2025 (5) TMI 962 - AT - Income Tax

Unexplained investment - contention of the assessee that an affidavit has been filed to submit that part amount belong to other parties - HELD THAT - The facts mentioned in the affidavit have not been refuted and therefore should be believed. Reliance has been placed in the case of Senior Bhosale Estate 2019 (11) TMI 940 - SUPREME COURT and Kuldeep Kumar 2023 (12) TMI 53 - ITAT JODHPUR . It is further contention of the assessee that certain turnover declared in return of income ( ROI ) also includes the remaining cash transaction in Kabadi business. Likewise past years savings adequately covers source of purchase of commercial vehicle. Having regard to the smallness of amount involved and attendant circumstances the explanation offered cannot be disbelieved and held implausible. When tested on the touchstone of preponderance of probabilities the explanation offered appears fairly reasonable. The assessee has declared turnover of INR 19, 80, 000/- and also offered an income of INR 3, 87, 600/- which encompasses the cash attributable to the extent of INR 4, 10, 020/- belonging to the assessee. The remaining amount claimed to be belonging to other parties is supported by affidavits of respective parties. In totality the benefit of doubt needs to go in favour of the assessee. The explanation towards source of purchase of commercial vehicle also appears plausible. Consequently the additions made by the AO are deleted. Appeal of the assessee is allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

(a) Whether the addition of INR 12,00,020/- towards unexplained investment under section 69A of the Income Tax Act, 1961 ("the Act") is justified, given the contention that the amount does not exclusively belong to the assessee but is shared with other parties;

(b) Whether the addition of INR 2,00,000/- towards unexplained investment under section 69 of the Act, relating to the purchase of a commercial vehicle, is warranted, considering the claim that the amount was sourced from past savings;

(d) The evidentiary value and credibility of affidavits submitted by third parties claiming ownership of part of the seized cash;

(e) The applicability of precedents regarding unexplained investments and the burden of proof in such cases.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Addition of INR 12,00,020/- under section 69A towards unexplained investment

Relevant legal framework and precedents: Section 69A of the Income Tax Act deals with unexplained investments. If an assessee is unable to satisfactorily explain the nature and source of investments, the amount is treated as income. The burden lies on the assessee to explain the source. The Court referred to precedents such as Senior Bhosale Estate vs ACIT and Kuldeep Kumar vs ITO, which emphasize the necessity of credible explanation and the role of evidentiary support in unexplained investment cases.

Court's interpretation and reasoning: The Court noted that the cash amount of INR 12,00,020/- was seized by police and that the assessee claimed only INR 4,10,020/- belonged to him, with the balance INR 7,90,000/- belonging to two other parties involved in the scrap battery business. The assessee's business involves purchasing and selling scrap batteries, and the cash seized represented collections from multiple parties.

Key evidence and findings: The assessee submitted affidavits from the other two parties, Vaseem Ahmed and Islamuddin, swearing that the amounts attributed to them were their own. These affidavits were unchallenged and unrebutted by the Revenue. The assessee's declared turnover of INR 19,80,000/- and income offered under section 44AD were consistent with the explanation.

Application of law to facts: Given that the affidavits were credible and not refuted, and that the declared turnover reasonably covered the amount of cash attributable to the assessee, the Court found the explanation plausible. The principle of preponderance of probabilities was applied, favoring the assessee where doubt existed.

Treatment of competing arguments: The Revenue contended that the entire cash amount belonged to the assessee and was unexplained, warranting addition. However, the Court found that the Revenue failed to disprove the affidavits or produce contradictory evidence. The Court accorded weight to the unchallenged affidavits and the business context.

Conclusions: The addition under section 69A was deleted as the explanation was held to be reasonable and credible.

Issue (b): Addition of INR 2,00,000/- under section 69 towards unexplained investment in purchase of commercial vehicle

Relevant legal framework: Section 69 deals with unexplained money found with the assessee or unexplained investments. The assessee must explain the source of such investments satisfactorily.

Court's interpretation and reasoning: The assessee claimed the amount was out of past savings and emphasized the smallness of the amount. The Court considered the amount in the context of the overall facts and found the explanation plausible.

Key evidence and findings: No contrary evidence was produced by the Revenue to disprove the source of funds. The Court found no reason to disbelieve the assessee's claim.

Application of law to facts: The Court applied the principle that small amounts explained by credible source need not be subjected to addition if the explanation is reasonable.

Treatment of competing arguments: The Revenue's stand for addition was not supported by evidence. The Court gave weight to the assessee's explanation and past savings claim.

Conclusions: The addition under section 69 was deleted.

Issue (c): Validity of assessment framed under section 263/143(3) without notice under section 143(2)

The Court noted the procedural contention raised by the assessee that no notice under section 143(2) was issued. However, the judgment does not elaborate on this issue, indicating it was not a determinative factor in the appeal.

Issue (d): Evidentiary value of affidavits submitted by third parties

The Court accepted the affidavits as credible evidence, especially since they were unchallenged by the Revenue. This acceptance was central to the decision to delete the addition under section 69A.

Issue (e): Applicability of precedents on unexplained investments and burden of proof

The Court relied on Supreme Court and High Court precedents emphasizing that the burden to explain unexplained investments lies on the assessee, but where credible evidence is produced and not rebutted, the benefit of doubt must go to the assessee.

3. SIGNIFICANT HOLDINGS

"Having regard to the smallness of amount involved and attendant circumstances, the explanation offered cannot be disbelieved and held implausible. When tested on the touchstone of preponderance of probabilities, the explanation offered appears fairly reasonable."

"The benefit of doubt needs to go in favour of the assessee."

"The affidavits of respective parties claiming ownership of part of the cash amount were not refuted and thus have evidentiary value."

Core principles established include:

- The burden of proof in unexplained investment cases lies on the assessee to provide a satisfactory explanation supported by credible evidence.

- Unchallenged affidavits from third parties can

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