Addition of Rs. 6,00,000 under section 69A upheld for unexplained demonetization deposits lacking supporting evidence

ITAT Surat upheld addition of Rs. 6,00,000 under section 69A for unexplained deposits during demonetization. Assessee claimed amount was advance received from customer, but property registration occurred in AY 2019-20 while deposits were made in AY 2017-18. No supporting evidence including buyer details, bank statements, or confirmations were provided despite opportunities. Court held assessee failed to discharge onus of proving source of deposits. Alternative ground for restricting addition to 2% of net profit was rejected as amount represented unexplained money, not turnover.

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The core legal questions considered by the Tribunal in this appeal are:

1. Whether the addition of Rs. 6,00,000/- made by the Assessing Officer (AO) under section 69A of the Income-tax Act, 1961 is justified, given the assessee's claim that the amount represents an advance received from a customer prior to the sale deed execution.

2. Whether the application of section 69A to the amount credited in the assessee's books is appropriate when the sale deed was executed in a subsequent assessment year (AY 2019-20), whereas the addition relates to AY 2017-18.

3. Whether the AO's protective addition on a potential basis is valid in the absence of a substantive addition.

4. Whether, if the addition under section 69A is justified, the amount added should be restricted to 2% of net profit as contended by the assessee, based on judicial precedents.

Issue 1: Justification of Addition under Section 69A

Legal Framework and Precedents: Section 69A of the Income-tax Act deals with unexplained money found credited in the books of an assessee. The provision mandates that if any sum is found credited in the books of an assessee and the assessee offers no satisfactory explanation about the nature and source of such sum, it shall be deemed to be the income of the assessee for that year.

Court's Interpretation and Reasoning: The AO observed that the assessee had shown Rs. 6,00,000/- as an advance from a customer in the balance sheet as on 31.03.2017. However, the sale deed evidencing the transaction was executed on 28.05.2018, which falls in AY 2019-20. The AO held that since the sale consideration was paid on the date of sale deed and acknowledged by the assessee, the amount credited in AY 2017-18 was unexplained and hence liable to be added under section 69A.

The CIT(A) concurred with the AO, noting that the assessee failed to furnish any corroborative evidence to substantiate the claim that the advance was received in AY 2017-18. The Tribunal further noted that the assessee did not provide confirmation or affidavits from the alleged payers, nor bank statements, PAN details, or income tax returns of the payers to support the claim.

Key Evidence and Findings: The sale deed dated 28.05.2018 was the only documentary evidence furnished, which related to AY 2019-20. No credible evidence was produced to establish receipt of advance in AY 2017-18. The AO and CIT(A) provided ample opportunities for the assessee to substantiate the claim, which were not availed effectively.

Application of Law to Facts: Since the onus lies on the assessee to explain the nature and source of the credited sum, and the assessee failed to discharge this burden, the addition under section 69A was justified. The Tribunal upheld the concurrent findings of the AO and CIT(A) that the amount was unexplained and rightly added to income.

Treatment of Competing Arguments: The assessee argued that the amount was an advance received prior to the sale deed and hence not liable to be added in AY 2017-18. The Tribunal rejected this contention due to lack of corroborative evidence and the fact that the sale consideration was acknowledged as paid on the date of registration in AY 2019-20. The revenue's stand that the addition was justified was accepted.

Conclusion: The addition of Rs. 6,00,000/- under section 69A for AY 2017-18 was valid and rightly upheld.

Issue 2: Applicability of Section 69A to Amount Related to Subsequent Assessment Year

Legal Framework: Income is taxable in the year in which it is received or accrued. Advances received in one year for a transaction completed in a subsequent year may be taxable in the year of receipt if the amount is properly explained and accounted for.

Court's Interpretation and Reasoning: The Tribunal noted that the sale deed was executed on 28.05.2018, falling in AY 2019-20. The assessee claimed receipt of advance in AY 2017-18, two years prior to registration. However, no proof was furnished to establish this timing. The AO's finding that the amount was paid on the date of sale deed was accepted as credible.

Key Evidence and Findings: Absence of any documentary evidence such as bank statements, affidavits, or confirmations from buyers to prove advance receipt in AY 2017-18 was critical. The sale deed itself indicated payment on the date of registration.

Application of Law to Facts: Without credible proof of advance receipt in AY 2017-18, the amount could not be excluded from income for that year. The Tribunal held that the income could not be taxed in AY 2017-18 on a protective basis when the sale deed and payment pertained to AY 2019-20.

Treatment of Competing Arguments: The assessee's argument that the amount related to a subsequent year and hence should not be taxed in AY 2017-18 was found unsubstantiated. The revenue's position that the amount was unexplained and hence taxable in AY 2017-18 was accepted.

Conclusion: The addition under section 69A for AY 2017-18 was justified given the lack of evidence for advance receipt in that year, and the amount related to a subsequent year's transaction.

Issue 3: Validity of Protective Addition under Section 69A

Legal Framework: Protective additions are made by the AO to safeguard revenue in case the primary view is not upheld on appeal. However, such additions require a substantive basis.

Court's Interpretation and Reasoning: The AO made the addition on a protective basis, indicating uncertainty about the correct year and amount of addition. The assessee argued that in absence of a substantive addition, a protective addition is invalid.

Key Evidence and Findings: The AO's order clearly stated the addition was made on protective basis if the substantive view was not accepted. However, since the substantive addition was upheld, the protective addition became redundant.

Application of Law to Facts: The Tribunal observed that the AO's substantive addition was valid and hence protective addition was not necessary. The issue was thus rendered academic.

Treatment of Competing Arguments: The assessee's argument against protective addition was noted but found irrelevant as the substantive addition stood confirmed.

Conclusion: Protective addition was not upheld; the substantive addition under section 69A was confirmed.

Issue 4: Restriction of Addition to 2% of Net Profit

Legal Framework and Precedents: Some judicial authorities have held that when unexplained money is added under section 69A, the addition can be restricted to net profit percentage (commonly 2%) if the amount represents business turnover or sales.

Court's Interpretation and Reasoning: The Tribunal rejected this contention because the impugned amount was unexplained money found credited in the books and not turnover or sales. The source of the amount was not explained, and hence the entire amount was liable to be added.

Key Evidence and Findings: Absence of explanation or documentary evidence to show that Rs. 6,00,000/- was a part of turnover or legitimate business receipts.

Application of Law to Facts: Since the amount was unexplained and not part of turnover, the ratio of net profit could not be applied to restrict the addition.

Treatment of Competing Arguments: The assessee's reliance on net profit ratio was dismissed as inapplicable to the facts.

Conclusion: Addition of full Rs. 6,00,000/- under section 69A was upheld without restriction.

Significant Holdings:

"The onus of proving the source of deposit primarily rests on the person in whose name the deposit appears in the bank account. The assessee failed to discharge the onus cast on him to escape the mischief of section 69A of the Act."

"The claim of the assessee that he had received Rs. 6,00,000/- as advance in the instant AY 2017-18 is not borne out from the facts on record."

"Since the impugned amount of Rs. 6,00,000/- is not the turnover of the assessee but unexplained money found in his possession, the addition under section 69A is justified."

These principles establish that unexplained credits must be satisfactorily explained by the assessee with credible evidence; mere assertions without corroboration are insufficient. The timing of transactions must be supported by documentary proof to determine the correct assessment year. Protective additions are contingent and do not survive if substantive additions are confirmed. Finally, additions under section 69A cannot be restricted by net profit ratios unless the amount represents business receipts.

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