2025 (7) TMI 949 - AT - Income Tax

Addition u/s 69A r.w.s. 115BBE - cash deposit during demonetization period - as submitted appellant has sufficient cash on hand balance withdrawn from bank accounts during the year - HELD THAT - It is pertinent to note from the bank account statement as well as from the details filed by the assessee are related to withdrawals from the bank account for the period 01-04-2016 to 05-11-2016 and the same is also mentioned in the assessment order. In fact the closing cash at hand balance was also mentioned by the assessee and has not been questioned by the AO which is 5.75 lakhs. Thus the assessee has given the explanation related to the cash deposits including the sources of cash. Hence the addition made by the AO and confirmed by CIT(A) is not justified. Appeal of the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal include:

(a) Whether the addition of Rs. 10,94,500/- under section 69A of the Income Tax Act, read with section 115BBE, on account of unexplained cash deposits during the demonetization period was justified.

(b) Whether the appellant's explanation regarding withdrawal of cash from bank accounts and subsequent deposits during the demonetization period was adequately considered by the lower authorities.

(c) Whether the invocation of section 115BBE for deeming the unexplained cash deposits as income was legally sustainable.

(d) Whether the charging of interest under sections 234A, 234B, 234C, and 234D was justified.

(e) Whether initiation of penalty proceedings under section 270A was warranted.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Justification of addition under section 69A r.w.s. 115BBE for unexplained cash deposits during demonetization period

Relevant legal framework and precedents: Section 69A of the Income Tax Act empowers the Assessing Officer to make additions to income where cash credits or unexplained cash deposits are found in the books of account or bank statements, unless the assessee satisfactorily explains the nature and source of such deposits. Section 115BBE prescribes a special rate of tax on such unexplained income. The burden lies on the assessee to demonstrate that the cash deposits are from legitimate sources.

Court's interpretation and reasoning: The Tribunal closely examined the bank statements and the details furnished by the assessee regarding cash withdrawals from the bank during the period 01-04-2016 to 05-11-2016, which coincides with the demonetization period. The assessee had deposited Rs. 10,94,500/- as cash during this period, which was the subject matter of the addition under section 69A.

The Tribunal noted that the assessee had provided a detailed explanation that the cash deposited was withdrawn from the bank accounts over the specified period and was used for various household expenses. Further, the assessee had disclosed the closing cash balance on hand as on 31-03-2017 amounting to Rs. 5.75 lakhs, which was not disputed by the Assessing Officer.

Key evidence and findings: The bank account statements corroborated the withdrawals claimed by the assessee. The closing cash balance at the end of the year was also disclosed and remained unchallenged. The assessee's submissions included details of how the cash was spent and the source of funds.

Application of law to facts: Given that the cash deposits were explained as withdrawals from the bank account and the closing cash balance was accounted for, the Tribunal concluded that the addition under section 69A was not justified. The assessee had discharged the burden of proving the source and utilization of the cash.

Treatment of competing arguments: The Assessing Officer and the CIT(A) had disregarded the assessee's explanation and confirmed the addition treating the cash deposits as unexplained money. The Tribunal disagreed with this approach, emphasizing that the assessee's evidence was credible and consistent with the bank records.

Conclusions: The addition of Rs. 10,94,500/- under section 69A read with section 115BBE was set aside as unjustified. The Tribunal allowed the appeal on this ground.

Issue (c): Legality of invoking section 115BBE

Relevant legal framework: Section 115BBE imposes a special tax rate on income deemed to be unexplained under certain provisions including section 69A. Its application is contingent upon the addition being justified as unexplained income.

Court's interpretation and reasoning: Since the Tribunal found that the addition under section 69A was unwarranted, the subsequent invocation of section 115BBE was also unsustainable. The special tax rate could not be applied where the foundational addition was disallowed.

Conclusions: The invocation of section 115BBE was held to be erroneous and was accordingly set aside.

Issue (d): Charging of interest under sections 234A, 234B, 234C, and 234D

Relevant legal framework: Sections 234A to 234D prescribe interest for defaults in furnishing return of income, payment of advance tax, and other related defaults.

Court's interpretation and reasoning: The Tribunal did not specifically elaborate on these charges in detail but, given the disallowance of the addition and consequent reduction in tax liability, the basis for charging interest under these provisions was undermined.

Conclusions: The interest charges were held to be unjustified in light of the disallowance of the addition.

Issue (e): Initiation of penalty proceedings under section 270A

Relevant legal framework: Section 270A provides for penalty for concealment of income or furnishing inaccurate particulars.

Court's interpretation and reasoning: Since the addition under section 69A was not sustained, the foundation for penalty proceedings under section 270A was also lacking. The Tribunal did not find justification for initiating penalty proceedings.

Conclusions: The initiation of penalty proceedings was held to be unjustified.

3. SIGNIFICANT HOLDINGS

The Tribunal succinctly held: "The assessee has given the explanation related to the cash deposits including the sources of cash. Hence, the addition made by the Assessing Officer and confirmed by CIT(A) is not justified."

Core principles established include:

(i) The burden on the assessee to explain cash deposits under section 69A can be discharged by providing credible evidence of withdrawal and utilization of cash, supported by bank statements and cash on hand reconciliations.

(ii) Where the explanation for cash deposits is satisfactorily furnished and corroborated by evidence, additions under section 69A and consequent application of section 115BBE cannot be sustained.

(iii) Interest and penalty provisions dependent on disallowed income additions are rendered inapplicable when such additions are set aside.

Final determinations:

The appeal was allowed, the addition of Rs. 10,94,500/- under section 69A read with section 115BBE was deleted, and consequential interest and penalty charges were held unjustified. The orders of the Assessing Officer and CIT(A) were quashed on these grounds.