Unexplained cash deposits and interest on enhanced land acquisition compensation: agricultural records accepted, ad hoc addition only; interest deleted

On unexplained cash deposits, the ITAT held that the assessee's revenue records established agricultural status, making cash sales and past savings plausible, and the lower authorities had also accepted the existence of family accumulated savings; consequently, only a further lump-sum addition was sustained on an ad hoc basis without precedential value, granting relief of Rs. 10,00,000. On taxability of interest on enhanced land acquisition compensation assessed by applying ss. 56, 57(iv) and 145A(b), the ITAT noted absence of binding jurisdictional HC guidance and applied the rule in Vegetable Products (SC) to adopt the interpretation favourable to the assessee; the addition treating such interest as taxable was deleted.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether and to what extent the assessee's cash deposits in the bank were liable to be treated as unexplained money, after considering the explained portion out of prior withdrawals and the assessee's claim of agricultural cash sales and past savings.

1.2 Whether interest received on enhanced land acquisition compensation was taxable as "income from other sources" under the provisions invoked by the lower authorities, in the absence of binding jurisdictional High Court guidance and in the presence of conflicting judicial views relied upon by both sides.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Unexplained cash deposits-extent of sustainment of addition

Legal framework: The lower authorities treated the cash deposits as unexplained money under Section 69A.

Interpretation and reasoning: The Court noted that the assessee had deposited cash and could explain redeposit of Rs. 8,00,000 corresponding to earlier withdrawals, a position already accepted to that extent by the appellate authority while sustaining the balance addition. The Court further took into account that the assessee had produced revenue records indicating that he was an agriculturist, and held that the possibility of cash sales and past savings in such circumstances could not be ruled out per se. The Court also noted that the lower authorities had considered the family's accumulated past savings.

Conclusions: On an overall appraisal, the Court held that sustaining the entire remaining amount was not warranted and restricted the unexplained cash deposit addition by directing that a lump sum addition of Rs. 10,00,000 would be "just and proper", granting relief of Rs. 10,00,000 from the sustained figure, and expressly directed that this relief would not operate as a precedent.

2.2 Taxability of interest on enhanced land acquisition compensation

Legal framework: The addition was made by invoking Section 57(iv) read with Section 56 read with Section 145A(b), treating the interest on enhanced compensation as taxable under "other sources".

Interpretation and reasoning: The Court recorded that the Revenue relied on decisions supporting taxability under "other sources", whereas the assessee relied on decisions holding that such interest on enhanced compensation under the Land Acquisition Act, 1894 was not taxable even after the statutory amendment. The Court found that there was no guidance from the jurisdictional High Court on this specific issue. In that context, the Court applied the principle that where two views are reasonably possible, the view favourable to the assessee should be adopted, and decided the issue in the assessee's favour.

Conclusions: The Court reversed the action of the lower authorities and held that the assessee's interest on enhanced land acquisition compensation (added at Rs. 23,63,278) could not be assessed as taxable on the footing adopted in the impugned orders.

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