2013 (7) TMI 1247 - AT - Income Tax

Summary

ISSUES PRESENTED and CONSIDERED

The primary issue considered in this appeal was whether the addition of Rs.3,26,000/- to the assessee's income under Section 68 of the Income Tax Act, 1961, by the Assessing Officer (AO) and subsequently confirmed by the Commissioner of Income Tax (Appeals) [CIT (A)], was justified. The core legal question revolved around the sufficiency and credibility of the explanation provided by the assessee for the cash deposits in his bank account.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

Section 68 of the Income Tax Act, 1961, is pivotal in this case. It stipulates that any sum found credited in the books of an assessee for a previous year, for which the assessee fails to provide a satisfactory explanation regarding its nature and source, may be charged to income tax as the income of the assessee. The burden of proof lies with the assessee to substantiate the source of such credits.

Court's Interpretation and Reasoning

The Tribunal examined whether the explanation provided by the assessee regarding the source of the cash deposits was satisfactory. The assessee contended that the cash deposits were made from prior cash withdrawals from the bank, specifically citing withdrawals of Rs.5 lakhs on 2.8.2007 and Rs.15,60,000/- on 17th September 2007. The Tribunal focused on whether these withdrawals could logically account for the subsequent cash deposits.

Key Evidence and Findings

The evidence presented included the bank statements and a certificate from HDFC Bank confirming the cash withdrawals. The assessee provided a detailed summary of cash withdrawals, asserting that these funds were used for the deposits in question. The CIT (A) had previously rejected this explanation, arguing that the pattern of withdrawals and deposits defied logical human behavior, questioning why further withdrawals were made if sufficient cash was already available.

Application of Law to Facts

The Tribunal applied Section 68 by considering whether the assessee's explanation of the cash deposits being sourced from earlier withdrawals was plausible. It highlighted that the CIT (A)'s expectation of a particular behavioral pattern from the assessee was subjective and not a valid basis for rejecting the explanation. The Tribunal emphasized the need to consider the availability of funds and the probability of the explanation being true.

Treatment of Competing Arguments

The Tribunal weighed the assessee's argument of having legitimate cash withdrawals against the Revenue's stance that the explanation was illogical. It found merit in the assessee's position, noting that the availability of funds from previous withdrawals provided a reasonable explanation for the deposits, thereby negating the need for an addition under Section 68.

Conclusions

The Tribunal concluded that the assessee had satisfactorily explained the source of the cash deposits, and thus, the addition of Rs.3,26,000/- was unwarranted. It allowed the appeal on grounds 2 and 3, deleting the addition, and found no merit in the other grounds raised by the assessee.

SIGNIFICANT HOLDINGS

The Tribunal held that:

"Once sufficient funds are available with the assessee withdrawn from the bank, then, a probability of availability of explained source of money is available in favour of the assessee. The addition cannot be made simply for the reason that there was no occasion for the assessee to withdraw the amounts from the bank. Assessee has explained the source of money and therefore no addition ought to have been made."

The core principle established is that the subjective expectations of behavior should not override the objective evidence of available funds when assessing the credibility of an explanation under Section 68. The final determination was to delete the addition of Rs.3,26,000/- and partly allow the appeal.