2025 (10) TMI 640 - AT - Income Tax

Section 69A: Unsecured loans reinstated after lenders not examined; demonetisation SBN cash deposits of Rs 150.50L held unexplained

ITAT (Raipur) held that the AO erred in recharacterizing unsecured loans as unexplained money under s.69A without examining the lenders; those loan claims ... Unsecured loan treating it to be unexplained money invoking sec.69A - cash deposited in bank of appellant during demonetization period - Re-characterization by the AO of unsecured loans claimed by the assessee to have been received from 8 parties as his unexplained money u/s.69A - primary onus - HELD THAT:- Considering the claim of the assessee i.e. the cash deposits made in the bank accounts of the lenders were primarily sourced out of the cash withdrawals made from the said bank accounts, further fortifies our conviction that the AO had grossly erred in law and facts of the case in not examining the respective lenders. We, say so, for the reason that if the AO would have examined the respective lenders i.e. either by calling upon them u/s. 133(6) of the Act to furnish details as regards the source of cash deposits in their bank accounts; or sought an explanation on the aforesaid issue by recording their respective statements u/s.131 then he would had the requisite details as regards the source of the aforesaid cash deposits which could have fairly been analyzed by him in the backdrop of surrounding circumstances. We are of the view, the fact that the assessee had repaid the loans in the subsequent year further supports the authenticity of the said loan transactions. We unable to concur with the view taken by the A.O, who without disproving and dislodging the documentary evidence that was filed by the assessee in discharge of the primary onus that was cast upon him for proving the authenticity of the subject loan transactions, had summarily re-characterized the same as the assessee's unexplained money u/s.69A of the Act and, thus, set-aside the order of the CIT(Appeals) to the extent he had upheld/sustained the view taken by the A.O. Unexplained cash deposits made during demonetization period in his bank account u/s 69A - cash sale of gold bullion carried out by assessee during the demonetization period - confirmation of the 'karigar' wherein he had stated to have carried out 'galai' (melting) of 5457.879 gms of gold diamond jewellery which had yielded 4661.410 gms of pure metal/gold bullion and confirmations of the 19 parties from whom the assessee had claimed to have purchased gold jewellery of a value - HELD THAT:- We find substance in the observation of the A.O that the very fact that all the 416 cash sale bills of gold bullion issued by the assessee during the pre-demonetization period i.e between Bill No.75, dated 03.07.2016 to Bill No.540, dated 08.11.2016 aggregating to Rs. 1,63,26,056/- are of an amount below Rs. 50,000/- each is not as per the prevailing trade practice. As observed by the CIT(Appeals), and rightly so, the assessee had intentionally split the aforesaid sale bills below an amount of Rs. 50,000/- each so that the statutory requirement of collection of tax at source (TCS) may not be attracted. We, thus, in terms of our aforesaid observations concur with the A.O/CIT(Appeals) that as the assessee did not have any stock of gold bullion available with him during the pre-demonetization period, i.e 03.07.2016 to 08.11.2016, therefore, his claim that the cash deposits in SBN's of Rs. 150.50 lacs (supra) made during the demonetization period in his bank accounts was sourced out of the cash sale proceeds of gold bullion of Rs. 1,63,26,056 made by him during the pre-demonetization period i.e 03.07.2016 to 08.11.2016 being devoid and bereft of any substance had rightly been rejected by them. Accordingly, we find no infirmity in the view taken by the CIT(Appeals), who in our considered view had rightly upheld the view taken by the A.O. that the cash deposits (in SBN's) of Rs. 150.50 lacs made in the assessee's bank accounts during the demonetization period was the assessee's unexplained money u/s 69A of the Act. Addition towards unexplained payments made by the assessee for purchasing of gold, diamond ornaments in the month of October, 2016 - Purchases of gold diamond jewellery of Rs. 85,08,297/- (supra) made by the assessee in the month of October, 2026 had been held by the AO as his unexplained money u/s.69A of the Act. Ostensibly, the AO held a firm conviction that the assessee had come up with a concocted story that the cash deposits made in his bank accounts during the demonetization period were sourced out of