2025 (6) TMI 1758 - AT - Income Tax

Unexplained money u/s 69A - Addition made concluding no man will keep such a huge cash - HELD THAT - Assessee has given the details of the agricultural produce including the documents related to the ownership of the land (agricultural land). But all these details were totally ignored including that of sale receipts produced by the assessee during the proceedings. The details of the same were partly admitted by the CIT(A) thus there is discrepancy in the finding related to the documents produced by assessee. The finding of the CIT(A) that there is a bogus agricultural income appears to be not justifiable. Hence the said addition does not sustain. Addition on account of unexplained money u/s. 69A of the Act the assessee has given the details of cash withdrawals on various dates and the deposit of the same on the subsequent occasions which can be seen from cash books as well as from the bank statements. Therefore all these details should have been taken into account by the Assessing Officer as well as by the CIT(A). Thus the addition made by the Assessing Officer is not correct. Hence the appeal of the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

(a) Whether the addition of Rs. 13,50,000/- as unexplained cash under section 69A of the Income Tax Act, 1961, was justified, given the assessee's explanation and documentary evidence regarding cash withdrawals and deposits during the relevant period.

(b) Whether the agricultural income of Rs. 2,75,680/- declared by the assessee was genuine or bogus, particularly in light of the absence or presence of supporting documents such as land ownership and sale receipts.

(c) Whether the Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)] properly appreciated the evidence and explanations submitted by the assessee, or whether their findings were based on assumptions, presumptions, and conjectures without proper jurisdiction or adherence to principles of natural justice.

(d) Whether penalty proceedings initiated under sections 271AAC(1) and 270A read with section 274 of the Income Tax Act should be dropped, considering the merits of the case and the explanation provided by the assessee.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of addition of Rs. 13,50,000/- as unexplained money under section 69A

Relevant Legal Framework and Precedents: Section 69A of the Income Tax Act deals with unexplained money, where any sum found deposited in a bank account for which the assessee fails to satisfactorily explain the source is treated as income. The Supreme Court in Sumati Dayal vs CIT (1995) laid down the "Human Probability Test," which requires the time gap between cash in hand and its deposit in the bank to be reasonable, and it is expected that a person possessing large cash would deposit it immediately, especially when the currency notes are demonetized.

Court's Interpretation and Reasoning: The AO added Rs. 13,50,000/- as unexplained cash on the presumption that no prudent person would hold such a large amount of cash. The CIT(A) upheld this addition relying on the Supreme Court's judgment, emphasizing that the cash should have been deposited in a lump sum immediately after demonetization, not in multiple tranches over several days.

The assessee countered by producing detailed cash book entries and bank statements showing regular withdrawals from various bank accounts and subsequent deposits of cash within a short period (2 to 5 days) after demonetization was declared on 8/11/2016. The assessee also demonstrated that the cash deposits matched or were slightly less than the withdrawals, with a negligible balance remaining.

Key Evidence and Findings: The assessee submitted a detailed table showing dates and amounts of cash withdrawals from SBI, Oriental Bank of Commerce (OBC), and Bank of Maharashtra, alongside corresponding cash deposits in the same banks. The total cash withdrawn was Rs. 28,80,580, and total cash deposited was Rs. 28,69,000, leaving a small cash balance of Rs. 11,580. The opening and closing cash balances for the relevant years were also furnished, showing consistent cash flow.

Application of Law to Facts: The Court noted that the assessee's cash withdrawals and deposits were documented and consistent with the agricultural income and other sources declared. The deposits were made within a reasonable time frame after demonetization, in multiple tranches, which was justified by the sudden currency ban and practical difficulties in depositing large sums at once.

Treatment of Competing Arguments: The AO and CIT(A) relied heavily on the "Human Probability Test" from the Supreme Court, expecting a one-time deposit. However, the Court found this expectation unrealistic given the demonetization context and accepted the assessee's explanation of phased deposits. The AO's presumption that the cash was unexplained was held to be based on conjecture and ignoring the documentary evidence.

Conclusions: The addition of Rs. 13,50,000/- as unexplained cash under section 69A was not justified. The Court held that the assessee had satisfactorily explained the source of cash deposits and withdrawals, and the AO's addition was based on assumption rather than evidence.

