2026 (1) TMI 914 - AT - Income Tax

Unexplained cash deposits, mother-in-law gift, and refusal of s.54B exemption - assessment additions and enhancement deleted

Issue: Addition under section 69A for unexplained cash deposits. Reasoning: Assessee's explanation that deposits were from prior bank withdrawals, once ... Addition u/s 69A - cash deposits in the bank - AO has rejected the contention of the assessee that the cash was deposited out of cash withdrawal from the bank only - HELD THAT:- When assessee gives an explanation of cash deposits being out of cash withdrawals then without first disturbing the cash statement on mere assumption of previous withdrawals were consumed the deeming income provisions cannot be invoked. The initial burden of deposit once discharged on the basis of assertion that deposit are out of withdrawals only then onus was on AO to rebut it by some material evidence or circumstances. Bald allegation is not sufficient. There is no force in the contention of ld. DR that assessee required to do mapping of the cash withdrawal and deposits because not maintain regular books of accounts such exercise instead should be from the AO, to rebut lack of funds for redeposit. The ground is accordingly sustained. Addition on account of gift received from mother in law - AR contented transaction cannot be doubted on these facts as it is only on availability of funds, a person decides to give money to another person - HELD THAT:- DR has submitted that assessee was supposed to establish source of source of gift, but to our mind in case of gifts received from family members stand on different footing then commercial borrowing. The confirmation from mother in law was sufficient and AO could have enquired the matter further but on mere preponderance disbelieving the gift from mother in law, as not genuine is not justified. The ground is sustained. Disallowance of exemption u/s 54B - CIT(A) has held that the A.O. had made addition on account of sale of property which he could not find in assessee’s bank account - AR has contended that the CIT(A) has enhanced the income of the assessee without giving notice to the assessee in this regard - HELD THAT:- AO had examined the issue from the perspective of deeming income provisions as source of sales consideration of Rs. 1,10,00,000/- was not found genuine. Thus where ld.CIT(A) has found that assessee is not entitled to exemption under section 54B of the Act then same leads to enhancement of income and certainly assessee should have been given an opportunity for show cause for enhancement. Thus we are inclined to sustain the ground. Issues: (i) Whether addition under section 69A on account of cash deposits can be sustained when assessee explains deposits as re-deposit of earlier cash withdrawals; (ii) Whether addition of amount treated as gift from mother-in-law can be sustained despite confirmation and supporting bank statement; (iii) Whether the appellate authority can enhance income by disallowing exemption under section 54B without issuing notice to the assessee.Issue (i): Whether addition under section 69A on account of cash deposits of Rs.16,41,000/- is sustainable where the assessee explained deposits as sourced from prior bank withdrawals.Analysis: The assessee produced bank book and bank statements showing total withdrawals and subsequent deposits, asserting deposits were from earlier withdrawals. Once the assessee discharged initial burden by providing this explanation and documentary evidence, the burden shifted to the assessing officer to rebut that explanation with material evidence or circumstances. Mere bald allegation or assumption that earlier withdrawals were consumed is insufficient to invoke deeming provisions.Conclusion: The addition under section 69A is not sustainable and is decided in favour of the assessee.Issue (ii): Whether addition of Rs.10,00,000/- as gift from mother-in-law is sustainable despite confirmation and supporting bank statement of the donor.Analysis: Gifts from family members are distinguished from commercial borrowings; a confirmation from the donor together with the donor's bank statement showing availability of funds constituted adequate evidence of the genuineness of the gift. Preponderant disbelief by the assessing officer without further enquiry or material is insufficient to treat the amount as income.Conclusion: The addition treating the amount as income is not sustainable and is decided in favour of the assessee.Issue (iii): Whether the appellate authority could enhance income by disallowing exemption under section 54B without giving the assessee prior notice of enhancement.Analysis: Enhancement of income by the appellate authority that effectively disallows an exemption results in substantive increase in the assessee's tax liability. Procedural fairness requires that the assessee be given an opportunity to show cause and respond to a proposed enhancement. Where the appellate authority introduces or relies upon a new basis for enhancement not examined by the assessing officer, failure to issue notice for enhancement is fatal to such action.Conclusion: The enhancement by disallowing exemption under section 54B without issuing notice is invalid and is decided in favour of the assessee.Final Conclusion: The appeal is allowed on the decided issues and the impugned additions and enhancement are set aside in favour of the assessee.Ratio Decidendi: Where an assessee produces documentary evidence and explanation that cash deposits are from earlier bank withdrawals, the assessing officer must produce rebutting material before invoking deeming provisions; and an appellate authority cannot enhance income by disallowing claimed exemptions without issuing notice and giving the assessee opportunity to be heard.