2025 (9) TMI 1234 - AT - Income Tax

Additions under s.69A deleted where assessee proved demonetisation-period cash deposits came from current or earlier income

M.N Manjula, W/o MN Nagabasappa Versus The Income Tax Officer, Ward-3, Davangere.

ITAT held that additions treating cash deposits made during the demonetization period as unexplained were deleted. The Revenue failed to prove that the ... Addition as unexplained cash deposits during the demonetization period - onus to prove - HELD THAT:- There is no evidence from the Revenue suggesting that this income was fully utilized for expenses, investments, or other purposes. Similarly, while the assessee has not maintained detailed records or accounts, the possibility of sufficient cash in hand cannot be ruled out. Revenue has also not brought forward any details of household or other personal expenses that might suggest the depletion of cash resources. In the absence of such evidence, benefit of the doubt must go to the assessee. Assessee discharged the onus by contending that the cash deposits during the year was out of the current year and earlier income which is also evident from the income tax return discussed above. Thus, conclude that there was sufficient cash available with the assessee to justify the deposits made in her bank account. Therefore, direct the AO to delete the addition made u/s 69A. Hence, the ground of appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether addition of Rs. 7,63,000 as unexplained cash deposits under Section 69A is justified for deposits made during the demonetization period (11.11.2016 to 17.12.2016). 2. What is the burden of proof and evidentiary standard required to establish that cash deposits represent explained income where the assessee claims earlier years' income and opening cash balances as source. 3. Whether prior years' declared income and absence of Revenue evidence showing utilization of that income negate the assessee's claim of available cash in hand. 4. Whether the reliance on reasoning that piecemeal deposits (rather than lump-sum) indicate fabrication is sufficient to sustain addition under Section 69A. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of addition under Section 69A for cash deposits during demonetization period Legal framework: Section 69A permits treating money found as income of the assessee if the assessee fails to satisfactorily explain the nature and source of such money; AO must form satisfaction that explanation is not satisfactory. Precedent Treatment: The Tribunal examined a reliance placed by Revenue on an earlier Tribunal decision, but treated applicability of such precedent as fact-specific and dependent on whether Revenue adduces evidence showing prior-year income was used elsewhere. Interpretation and reasoning: The Court examined the quantum of deposits (Rs. 11,38,000), the portions admitted/explained by AO and CIT(A) (Rs. 2,00,000 and Rs. 1,75,000 respectively), and the remaining addition of Rs. 7,63,000. The Tribunal analyzed the assessee's declared agricultural and other incomes for relevant and prior years, concluding there was no documentary or material evidence from Revenue that the earlier declared income had been expended or invested so as to render it unavailable as cash in hand. Ratio vs. Obiter: Ratio - Where the Revenue does not adduce evidence showing depletion/alternative utilization of prior years' declared income, the assessee's explanation that deposits derive from declared income/opening cash cannot be rejected solely on suspicion. Obiter - Observations about depositional pattern (piecemeal vs lump-sum) being suspicious are treated as not determinative absent supporting material. Conclusions: Addition of Rs. 7,63,000 under Section 69A is unsustainable and directed to be deleted because the assessee discharged the evidentiary onus by pointing to declared incomes and no contrary evidence was produced by Revenue. Issue 2 - Burden of proof and standard to satisfactorily explain cash deposits Legal framework: The assessee bears the initial burden to explain the source of cash deposits; Revenue must show the explanation is not satisfactory; onus may shift to Revenue to displace explanation with documentary evidence of alternate utilization. Precedent Treatment: The Tribunal distinguished the case law relied upon by Revenue on the ground that those authorities imposed a different evidentiary matrix where Revenue had demonstrated that earlier income was spent or utilized. In present facts, such demonstrating material was absent. Interpretation and reasoning: The Tribunal found that furnishing returns showing agricultural and other incomes across years, coupled with production of cash book and RTC for agricultural land (relied upon earlier by CIT(A)), constituted a plausible explanation. Since Revenue produced no accounts or particulars showing cash was otherwise consumed, the Tribunal applied the principle that benefit of doubt goes to the assessee. Ratio vs. Obiter: Ratio - Satisfactory explanation for cash deposits can be accepted where assessee shows consistent declared income in earlier years and Revenue fails to produce evidence of alternative utilization; benefit of doubt goes to the assessee. Obiter - Detailed record-keeping or contemporaneous receipts, while helpful, are not invariably mandatory where overall evidence supports the assessee's explanation. Conclusions: The Tribunal held that the assessee met the standard to satisfactorily explain the deposits; therefore, deletions of additions under Section 69A are warranted in the absence of rebuttal by Revenue. Issue 3 - Role of prior years' declared income and absence of Revenue evidence showing utilization Legal framework: Prior years' declared income may legitimately form part of opening cash balance; Revenue must negate availability by adducing particulars of expenditure, investment or other utilizations if it disputes opening cash claim. Precedent Treatment: The Tribunal expressly held that authorities cited by Revenue were not applicable where Revenue did not discharge its obligation to demonstrate that prior-year incomes were not available as cash in hand. Interpretation and reasoning: The Tribunal tabulated declared agricultural and other incomes for three years, totalling Rs. 15,72,171, and observed lack of evidence from Revenue showing consumption/investment of that income. The Tribunal thus inferred that it was plausible that sufficient cash was available and that the deposits could legitimately originate from declared income/opening cash, undermining the basis for Section 69A additions. Ratio vs. Obiter: Ratio - Absence of evidence by Revenue regarding depletion of prior-year income is critical; prior declarations may legitimize contemporaneous deposits. Obiter - The Tribunal's acceptance of cash book and RTC as corroborative is fact-specific. Conclusions: Prior years' declared income, unrefuted by Revenue, supports the conclusion that deposits were explained; consequently, additions premised on absence of sufficient cash are unwarranted. Issue 4 - Significance of piecemeal deposits during demonetization as indicium of fabrication Legal framework: AO may consider circumstances of deposits (timing, manner) as relevant to satisfaction under Section 69A, but inference must be supported by material facts and not rest on conjecture. Precedent Treatment: Tribunal rejected the contention that piecemeal deposits alone suffice to displace explanation when no corroborative evidence of fabrication exists and prior income remains unaccounted for by Revenue. Interpretation and reasoning: The Tribunal noted AO's skepticism that piecemeal deposit pattern undermined the opening-cash explanation but held that absence of demonstrable consumption of prior income makes such an inference weak. The Tribunal emphasized evidentiary lacunae on Revenue's part rather than procedural irregularity in deposit pattern. Ratio vs. Obiter: Ratio - Piecemeal deposits, without supporting evidence of contrivance or alternative utilization of declared income, are insufficient to sustain an addition under Section 69A. Obiter - Practical expectations about depositional behavior during demonetization were mentioned but not determinative. Conclusions: Depositional pattern (piecemeal) cannot, by itself, justify sustaining an addition where the assessee's documentary and return-based explanation stands unrebutted. Cross-References and Net Conclusion Cross-reference: Issues 1-4 converge on a common evidentiary theme - the allocation of onus between assessee and Revenue and the requirement that Revenue provide affirmative evidence to displace the assessee's explanation based on declared prior income. Net Conclusion: The Tribunal allowed the appeal and directed deletion of the Rs. 7,63,000 addition under Section 69A because the assessee satisfactorily explained the deposits by reference to declared agricultural and other incomes and because Revenue failed to produce documentary evidence demonstrating that such incomes had been expended or otherwise rendered unavailable as cash in hand; consequences drawn from piecemeal deposits were held insufficient in absence of corroboration.