the sale proceeds of gold bullion that was available with him during pre-demonetization period. AO held a firm conviction that as the assessee prior to 16.11.2016 had no stock of gold bullion available with him, therefore, in order to justify the availability of the same with him he had claimed that the same was sourced by converting the gold diamond jewellery that was available with him during the pre-demonetization period. AO held a firm conviction that the assessee had come forth with a concocted story to explain the cash deposits made in his bank accounts during te demonetization period, i.e. the same were sourced from the sale proceeds of gold bullion and, thus, had rejected the same and held the entire amount of said cash deposits in SBN’s of Rs. 150.50 lacs (supra) made in his bank accounts during the demonetization period as his unexplained money u/s. 69A of the Act. We are of the view that now when the entire amount of cash deposits in SBN’s made by the assessee in his bank accounts had been held by the AO as the assessee’s unexplained money u/s. 69A of the Act, therefore, there could have been no justification for him to have separately made an addition based on the rejection of the assessee’s claim of having purchased gold diamond jewellery from the aforementioned 19 parties in October, 2016. As the aforesaid purchases made by the assessee from 19 parties in the month of October, 2016 formed part of the gold diamond jewellery that was claimed by him to have been converted into gold bullion and sold during the pre-demonetization period, which sale proceeds were thereafter utilized for making the cash deposits (in SBN’s) in his bank accounts during the demonetization period, therefore, we are of the view that there could have been no justification for the A.O. to have separately made an addition u/s 69A of the amount of the aforesaid purchases of gold jewellery. Accordingly, the adverse inferences drawn by the A.O. regarding the claim of the assessee of having made purchases of Rs. 85,08,297/- (supra) from the aforesaid 19 parties would stand telescoped by the addition of Rs. 150.50 lacs (supra) that was made by him and upheld by us hereinabove. In other words, without prejudice to our observations on merits qua the issue in hand, we are of the firm conviction that the addition of Rs. 85,08,297/- (supra) would be subsumed in the addition of Rs. 150.50 lacs (supra) made by the A.O u/s 69A of the Act and upheld by us hereinabove. We, thus, in terms of our aforesaid observations are not only unable to approve the very basis for making of the addition by the A.O, but even otherwise, are of the view that the said addition stands telescoped/subsumed in the addition of Rs. 150.50 lacs (supra) made by the A.O u/s. 69A of the Act. Accordingly, the addition made by the A.O. which, thereafter, had been sustained by the CIT(Appeals) stands vacated in terms of our aforesaid observations. ISSUES PRESENTED AND CONSIDERED 1. Whether unsecured loans of Rs. 1,19,30,000 claimed to have been received from eight parties during the demonetization period could be re-characterised as the assessee's unexplained money and added under section 69A when confirmations, ITRs, bank statements and PAN/address details were furnished by the assessee. 2. Whether cash deposits in Specified Bank Notes (SBNs) totalling Rs. 1,55,50,000 (relieved to Rs. 1,50,50,000) made during the demonetization period could be treated as unexplained money under section 69A on the basis that (a) claimed pre-demonetization bullion sales were not supported by stock, production and accounting records, (b) bills were split to avoid TCS and (c) apparent manipulation/antedated entries in cash book. 3. Whether credit purchases of gold/diamond jewellery totalling Rs. 85,08,297 in October 2016 could be treated as unexplained money under section 69A as a camouflage for unaccounted funds, and if so, whether that addition is discrete or subsumed by the addition in respect of unexplained cash deposits. 4. Whether additional documents sought to be admitted before the Tribunal under Rule 29 (including confirmations from karigar and creditors) should be admitted when they were not produced before the Assessing Officer or CIT(A) and whether refusal to admit Rule 46A documents by CIT(A) was justified. