIT(A) is a speaking order on all the issues raised in this appeal.'The Tribunal concluded that the addition under section 69 was rightly deleted by the CIT(A) and that the Revenue's appeal lacked merit and was therefore dismissed.