Facts of the Case

The assessee, a Professor at Allahabad University, filed her return of income for Assessment Year 2014-15 declaring total income of ₹13,67,230, later revised to ₹13,90,410. The case was selected for limited scrutiny. Due to alleged non-compliance with statutory notices, the Assessing Officer completed the assessment ex-parte under section 144 of the Income-tax Act, 1961.

During assessment, the Assessing Officer noted that the assessee had purchased an Innova car for ₹12,38,452 and treated the same as unexplained investment on the ground that no satisfactory explanation was furnished. An addition of ₹12,38,452 was accordingly made.

The assessee preferred an appeal before the CIT(A), contending that she had purchased the vehicle out of cash withdrawn from a bank loan of ₹25 lakh and savings from salary income. The CIT(A), however, dismissed the appeal, primarily on the ground that there was a substantial time gap of about 18 months between withdrawal of cash and booking of the vehicle and that there was inconsistency regarding the bank from which the loan was taken.

Aggrieved, the assessee approached the Income Tax Appellate Tribunal.

 

Issues Involved

  1. Whether addition for unexplained investment in purchase of a car can be sustained merely on the basis of time gap between cash withdrawal and utilisation.
  2. Whether best judgment assessment under section 144 can be upheld without proper examination of relevant material.
  3. Whether the matter required remand for verification of utilisation of loan funds.

 

Petitioner’s Arguments

The assessee submitted that the car was purchased out of cash withdrawn from a bank loan and savings from salary income. It was contended that the delay in purchase was due to waiting for the desired model and that merely mentioning an incorrect bank name inadvertently could not invalidate the explanation. Reliance was placed on judicial precedents holding that cash withdrawals cannot be presumed to be unavailable merely because of a time gap, unless the Revenue proves utilisation elsewhere.

 

Respondent’s Arguments

The Revenue argued that the assessee was non-compliant during assessment proceedings, necessitating best judgment assessment. It was contended that the loan was a housing loan and not a car loan, and the assessee failed to establish that the withdrawn cash was available at the time of purchase. Reliance was placed on the test of human probabilities as laid down by the Supreme Court, submitting that retaining large cash for an extended period without evidence was improbable.

 

Court Order / Findings

The Income Tax Appellate Tribunal observed that the settled legal position is that mere time lag between cash withdrawal and subsequent utilisation cannot, by itself, justify an addition, unless the Revenue brings material on record to show that the withdrawn cash was utilised elsewhere.

However, the Tribunal noted that in the present case, the assessment was completed ex-parte and the Assessing Officer had no opportunity to examine whether the housing loan obtained by the assessee was actually utilised for construction or purchase of a house, or whether the funds remained available for purchase of the vehicle. Since no factual verification regarding utilisation of the loan had been carried out, the Tribunal held that the issue required fresh examination.

Accordingly, the matter was restored to the file of the Assessing Officer with a direction to verify utilisation of the housing loan and thereafter pass a fresh order in accordance with law after granting reasonable opportunity to the assessee. The appeal was allowed for statistical purposes.

 

Important Clarification

The Tribunal clarified that while unexplained investment additions cannot rest solely on conjectures or time gaps, the assessee carries the burden to establish availability of funds and proper utilisation of loan amounts. In absence of factual verification at the assessment stage, remand was considered necessary to uphold principles of natural justice.

Link to download the order -   https://www.mytaxexpert.co.in/uploads/1770880607_SMT.RANJANABAJPAIALLAHABADVS.DCITACITCIRCLE1ALLAHABAD2.pdf 

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