2025 (10) TMI 381 - AT - Income Tax

Deletion of unexplained cash deposit additions under Section 69A where books intact and no corroborative SBN evidence

ITAT held that additions under s. 69A relating to unexplained cash deposits could not be sustained. The AO had not rejected books nor produced evidence of ... Addition u/s 69A - unexplained cash deposits - HELD THAT:- We find that during the months of October and November, the assessee maintained the same ratio of turnover, with no abnormal increase in turnover during the said period. AO, while framing the assessment, did not reject the books of account, nor was any evidence brought on record to show that the assessee had made sales outside the books or had incurred purchases not recorded in the regular books of account. It follows, therefore, that the cash deposits were duly reflected in and emanated from the assessee's books of account. CIT(A), while considering the matter, also recorded that there was no finding to establish that the assessee had deposited Specified Bank Notes (SBNs). Nevertheless, on the basis of mere assumptions, CIT(A) proceeded to allow only partial relief. Since the issue is purely factual in nature, and no evidence has been brought on record by the revenue authorities to demonstrate that the assessee deposited unaccounted cash or SBNs, we hold that the balance addition sustained by the Ld. CIT(A) is unsustainable. Accordingly, the balance addition is directed to be deleted. Assessee appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether an addition under section 69A (unexplained cash deposits) can be sustained where cash deposits during the demonetisation period are reflected in books of account, the books were not rejected by the Assessing Officer, and no evidence was produced by the revenue to show deposit of Specified Bank Notes (SBNs) or other unexplained source. 2. Whether a bank statement furnished through a messenger, without independent corroborative evidence, may be treated as not belonging to the assessee and accordingly justify sustaining additions. 3. Whether the Commissioner (Appeals) was justified in allowing part of the addition suo motu and sustaining the balance where no clear finding was recorded by the AO that deposits were SBNs or otherwise unexplained, and where turnover and other books did not show abnormality during demonetisation months. 4. Whether failure to file the return within time and delayed filing, by itself, can justify sustaining additions under section 69A in absence of affirmative material showing unaccounted receipts. 5. Ancillary: Whether rent disallowance for lack of lease agreements is maintainable and what verification directions are appropriate (limited appellate finding directing verification). 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sustainment of addition under section 69A where cash deposits are reflected in books and AO did not reject books or show SBNs: - Legal framework: Section 69A permits addition where any sum found to be in the hands of an assessee or deposited in a bank account is unexplained. Assessing authorities must establish that the deposits are unexplained and do not emanate from recorded business receipts; the regime of assessment under section 144 based on such deposits requires reasoned finding. Statutory context includes assessment provisions under sections 142(1), 139 (return filing), and the special factual milieu of demonetisation (deposit of Specified Bank Notes). - Precedent Treatment: The impugned orders did not rely upon any binding precedent recorded in the text; the Tribunal applied settled principles of fact-based scrutiny and requirement of evidence to link deposits to unexplained/unaccounted sources. - Interpretation and reasoning: The Tribunal examined month-wise turnover, tax collected on sales invoices and total consideration receivable/received as recorded in books for the whole year, noting no abnormal increase in turnover during October-December (demonetisation months). The AO had not rejected the books nor produced evidence of sales outside books or purchases not recorded. In absence of any material by the revenue demonstrating that deposits were of SBNs or otherwise unexplained, and given that cash deposits were reflected in the books, the Tribunal held that additions under section 69A could not be sustained. The Tribunal criticized the AO's assumption-based addition and the CIT(A)'s partial allowance as not supported by positive evidence that the deposits were unaccounted receipts or SBNs. - Ratio vs. Obiter: Ratio - An addition under section 69A cannot be sustained merely on assumption where books are not rejected and turnover and supporting books show consistent receipts; revenue must bring positive evidence linking deposits to unexplained source (including, where alleged, SBNs during demonetisation). Obiter - Observations on general practice during demonetisation that businesses deposited cash including personal savings were explanatory of deposits but not forming a binding legal rule beyond the facts. - Conclusion: Deletion of the balance addition sustained by the CIT(A) was directed; the Tribunal allowed the appeal insofar as the remaining addition lacked evidentiary support and was unsustainable under section 69A. Issue 2 - Evidentiary weight of a bank statement furnished through a messenger without corroboration: - Legal framework: Documentary evidence, including bank statements, must be admissible and attributable to the assessee; the AO/first appellate authority may require corroboration where provenance is in doubt. The assessment must be founded on material that establishes both authenticity and relevance to the assessee. - Precedent Treatment: No precedent was relied upon in the judgment text; authorities applied common evidentiary principles requiring identification and linkage of bank statements to the assessee. - Interpretation and reasoning: The AO noted the bank statement was produced through a messenger without corroborative