Issue (b): Validity of addition of Rs. 2,75,680/- on account of alleged bogus agricultural income

Relevant Legal Framework: Agricultural income is exempt under the Income Tax Act if genuine. The burden lies on the assessee to prove the genuineness of agricultural income through ownership documents, sale receipts, and other supporting evidence.

Court's Interpretation and Reasoning: The AO disallowed the agricultural income of Rs. 2,75,680/- on the ground that the assessee failed to produce land ownership documents and sale bills, treating it as income from other sources. The CIT(A) partially allowed the agricultural income but still upheld the addition in part.

Key Evidence and Findings: The assessee produced documents related to ownership of agricultural land, sale receipts, and cash books reflecting agricultural income. The Tribunal noted that these documents were ignored or insufficiently considered by the AO and CIT(A).

Application of Law to Facts: The Tribunal observed that the CIT(A) had a contradictory stance by partly admitting the documents but still holding the agricultural income as bogus. The Court emphasized that the assessee had discharged the burden of proof by submitting relevant documents, and thus the addition was unjustified.

Treatment of Competing Arguments: The AO and CIT(A) focused on the absence of certain documents and dismissed the agricultural income. The assessee argued that the documents produced were sufficient and were ignored without proper appreciation. The Court sided with the assessee, stressing the need for fair and complete consideration of evidence.

Conclusions: The addition of Rs. 2,75,680/- on account of bogus agricultural income was not sustainable. The agricultural income declared by the assessee was held to be genuine and supported by evidence.

Issue (c): Whether the AO and CIT(A) acted without jurisdiction and violated principles of natural justice

Relevant Legal Framework: Principles of natural justice require that an assessee's explanations and evidence be fairly considered before making adverse findings. The AO must not act on assumptions or preconceived opinions without proper inquiry.

Court's Interpretation and Reasoning: The assessee contended that the AO had framed an opinion from the outset, ignoring explanations and documents submitted, and proceeded on presumption and guesswork. The AO's order under section 143(3) was challenged as bad in law and against natural justice.

Key Evidence and Findings: The Tribunal found that the AO ignored the cash book, bank statements, and documents relating to agricultural income. The CIT(A) also failed to properly consider the evidence, relying instead on assumptions and selective judicial precedents.

Application of Law to Facts: The Tribunal held that the AO's and CIT(A)'s approach amounted to ignoring relevant evidence and acting on surmises, which is contrary to the principles of natural justice and proper jurisdiction.

Treatment of Competing Arguments: The Revenue defended the AO and CIT(A) findings based on judicial precedents and the human probability test. The Tribunal found these arguments insufficient to override the documentary evidence and explanations provided by the assessee.

Conclusions: The AO and CIT(A) erred in ignoring the evidence and acting on presumption. The assessment order was held to be bad in law on this ground as well.

Issue (d): Penalty proceedings under sections 271AAC(1) and 270A read with section 274

Relevant Legal Framework: Penalty provisions under these sections are invoked in cases of concealment or furnishing inaccurate particulars of income. However, if the additions are not justified, penalty proceedings should not be sustained.

Court's Interpretation and Reasoning: The assessee prayed for dropping penalty proceedings, arguing that the additions were unjustified and that full cooperation was extended.

Application of Law to Facts: Since the Tribunal set aside the additions on merits, the foundation for penalty proceedings was undermined.

Conclusions: Though not expressly decided in the order, the prayer for dropping penalty proceedings is logically supported by the Tribunal's findings allowing the appeal.

3. SIGNIFICANT HOLDINGS

The Tribunal held that the addition of Rs. 13,50,000/- as unexplained cash under section 69A was based on assumption and presumption without proper appreciation of documentary evidence. It rejected the reliance on the "Human Probability Test" in the context of demonetization, noting the assessee's timely and phased deposits of cash.

The Tribunal observed: "The addition made by the Assessing Officer is not correct. Hence, the appeal of the assessee is allowed."

Regarding agricultural income, the Tribunal found that the assessee had produced sufficient evidence of ownership and sale receipts, which were ignored by the AO and CIT(A). It held: "The finding of the CIT(A) that there is a bogus agricultural income appears to be not justifiable."

The Tribunal emphasized that the AO and CIT(A) acted on presumption, conjectures, and surmises, violating principles of natural justice and failing to consider material evidence, rendering the assessment order bad in law.

Consequently, the Tribunal allowed the appeal, deleting the addition of Rs. 13,50,000/- and disallowance of agricultural income, and implicitly supporting the dropping of penalty proceedings.