2025 (8) TMI 1684 - AT - Income Tax

Additions under section 69A read with section 115BBE deleted; cash deposits explained by balances and agricultural land sale

Gurcharan Singh Versus Income Tax Officer, Ward No. 1, Panipat

ITAT DELHI - AT deleted additions under section 69A r.w.s.115BBE, holding the assessee's cash deposits (including demonetization-period sums) were ... Unexplained money u/s 69A r/w section 115BBE - huge deposits during the demonetization period - assessee had given a basic explanation that a sum was received on sale of agricultural land by his wife which was deposited in the bank account. HELD THAT:- It is not the case of the revenue that the cash deposits were made in excess of agricultural income and sale consideration of agricultural land received in cash. Rather, the assessee has sufficient cash balance in his kitty to make the cash deposits of ₹13 lacs during the year, including the cash deposits during demonetization period in the sum of ₹5,15,000/-. Hence, entire cash deposits stood properly explained, including the cash deposits made during demonetization period. Hence, there is no scope for treating any part of the deposit as unexplained money u/s 69A r.w.s. 115BBE of the Act. The addition made u/s 69A is here by directed to be deleted. Also find in the case of SMILE Microfinance Limited [2024 (11) TMI 1444 - MADRAS HIGH COURT] had held that the provisions of section 115BBE of the Act mentioning the enhanced rate of tax could be made applicable only from 01.04.2017, relevant to assessment year 2018-19 onwards and not earlier. Accordingly grounds raised by the assessee are allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the appellate authority was justified in confirming additions treated as unexplained cash deposits under section 69A read with section 115BBE where deposits were explained as sale consideration of agricultural land and declared agricultural income. 2. Whether confirmations from third parties (Aarhtis) and accompanying documentary evidence (sale deed, J-Forms, ledger/receipts) were sufficient to discharge the assessee's burden of explaining cash deposits when the assessing officer did not obtain or furnish a remand report. 3. Whether section 115BBE (providing an enhanced rate of tax on unexplained cash credits) was applicable to the assessment year under consideration or became effective only from the later specified assessment year. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of additions under section 69A read with section 115BBE for cash deposits during the demonetization period Legal framework: Section 69A treats cash credits/deposits as unexplained where the assessee fails to satisfactorily account for them; section 115BBE prescribes a special tax treatment/rate for 'unexplained' income as defined. The burden lies on the assessee to furnish a satisfactory explanation and on revenue to show inadequacy of that explanation. Precedent Treatment: The Tribunal applied established principles that an assessee who furnishes credible documentary evidence and coherent explanation for source of deposits meets the statutory explanation requirement; additions cannot be sustained if deposits are within admitted/explained income and sale proceeds. Interpretation and reasoning: The assessee declared agricultural income and produced a sale deed showing sale consideration of agricultural land; declared agriculture income exceeded the contested deposits; J Forms and confirmations from intermediary traders (Aarhtis) were produced indicating cash payment. The assessing officer added only the portion of deposits made during the demonetization period and treated it as unexplained because he could not verify the mode of payment from the Aarhtis after issuing summons and a section 133(6) notice. The Tribunal observed that the assessing officer ultimately computed from the income returned by the assessee and accepted the agricultural income as exempt, and did not allege that total deposits exceeded provable sources. In those circumstances the Tribunal found that the assesseee had sufficient explained cash balance to justify the deposits and that the addition under section 69A was not warranted. Ratio versus Obiter: Ratio - Where deposits fall within admitted/explained income and supporting documents (sale deed, J-Forms, confirmations) exist, and revenue does not demonstrate excess or falsity of explanation, additions under section 69A cannot be sustained. Obiter - Observations on the assessing officer's procedural failures and credibility assessment of third-party confirmations as a general proposition. Conclusions: The Tribunal held that the entire cash deposits, including those during the demonetization period, were satisfactorily explained by the assessee and directed deletion of additions made under section 69A. This conclusion constitutes the operative ratio on the sufficiency of explanation in the facts at hand. Issue 2 - Evidentiary value of third-party confirmations and remand procedure Legal framework: The assessment/appellate proceedings require that veracity of third-party evidence may be tested by inquiries, remand reports and summons; non-compliance by the assessing officer with remand directions may affect the weight accorded to such evidence. The appellate authority can decide on merits if remand compliance is not forthcoming. Precedent Treatment: The Tribunal recognized that confirmations from third parties may be accepted if they are credible and consistent with other documentary material. However, where the appellate authority doubts the authenticity of confirmations and calls for remand reports, a failure by the assessing officer to comply may not warrant automatic rejection of the confirmations if other materials support the explanation. Interpretation and reasoning: The appellate authority reproduced a sample confirmation and doubted whether the authors were genuine Aarhtis, hence ignored them. The Tribunal noted that the assessee furnished multiple confirmations showing mode of payment as cash, plus sale deed and declared agricultural income. Although the appellate authority forwarded confirmations for verification, the assessing officer did not provide the remand report despite two remand letters. The Tribunal proceeded to evaluate the totality of evidence and found the confirmations and documents sufficient in context; in particular, revenue did not contend that deposits exceeded available agricultural income or sale proceeds. Accordingly, the Tribunal gave weight to the explanations despite the appellate authority's skepticism and the non-compliance with remand requests. Ratio versus Obiter: Ratio - Appellate rejection of third-party confirmations solely because a remand report is not yet received is not justified where the assessing officer fails to comply and where independent documentary evidence supports the claimed source; the appellate authority may decide on merits. Obiter - Comments on the adequacy of particular form of confirmations and their drafting. Conclusions: The Tribunal concluded that the confirmations and documents, taken together with the declared agricultural income, sufficiently explained the deposits; absence of a remand report (through assessing officer non-compliance) did not justify sustaining the addition. Issue 3 - Temporal applicability of section 115BBE Legal framework: Statutory amendments prescribing an enhanced tax rate on unexplained income take effect from their notified date/financial year applicability; they cannot be applied retrospectively to an earlier assessment year absent clear legislative intent. Precedent Treatment: The Tribunal relied on a High Court decision that interpreted the temporal operation of section 115BBE, holding that its enhanced tax consequences applied only from the later effective date specified by the legislature (i.e., to subsequent assessment years), and not to the assessment year under consideration. Interpretation and reasoning: The Tribunal noted the High Court holding that section 115BBE's enhanced rate was applicable from the financial year commencing on the notified date (hence to later assessment years) and not to the assessment year under dispute. In light of this, the Tribunal held that section 115BBE could not be applied to the assessment year before it became effective and therefore could not form part of the basis for the addition or enhanced tax treatment. Ratio versus Obiter: Ratio - Section 115BBE's enhanced tax treatment is prospectively applicable from the date/assessment year specified by the legislature and cannot be imposed for an earlier assessment year. Obiter - None beyond reliance on that interpretative outcome. Conclusions: The Tribunal held that section 115BBE was not applicable to the assessment year in question and therefore could not sustain any enhanced tax consequences for the reported unexplained deposits; this supported deletion of additions. Cross-references and Final Disposition The Tribunal's conclusions on Issues 1-3 are interrelated: acceptance that declared agricultural income and sale proceeds covered the deposits (Issue 1), combined with the assessing officer's failure to produce a remand report and the sufficiency of confirmations/documentary evidence (Issue 2), and the non-applicability of section 115BBE to the assessment year (Issue 3), led to deletion of additions made under section 69A. The Tribunal allowed the appeal and set aside the addition.