2023 (8) TMI 1644 - AT - Income Tax

Unexplained money u/s 69A - cash deposits during the demonetization period pertaining to specified bank notes - HELD THAT - Assessee has a joint bank Account in Corporation Bank with his Spouse. Cash received from hawkers was credited in this joint account. The assessee had received cash from the sub-vendors because of ongoing festive season the cash could not be deposited in full. The cash in hand goes on increasing which was deposited in bank on later stages in tranches because of safety reason. Regular deposit of cash has been verified from the statement of bank account of previous Financial Year 2015-16 as well. The assessee has also submitted the details of all the sub-vendors along with their addresses and contact numbers. This detail was also furnished online while replying to the compliance notice of cash transaction in 2016. During the assessment proceedings the AO had asked to furnish the cash summary which was duly submitted but the AO had not considered the facts of the case that the cash was available in the books of accounts out of the sale made before demonetization period. Spouse of assessee has duly disclosed the income of newspaper agency in her Income tax return for the Financial Year 2016-17. The entire bank statement showing the cash deposit has been examined. It reflected the regular deposit of cash received from newspaper vendors throughout the year. The confirmations of the vendors are on record. The fact that the assessee is involved in the newspaper agency was also on record. The daily sale of newspapers of Economic Times Navbharat Times Times of India and sale of other newspapers at bus stand and other vends has been examined. Daily credit receipt and sale register has been perused. No vacillation to hold that the source of the cash deposited in the bank account has been undisputedly proved. Hence the addition made by the AO is hereby directed to be deleted. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

• Whether the addition of Rs. 20,94,855/- as unexplained cash under section 69A of the Income Tax Act, 1961, on account of cash deposits during the demonetization period, was justified.
• Whether the assessee satisfactorily proved the source of the cash deposits found in the joint bank account with his spouse, in light of the scrutiny assessment under section 143(3) of the Income Tax Act.
• Whether the cash deposits pertained to unexplained money or were legitimately derived from business operations, specifically the newspaper distribution agency run by the assessee and his spouse.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legitimacy of Addition under Section 69A of the Income Tax Act for Unexplained Cash Deposits

Relevant Legal Framework and Precedents: Section 69A empowers the Assessing Officer (AO) to make additions to income where cash deposits in bank accounts are unexplained or the source thereof is not satisfactorily explained. The burden lies on the assessee to prove the legitimacy of the cash deposits. The scrutiny assessment under section 143(3) allows the AO to examine the correctness of the income declared and make additions if necessary.

Court's Interpretation and Reasoning: The Court observed that the AO had made additions solely on the ground that the cash deposits related to specified bank notes during the demonetization period and were unexplained. However, the AO did not adequately consider the evidence furnished by the assessee regarding the source of cash.

Key Evidence and Findings: The assessee maintained a joint bank account with his spouse and regularly deposited cash received from sub-vendors engaged in newspaper distribution. The cash deposits, totaling Rs. 20,94,855/-, were made in tranches during November and December 2016, coinciding with the demonetization period. The assessee submitted detailed lists of sub-vendors with addresses and contact numbers, which were also furnished online in response to compliance notices. The bank statements for the previous financial year (2015-16) demonstrated a consistent pattern of cash deposits from the same business activity.

Mrs. Manju Yadav, the spouse, had also disclosed income from the newspaper agency in her income tax return for the relevant financial year. The daily sales registers, credit receipts, and vendor confirmations were examined and found credible.

Application of Law to Facts: Given the detailed documentary evidence and consistent business activity, the Court concluded that the source of the cash deposits was satisfactorily explained as proceeds from the newspaper distribution business. The AO's addition under section 69A was therefore unwarranted.

Treatment of Competing Arguments: The Revenue relied on the timing and amount of cash deposits during the demonetization period to argue unexplained money. The assessee countered with detailed business records and prior year bank statements showing consistent cash flows. The Court favored the latter, emphasizing the importance of substantiating the source rather than making assumptions based on timing alone.

Conclusion: The addition of Rs. 20,94,855/- as unexplained cash was not justified and was ordered to be deleted.

3. SIGNIFICANT HOLDINGS

"After going through the entire fact on record, we have no vacillation to hold that the source of the cash deposited in the bank account has been undisputedly proved."

The Tribunal established the principle that mere deposits of cash during demonetization cannot be treated as unexplained money if the assessee can produce credible and consistent evidence of the source of such cash.

The final determination was to allow the appeal and delete the addition made by the Assessing Officer under section 69A, thereby reducing the assessed income to the amount declared by the assessee in the original return.