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2025 (5) TMI 436 - AT - Income TaxAddition u/s 69A - unexplained cash deposits during the demonetization period - AR submitted that the assessee has already given the details related to cash deposits are out of the cash withdrawals from Kalupur Co-operative bank and the subsequent deposit of the said amount with Indian Overseas bank - HELD THAT - From the perusal of the documents it cannot be seen that the bank statement held with Indian Overseas bank the assessee has given the details from December 2015 therein the assessee is depositing the amount to the extent of Rs. 6, 90, 000/- Rs. 1, 48, 000 Rs. 46, 000/- and on the different dates the assessee is withdrawing as well the amounts. The bank statement of the assessee Kalupur Co-operative bank also reflects details of withdrawals as well as the subsequent deposits. The assessee has withdrawn Rs. 5, 00, 000/- each on the two dates and thus in May 2016 was having the cash of Rs. 10, 00, 000/-. Subsequently the assessee was also having cash of Rs. 2, 00, 000/- from 1st Feb 2016 as well as if the same is tallied or co-related with the bank statement of Indian Overseas Bank the assessee was having cash balance of Rs. 15, 62, 500/- in hand and therefore the trail of cash deposits during the period of demonetization has been explained by the assessee before the AO as well before the CIT(A). Therefore AO was not right in making the addition u/s. 69A - Assessee appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Appellate Tribunal (AT) in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Legitimacy of Addition under Section 69A of the Income Tax Act Relevant legal framework and precedents: Section 69A of the Income Tax Act empowers the Assessing Officer to treat unexplained money, bullion, jewellery, or other valuable articles found during search or seizure or unexplained cash deposits as income of the assessee. The provision aims to tax unaccounted money where the assessee fails to satisfactorily explain the source. Court's interpretation and reasoning: The Tribunal examined the bank statements and cash books submitted by the assessee. It was noted that the assessee had demonstrated a credible trail of cash withdrawals from one bank account (Kalupur Co-operative Bank) and subsequent deposits into another (Indian Overseas Bank) during the demonetization period. The Tribunal observed that the assessee had provided bank statements dating back to 2015, showing consistent transactions, including withdrawals and deposits, which cumulatively accounted for the cash deposits under scrutiny. Key evidence and findings: The assessee's bank statement from Kalupur Co-operative Bank reflected withdrawals of Rs. 5,00,000/- each on 29th April 2016 and 24th May 2016, indicating a cash balance of Rs. 10,00,000/- as of May 2016. Additionally, the Indian Overseas Bank statement showed deposits and withdrawals consistent with the cash flow explained by the assessee. The opening cash balance as on 09-11-2016 was Rs. 15,62,500/-, supporting the contention that the cash deposits during demonetization were from legitimate sources. Application of law to facts: The Tribunal applied the statutory provision of section 69A in light of the evidence and found that the cash deposits were satisfactorily explained. Since the assessee provided a coherent and verifiable trail of funds, the addition under section 69A was unwarranted. Treatment of competing arguments: The Revenue contended that the cash deposits were unexplained and hence liable to be added as income. However, the Tribunal found the assessee's explanation credible and supported by bank records, cash books, and the pattern of transactions predating the demonetization period. The Tribunal rejected the Revenue's argument that the deposits were unexplained money. Conclusions: The addition of Rs. 15,00,000/- under section 69A was not justified as the assessee had adequately explained the source of the cash deposits. Issue 2: Applicability of Section 115BBE to Transactions Prior to Its Insertion Relevant legal framework and precedents: Section 115BBE was introduced by the Taxation Laws (2nd Amendment) Act, 2016, effective from 15-12-2016, prescribing a special tax rate on unexplained cash credits and unexplained investments. Court's interpretation and reasoning: The Tribunal considered the date of transactions vis-`a-vis the date of insertion of section 115BBE. Since the cash deposits occurred prior to 15-12-2016, the Tribunal held that the provision could not be retrospectively applied to these transactions. Key evidence and findings: The deposits in question were made during the demonetization period, specifically on 16-11-2016 and 18-11-2016, which precede the effective date of section 115BBE. Application of law to facts: The Tribunal applied the principle of non-retroactivity of substantive penal or taxing provisions and concluded that section 115BBE could not be invoked for transactions prior to its insertion. Treatment of competing arguments: The Revenue maintained that section 115BBE was applicable; however, the Tribunal rejected this on the ground of temporal applicability. Conclusions: Section 115BBE was not applicable to the transactions in question as they occurred before the provision was introduced. Issue 3: Denial of Video Conference Hearing and Principles of Natural Justice Relevant legal framework and precedents: The principles of natural justice require that a party be given a fair opportunity to be heard. In the context of tax proceedings, this includes the right to be heard through various modes, including video conferencing, especially when requested. Court's interpretation and reasoning: The Tribunal noted the appellant's request for VC hearing was not granted by the CIT(A). However, the Tribunal did not find any prejudice caused to the assessee due to non-grant of VC hearing, given that the appeal was decided on merit after considering all submissions and documents. Key evidence and findings: The record showed that the assessee had submitted written submissions and documents, and the Tribunal had the benefit of these materials in deciding the appeal. Application of law to facts: While the denial of VC hearing may constitute procedural irregularity, the Tribunal found no violation of natural justice as the assessee's case was fully considered on merits. Treatment of competing arguments: The assessee argued that denial of VC hearing was an error; the Revenue did not specifically contest this. The Tribunal balanced procedural fairness with substantive justice. Conclusions: The denial of VC hearing did not vitiate the proceedings or cause miscarriage of justice. Issue 4: Whether Bank Deposits Can Be Treated as Unexplained Money Under Section 69A Relevant legal framework and precedents: Section 69A applies to unexplained money, bullion, jewellery or other valuable articles. The question arises whether mere bank deposits can be treated as unexplained money. Court's interpretation and reasoning: The Tribunal observed that deposits in bank accounts are not identical to physical cash or bullion. The assessee's deposits were explained as withdrawals from another bank account and supported by bank statements and cash books. Key evidence and findings: The assessee's bank statements and cash book entries demonstrated a legitimate source of funds for the deposits. Application of law to facts: Given the explanation and documentary evidence, the Tribunal held that the deposits could not be treated as unexplained money under section 69A. Treatment of competing arguments: The Revenue argued for addition treating deposits as unexplained cash; the Tribunal rejected this on evidentiary and legal grounds. Conclusions: Bank deposits, when satisfactorily explained, cannot be added under section 69A as unexplained money. 3. SIGNIFICANT HOLDINGS "From the perusal of the documents, it cannot be seen that the bank statement held with Indian Overseas bank the assessee has given the details from December, 2015 therein the assessee is depositing the amount to the extent of Rs. 6,90,000/- Rs. 1,48,000 Rs. 46,000/- and on the different dates the assessee is withdrawing as well the amounts...the trail of cash deposits during the period of demonetization has been explained by the assessee before the Assessing Officer as well before the CIT(A). Therefore, the Assessing Officer was not right in making the addition u/s. 69A of the Act." "Section 115BBE has been introduced in Act as a result of the Taxation Laws (2nd Amendment) Act 2016 on 15-12-2016 and therefore the transaction occurred prior to introduction of section 115BBE will not be coming under the purview of section 115BBE of the Act." Core principles established include:
Final determinations on each issue were in favour of the assessee, resulting in the deletion of the addition of Rs. 15,00,000/- under section 69A and non-
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