evidence proving ownership. The CIT(A) recorded the AO's finding that corroboration was missing. The Tribunal, however, observed that the assessment order itself recorded the account number and that audited financial statements, trade name and other business records showed the name under which the business operates and which corresponded to the bank account furnished. Given that the AO had the account number in the assessment order and the books and audited financial statements bore the trade name matching the bank account, the Tribunal found no positive showing by the revenue that the bank statement did not belong to the assessee. Mere procedural irregularity in how the statement was delivered did not, without more, justify treating it as inapplicable to the assessee. - Ratio vs. Obiter: Ratio - A bank statement should not be disregarded solely because it was produced through a messenger; if other materials on record (account number in assessment order, audited accounts showing trade name, books of account) connect the statement to the assessee, it must be treated as belonging to the assessee unless rebutted by affirmative evidence. Obiter - Comments on the surprise at the AO's failure to cross-verify were explanatory rather than decisive legal pronouncements. - Conclusion: The Tribunal found insufficient basis to treat the bank statement as unrelated to the assessee and considered the statement together with books showing deposits; absence of independent positive evidence from revenue that the deposits were unexplained weighed against sustaining the addition. Issue 3 - Appellate authority's suo motu partial deletion and sustainment of balance where no clear finding on SBNs/unexplained nature: - Legal framework: First appellate authority has powers to reappraise evidence, set aside findings unsupported by material, and may allow or reduce additions. However such exercise must be reasoning-based; appellate relief or sustainment must rest on positive findings and evidence. - Precedent Treatment: No precedent cited; the Tribunal relied on standards of reasoned findings and evidentiary sufficiency. - Interpretation and reasoning: The CIT(A) deleted part of the addition (Rs. 31 lakhs) on suo motu consideration but sustained a balance (Rs. 21 lakh + other amounts) on the view that the assessee had not produced credible documents during remand to substantiate that deposits were from sale proceeds, and that delayed filing of return undermined the assessee's claim. The Tribunal held that the CIT(A)'s sustaining of the balance lacked a clear positive finding that the deposits comprised SBNs or otherwise unexplained cash; the AO himself had not established such. The Tribunal emphasized that assumption-based sustainment is impermissible where factual matrix (books, turnover pattern, absence of irregularities) supported the assessee's case. The Tribunal thus set aside the partial sustainment and deleted the remaining addition. - Ratio vs. Obiter: Ratio - Appellate authority cannot sustain additions on mere suspicion or assumption in absence of positive evidence; where AO has not rejected books and no supporting material shows unaccounted receipts, appellate sustainment is unsustainable. Obiter - Remarks on the adequacy of remand proceedings and opportunities given were contextual observations. - Conclusion: The Tribunal reversed the balance sustainment and deleted the addition in full on the facts; it endorsed that reasoned positive findings are necessary to sustain additions. Issue 4 - Effect of belated filing of return on sustainment of unexplained deposits: - Legal framework: Late filing under section 139 may attract adverse inference but cannot, without independent material, substitute for evidence of unexplained income under section 69A; assessment must be based on material establishing additions. - Precedent Treatment: No precedent cited; the Tribunal treated delayed filing as a factor but not a substitute for evidentiary proof. - Interpretation and reasoning: The CIT(A) noted delayed filing as a consideration weighing against the assessee's credibility. The Tribunal held that while delayed filing may be a relevant factor, it cannot by itself justify sustaining additions under section 69A where no affirmative evidence links deposits to unexplained sources. The factual matrix (books, turnover, tax collected matching invoices) negated the presumption that deposits were unaccounted. - Ratio vs. Obiter: Ratio - Delay in filing is not determinative and cannot replace the requirement of evidentiary linkage for additions under section 69A. Obiter - Observations on procedural delays as credibility factors are ancillary. - Conclusion: The Tribunal declined to sustain additions merely on the basis of delayed filing in absence of substantive corroborative evidence, resulting in deletion of the remaining addition. Issue 5 (Ancillary) - Rent disallowance for lack of lease agreements and appellate direction: - Legal framework: Deductibility of rent requires supporting documentation; TDS provisions and threshold limits require compliance; revenue can verify supporting documents. - Precedent Treatment: The first appellate order required verification of original lease agreements; Tribunal's decision dealt primarily with the cash-deposit issue and left the procedural verification intact. - Interpretation and reasoning: The CIT(A) observed absence of original lease agreements and directed verification by the Assessing Officer; this direction was recorded in the appellate order. The Tribunal did not disturb the direction but confined its decision to deletion of cash-deposit additions. - Ratio vs. Obiter: Obiter/administrative direction - The verification direction is procedural and not a central ratio of the Tribunal's decision on section 69A additions. - Conclusion: The appellate direction to verify original lease agreements remains operative; if lease copies are produced and verified, rent claim may be allowed, otherwise disallowance shall be sustained.