2026 (3) TMI 1609 - AT - Income Tax

Unexplained cash deposit claim fails where demonetisation cash is traced to disclosed silver bullion sales and accepted evidence.

Cash deposits during the demonetisation period were not treated as unexplained under section 69A because the assessee substantiated that they came from ... Unexplained cash deposits - Unexplained money u/s 69A - Sale of assets disclosed under Income Disclosure Scheme, 2016 - Protective and substantive taxation of capital gains - as argued assessee had shown that they arose from sale of silver bullion earlier disclosed under the Income Disclosure Scheme, 2016, and the related short-term capital gains had already been offered to tax HELD THAT: - The Tribunal held that the lower authorities were not justified in rejecting the assessee's explanation for the cash deposits. The assessee had produced material showing disclosure of the silver bullion under the Income Disclosure Scheme, 2016, payment of due taxes thereon, and sale of that bullion in several tranches during the year, with the resultant short-term capital gains returned. Once the holding of the bullion stood evidenced and its sale was disclosed, the mere fact that the assessee was not engaged in the business of bullion trading was not a valid ground to disbelieve the sale. On that basis, the explanation of source was accepted as reasonable, the addition u/s 69A was held unsustainable, and the short-term capital gains already returned were directed to be taxed on substantive basis instead of protective basis. [Paras 5] The addition for unexplained cash deposits was deleted, and the short-term capital gains already declared by the assessee were directed to be assessed on substantive basis. Final Conclusion: The appeal was allowed on merits. The cash deposits were held to be properly explained as arising from sale of silver bullion disclosed under the Income Disclosure Scheme, 2016, and the jurisdictional objections were left open without adjudication. Issues: Whether the cash deposits made during the demonetisation period were unexplained so as to justify addition under section 69A of the Income-tax Act, 1961, or whether the assessee's explanation that the cash originated from sale of silver bullion disclosed under the Income Disclosure Scheme, 2016 was acceptable.Analysis: The assessee produced evidence of disclosure and taxation of 131.442 kgs of silver bullion under the Income Disclosure Scheme, 2016 and showed that the bullion was sold in tranches during the year, with the resulting cash deposited in the bank account. The explanation was supported by the disclosure form and the computation of short-term capital gains. The fact that the assessee was not engaged in bullion trading did not, by itself, render the sale unbelievable, since ownership of bullion is sufficient to effect a sale. On these facts, the explanation for the cash deposits was found to be reasonable and the basis for treating the deposits as unexplained was rejected.Conclusion: The addition of Rs. 57 lakhs as unexplained cash deposit was deleted, and the short-term capital gains offered by the assessee were directed to be taxed on substantive basis.