2025 (11) TMI 219 - AT - Income Tax

Section 69A addition deleted where bank deposits shown as wife's cash-on-hand; AO relied on surmise and conjecture

ITAT (Jabalpur) set aside addition under section 69A where AO treated bank deposits as unexplained money transferred to a relative's concern. The tribunal ... Addition on account of cash deposited in the bank account of the assessee - addition by invoking provision u/s 69A - AO in the assessment order has recorded that the immediately after deposit of amount was transferred to the account of the daughter-in-law’s proprietary concern - HELD THAT:- Cash-on-hand was duly explained and stood in the name of the assessee’s wife. This explanation remains unrebutted. Moreover, there is no legal provision which compels a person to necessarily deposit/invest the cash available in hand. Keeping cash idle may impel the AO to take an adverse view but in the absence of any material suggesting that such amount was invested elsewhere the addition cannot be made purely on the basis of suspicion. CIT(A) ought to have considered the explanation offered by the assessee and verified the correctness of the same but in the absence of such exercise bringing any material which could rebut the explanation of the assessee the impugned addition cannot be sustained. The impugned addition is purely made on the basis of surmises and conjectures hence cannot be sustained. Under these facts, direct the AO to delete the impugned addition. Grounds of appeal of the assessee are allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the addition of Rs. 10,00,000 made under section 69A read with section 115BBE as unexplained cash deposit in the bank account during the demonetization period is sustainable where the assessee claimed the deposits were cash-in-hand of his deceased wife's proprietary business and produced supporting documents. 2. Whether an assessing officer can sustain an addition based on surmise and conjecture where the assessee's explanation remains unrebutted and no material is brought on record to contradict that explanation. 3. Whether there is any legal obligation on a person to deposit or invest cash kept at home, such that failure to do so would justify treating cash as unexplained for tax addition purposes. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sustainment of addition under section 69A read with section 115BBE in respect of cash deposited during demonetization period Legal framework: Section 69A permits assessment of unexplained cash found to belong to the assessee; section 115BBE prescribes special tax treatment for unexplained cash deposits during the demonetization period. The assessing officer must record reasons and satisfy that the deposits are unexplained after considering the assessee's explanation and evidentiary material. Precedent Treatment: No specific judicial precedents were cited or applied by the Tribunal in the body of the judgment; the Tribunal proceeded on statutory principles and evidence on record. Interpretation and reasoning: The assessee produced a cash-on-hand statement, balance sheet of the deceased wife's proprietary concern and the wife's death certificate showing the cash belonged to her business and formed part of her capital (Rs. 22,38,093 total capital; Rs. 14,71,216 shown as cash-in-hand). The Tribunal noted a time-lapse between the wife's death (05.02.2014) and the demonetization period but emphasized that mere lapse of time does not, without contradicting material, render the explanation implausible. The Assessing Officer made the addition despite the explanation and documentary evidence and without adducing material to rebut the claim. The Tribunal found that in the absence of any record showing the cash was used or invested elsewhere, or any evidence contradicting the cash-on-hand claim, the addition was founded on suspicion and conjecture rather than a positive finding of unexplained income. Ratio vs. Obiter: Ratio - Where an assessee furnishes documentary evidence establishing cash-in-hand belonging to a deceased spouse's proprietary concern and there is no material on record to rebut that explanation, an addition under section 69A/115BBE cannot be sustained merely on suspicion. Obiter - Observations on what a prudent person would do with cash over time (i.e., ordinarily deposit/invest) are illustrative but not determinative. Conclusion: The impugned addition of Rs. 10,00,000 under section 69A read with section 115BBE is unsustainable and is to be deleted where the explanation is supported by documentary evidence and unrebutted by the revenue. Issue 2: Legality of making addition based on surmise and conjecture where explanation remains unrebutted Legal framework: Principles of assessment require that the revenue's action be based on material and not on mere suspicion; the assessee's explanation must be considered and, if the AO is not satisfied, the AO should seek further information or produce material to rebut the explanation before making an addition. Precedent Treatment: The judgment does not cite specific authorities but applies established principles of fairness and evidentiary burden in income-tax assessments. Interpretation and reasoning: The Tribunal emphasised that the Assessing Officer could have sought specific, short explanations or additional material if not satisfied. Instead, the AO proceeded to make the addition without seeking clarificatory information and without bringing forward evidence to contradict the documents furnished by the assessee. The Tribunal held that where the assessee's evidence remains unchallenged on record, the AO cannot substitute conjecture for proof. Ratio vs. Obiter: Ratio - An assessing officer cannot sustain an addition on the basis of surmises and conjectures when the assessee's explanation is supported by documentation and there is no material to rebut it. Obiter - Remarks regarding the procedural opportunity the AO had (e.g., seeking specific explanations) are directional for proper procedure but ancillary to the dispositive ruling. Conclusion: The addition based purely on suspicion is illegal and must be deleted where the record contains an unrebutted explanation supported by documents and no contrary material. Issue 3: Whether failure to deposit or invest cash kept at home permits treating it as unexplained for taxation Legal framework: There is no statutory provision that compels a person to deposit or invest cash held at home; the tax consequences depend on whether the cash is explained and whether the explanation is rebutted by material showing alternative sources or uses. Precedent Treatment: No precedents were referenced; the Tribunal relied on statutory silence regarding any compulsion to deposit cash and on evidentiary standards. Interpretation and reasoning: The Tribunal acknowledged that ordinarily keeping large cash idle might attract adverse inference, but stressed that adverse inference cannot be the sole basis for taxation where no positive material contradicts an assessee's documentary explanation. The presence of a death certificate and books showing cash-in-hand was sufficient to explain the deposits for the purposes of section 69A/115BBE absent rebuttal. Ratio vs. Obiter: Ratio - Absence of statutory obligation to deposit cash means non-deposit alone does not render cash unexplained; the revenue must rebut the explanatory evidence. Obiter - Practical observations about what a prudent person might do with large cash holdings do not alter the legal requirement for affirmative rebuttal. Conclusion: Mere failure to deposit or invest cash does not automatically convert such cash into unexplained income; if the assessee's documentary explanation is unrebutted, addition on this ground cannot be sustained. Disposition The Court directed deletion of the impugned addition of Rs. 10,00,000 and allowed the appeal, concluding that the addition was made on surmise and conjecture notwithstanding unrebutted documentary evidence explaining the cash deposits.