2025 (11) TMI 818 - AT - Income Tax

Disallowance limited to 25% under Section 69A after assessee links demonetisation cash to recent housing loan

ITAT upheld in part the assessee's explanation that cash deposits during demonetisation originated from a recently disbursed joint housing loan, noting ... Unexplained money u/s 69A - cash deposits during the demonetization period - assessee was a co-borrower of a housing loan jointly sanctioned by the bank and that a total sum was disbursed shortly before the demonetization period. HELD THAT:- The assessee’s explanation that, due to the serious illness and hospitalization of his wife, the construction activity was temporarily suspended and the cash withdrawn from the loan account remained unutilized, finds partial support from the medical records placed on record. The proximity in time between the loan disbursement (in September–October 2016) and the cash deposits (in November–December 2016) also lends some probability to the assessee’s claim that at least part of the withdrawn amount could have remained in hand and was subsequently deposited in the bank after demonetization was announced. Claim that the entire sum remained idle in cash is not fully borne out by the evidence. The bank statements reveal small and intermittent cash withdrawals during October and early November 2016, suggesting that the funds were being utilized gradually. Assessee has not produced any contemporaneous record, such as a cash-flow statement or construction ledger, to demonstrate that the full amount was available in cash on the date of deposit. While the entire addition made by the Assessing Officer cannot be sustained, it would also not be reasonable to accept that the whole of the amount represented unutilized loan funds. Considering the totality of facts, surrounding circumstances, and the principle of probability, hold that the assessee’s explanation deserves to be accepted substantially. Thus, restrict the disallowance to 25 per cent of the total deposit and sustain an addition under section 69A, granting relief to the assessee for the balance Rs. 8,43,000/-. Appeal of the Assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether cash deposits made during the demonetization period constitute 'money found' such that the assessee must offer a satisfactory explanation under section 69A. 2. What is the nature and burden of proof on the assessee when loan disbursements shortly precede unexplained cash deposits - whether withdrawal from a housing loan and subsequent deposition of the same cash is a sufficient explanation. 3. Whether adverse inference can be drawn from the pattern of small/early withdrawals and lack of contemporaneous corroborative records, and to what extent such inference supports an addition under section 69A. 4. The appropriate method for quantifying the addition where part of the deposits is plausibly explained but not fully corroborated - whether apportionment based on probability is permissible. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legal framework Section 69A: money found in the possession of the assessee is to be treated as unexplained unless the assessee satisfactorily explains the nature and source; once money is 'found', onus is on assessee to explain. Issue 1 - Precedent Treatment No specific judicial precedents were cited or applied by the Tribunal in the impugned order; the Court proceeded on statutory principles and established burden rules under section 69A. Issue 1 - Interpretation and reasoning The Tribunal accepted that cash deposits during demonetization came within the ambit of 'money found' for section 69A purposes. The temporal nexus between loan disbursements (Sept-Oct 2016) and subsequent deposits (Nov-Dec 2016) renders the loan a prima facie credible source. Medical records indicating hospitalization provided corroborative support that construction could not proceed, making retention of some cash plausible. Issue 1 - Ratio vs. Obiter Ratio: Deposits during demonetization, being 'money found', attract the statutory onus under section 69A; proximate loan disbursement can constitute a satisfactory explanation if supported by credible evidence. Issue 1 - Conclusion The Court held that section 69A applies but that the assessee's explanation based on proximate loan disbursement and medical emergency was substantially but not wholly satisfactory; therefore, section 69A operates only to the extent explanation fails. Issue 2 - Legal framework The statutory onus is on the assessee to provide a satisfactory explanation of nature and source; satisfactory explanation may be established by direct documentary evidence or by credible circumstantial evidence assessed on the principle of probability. Issue 2 - Precedent Treatment No precedent was expressly followed or distinguished; Tribunal relied on established evidentiary principles (onus and probability) in determining sufficiency of explanation. Issue 2 - Interpretation and reasoning The Tribunal found the contemporaneous loan disbursements to be a plausible source for a substantial portion of the deposited cash. Medical records corroborating disruption of intended expenditure (construction) gave additional credence. Absence of direct contradiction by the Revenue (no evidence funds were used elsewhere) further supports acceptance in part. However, the Tribunal emphasized that plausibility does not equate to full proof: repeated small withdrawals in October-early November 2016 indicate utilization of some funds rather than complete retention in cash. Issue 2 - Ratio vs. Obiter Ratio: Proximate loan disbursement combined with credible circumstantial evidence may suffice to explain deposits in part; however, absence of contemporaneous records weakens full discharge of onus. Issue 2 - Conclusion The Court accepted the loan as the source substantially but not entirely; it thus rejected the AO's wholesale treatment of deposits as unexplained while sustaining part of the addition under section 69A. Issue 3 - Legal framework Adverse inference may be drawn from taxpayer conduct and absence of corroborative documentation; the standard remains whether the explanation is 'satisfactory' on the balance of probabilities. Issue 3 - Precedent Treatment No specific case law references; Tribunal applied general evidentiary standards and ordinary human conduct as factors in drawing inference. Issue 3 - Interpretation and reasoning The Tribunal found the AO's inference from small withdrawals to be probative but not conclusive. The existence of intermittent withdrawals suggested partial utilization. Lack of contemporaneous cash-flow records or construction ledger diminished the robustness of the assessee's explanation, permitting a reasonable adverse inference limited to the portion not adequately explained. Issue 3 - Ratio vs. Obiter Ratio: Conduct inconsistent with the claim of entire retention (e.g., small withdrawals) justifies drawing an adverse inference to the extent of unexplained money; however, such inference must be proportionate and supported by probabilities. Issue 3 - Conclusion The Tribunal sustained an adverse inference but confined its effect to a quantifiable portion (25%) rather than endorsing the AO's complete addition. Issue 4 - Legal framework Where explanation is partly acceptable, quantification of unexplained portion may be done on the basis of evidence, surrounding circumstances and principle of probability; Tribunal has discretionary power to apportion additions to reflect partial acceptance. Issue 4 - Precedent Treatment No precedents cited; Tribunal applied principle of proportionality and assessment on the basis of probability to fix the quantum of addition. Issue 4 - Interpretation and reasoning Considering proximate disbursement, corroborative medical records, lack of contrary material from Revenue, but also the bank statement showing intermittent withdrawals, the Tribunal found it unreasonable to sustain the entire addition. Balancing these factors, the Tribunal concluded that accepting 75% of the deposits as explained and disallowing 25% was a fair and reasonable apportionment. Issue 4 - Ratio vs. Obiter Ratio: Where part of a challenged amount is satisfactorily explained and part is not, the Tribunal may restrict addition to a reasonable percentage based on totality of evidence and probability; mathematical precision is not required but the basis must be rationally founded. Issue 4 - Conclusion The Tribunal reduced the addition under section 69A to 25% of the total deposit (Rs. 2,81,000), allowing the balance (Rs. 8,43,000) as satisfactorily explained. Cross-references and Final Determination Cross-reference: Issues 1-3 overlap insofar as the statutory onus (Issue 1) informs the assessment of evidence and adverse inferences (Issue 3), which in turn govern apportionment (Issue 4). Final conclusion: The Court accepted the loan disbursement and medical emergency as substantially explaining the deposits, applied the principle of probability in light of intermittent withdrawals and absence of contemporaneous records, drew a limited adverse inference, and allowed the appeal in part by restricting the addition under section 69A to 25% of the deposits.