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Re-characterisation of unsecured loans as unexplained money under section 69A Legal framework: Section 69A permits deeming of unexplained credits/cash/deposits as the assessee's income where explanation is not satisfactory. Under well-settled law an assessee bears primary onus to prove identity, genuineness and creditworthiness of creditors; once primary onus is discharged, the burden shifts to revenue to dislodge the explanation by independent enquiry (e.g. under ss.131/133(6)). Precedent treatment: The Tribunal relied on High Court authorities holding that mere suspicion is insufficient to sustain addition where the assessee has produced confirmations, ITRs and other documentary material and that Assessing Officer must invoke ss.131/133(6) to verify creditors if dissatisfied (cited judgments from Chhattisgarh and Delhi High Courts as applied by Tribunal). The CIT(A) relied on precedents treating identity alone as insufficient and emphasising creditworthiness check (Kerala HC decision cited by CIT(A)). Interpretation and reasoning: The Assessing Officer relied on timing of cash deposits into lenders' accounts (during demonetization) and immediate transfers to the assessee to infer circularity/bogus loans; CIT(A) supplemented this by analysing lenders' modest incomes and finding it improbable they would part with entire resources. The Tribunal examined documentary evidence filed by the assessee (confirmations, ITRs, computations, PAN, addresses) and held that the assessee had discharged the primary onus. Tribunal found revenue did not undertake independent verification (no summons or recordings under ss.131/133(6)) to disprove creditors' confirmations and thereby illegitimately drew adverse inference on suspicion alone. Ratio vs. Obiter: Ratio - where primary onus under section 68/69A is discharged by documentary evidence, Assessing Officer must undertake independent enquiries (ss.131/133(6)) to dislodge veracity before making additions; additions founded on suspicion/doubt without such enquiries are liable to be deleted. Obiter - observations regarding improbability of lenders' conduct and analysis of incomes by CIT(A) are explanatory but not binding where enquiries were not made. Conclusion: Addition of Rs. 1,19,30,000 was deleted. The Tribunal allowed the ground of appeal on the basis that the assessee discharged primary onus and revenue failed to exercise statutory powers to disprove lenders' claims. Issue 2 - Treatment of demonetization cash deposits (SBNs) as unexplained money under section 69A Legal framework: Section 69A treats unexplained cash deposits/credits as income where explanation is unsatisfactory; during demonetization cases courts examine whether deposits were legitimately in assessee's cash-in-hand prior to demonetization and whether sales/stock records corroborate the claimed source. Precedent treatment: CIT(A) and AO relied on tribunal decisions (e.g. Vaishnavi Bullion) and general principle that unexplained SBN deposits may be taxed if explanation is against preponderance of probability and unsupported by records. Tribunal applied established tests of stock availability, production/galai evidence, consistency of cash book and trade practice (e.g. absence of unusually large number of small bills consistent with splitting to avoid TCS is suspicious). Interpretation and reasoning: AO rejected the assessee's claim that pre-demonetization bullion sales generated the cash-in-hand, noting (i) absence of bullion stock on 01.04.2016 and purchases of bullion only from 16.11.2016; (ii) Form 3CD audit figures contradicted assessee's later, larger claim of conversion; (iii) antedated/altered cash-book entries for galai charges and other discrepancies; (iv) 416 cash sale bills all below Rs.50,000 inconsistent with trade practice and indicative of TCS avoidance; (v) delivery invoices showing different delivery location; (vi) failure to produce corroborative confirmations and karigar certificate before AO/CIT(A). CIT(A) sustained AO except granted relief for Rs.5 lakh (new currency deposit). Tribunal analysed these factors, accepted AO/CIT(A) findings on manipulation, lack of stock, inconsistent cash book and unnatural conduct in depositing SBNs across dates; held assessee's explanation not believable on preponderance of evidence. Ratio vs. Obiter: Ratio - where documentary and accounting evidence (stock records, audit Form 3CD, cash book entries, trade practice, invoices) point to absence of legitimate source for SBN deposits and indicate manipulation/splitting, addition under section 69A is sustainable. Obiter - specific inferences about delivery logistics and human conduct are explanatory and factual. Conclusion: Addition of Rs. 1,50,50,000 (after allowing Rs.5 lakh) was sustained. Ground challenging this addition was dismissed. Issue 3 - Purchases of gold/diamond ornaments of Rs. 85,08,297 treated as unexplained money and issue of telescoping/subsumption Legal framework: Under section 69A amounts representing unexplained payments/transactions may be added if explanation is unsatisfactory. When multiple additions arise from the same alleged unexplained source, appellate authorities may assess whether duplicative additions were made and whether one addition subsumes another. Precedent treatment: The Tribunal emphasised that if the primary addition (cash deposits as unexplained money) already captures the unaccounted funds, a separate addition on related purchases may be duplicative and must be avoided unless independently justified. Revenue should verify counterparties when purchases are doubted. Interpretation and reasoning: AO considered large deferred payments to 19 parties and temporal proximity to demonetization as an attempt to create stock on books; he added Rs.85,08,297. Tribunal found the purchases recorded in books, no material produced by AO to dislodge authenticity, and that if AO doubted authenticity he ought to have examined/summoned sellers under ss.131/133(6). Independently, Tribunal held even assuming doubt about those purchases, the AO had already held the cash deposits (Rs.150.50 lakh) to be unexplained; the alleged purchases were part of the chain of transactions relied upon to explain those deposits. Therefore the separate addition would be subsumed/telescoped into the larger addition; making both would result in double accounting of the same unexplained funds. Ratio vs. Obiter: Ratio - a secondary addition in respect of purchases that form part of the same alleged scheme is subsumed by the primary addition in respect of unexplained cash where both respond to the same source; revenue must not make duplicative additions. Obiter - observations on mutual understandings as a business practice and time lapse in payments are factual commentary. Conclusion: The separate addition of Rs.85,08,297 was vacated as it is either unjustified on facts (no independent enquiries) or in any event subsumed within the sustained addition of Rs.150.50 lakh; ground of appeal allowed to that extent. Issue 4 - Admission of additional evidence (Rule 29 / Rule 46A) before Tribunal and CIT(A) Legal framework: Admission of additional evidence before the Tribunal (Rule 29) and CIT(A) (Rule 46A) is discretionary; generally additional evidence not produced before lower authorities is seldom admitted unless sufficient cause is shown for failure to produce earlier. Precedent treatment: Tribunal and CIT(A) applied the settled principle that documents not produced before AO/CIT(A) without satisfactory explanation for non-production may be rejected. Interpretation and reasoning: The Tribunal refused the assessee's application under Rule 29 for admission of confirmations (karigar and creditors) because those documents were not produced earlier nor was the Tribunal ever asked to require same; the Tribunal found seeking admission not in conformity with Rule 29. Earlier, CIT(A) had rejected Rule 46A evidence (karigar certificate and creditor confirmations) on ground there was no reason for assessee not to have produced them before AO and because AO's detailed findings would not be displaced by late evidence. Ratio vs. Obiter: Ratio - additional evidence not produced before lower authorities will be refused where no adequate explanation is furnished for non-production and when lower authorities had opportunity to consider them. Obiter - none. Conclusion: Requests for admission of the additional documents were declined by both authorities and the Tribunal; Tribunal upheld refusal under Rule 29 and did not admit the documents. Final Disposition (as concluded by the Court) 1. Addition of Rs.1,19,30,000 (unsecured loans) set aside - allowed for assessee on ground that primary onus was discharged and revenue failed to perform independent enquiries under ss.131/133(6) before drawing adverse inferences. 2. Addition of Rs.1,50,50,000 (cash deposits in SBNs) sustained (Rs.5 lakh relief allowed) - dismissed for assessee; explanation found contrary to preponderance of evidence due to absence of stock, manipulated books, atypical splitting of bills and inconsistent records. 3. Addition of Rs.85,08,297 (credit purchases) vacated - allowed for assessee either because AO/CIT(A) failed to verify counterparties or because the addition was subsumed in the sustained cash deposit addition. 4. Applications to admit additional evidence under Rules 46A/29 were refused by the lower authorities and the Tribunal for lack of justification for non-production earlier; Tribunal declined to admit them.