Facts of the Case

A search and seizure operation under Section 132 of the Income-tax Act was conducted on 27.08.2009 at the business and residential premises of the Kesarwani Zarda Bhandar group. During the search, cash amounting to ₹6,70,000 was found from the possession of the assessee but was not seized.

The assessee initially explained that the cash represented withdrawals from the partnership firm. During assessment proceedings, a different explanation was furnished stating that ₹12,00,000 had been advanced to her daughter and son-in-law for purchase of a house, out of which ₹7,00,000 was given in June 2008 and ₹5,00,000 in January 2009, and the amount was returned in May 2009. Part of the returned amount was allegedly deposited in the bank and the balance remained in cash at home.

Separately, cash deposits totaling ₹5,70,000 were made in the assessee’s bank account during June 2009.

Issues Involved

  1. Whether cash of ₹6,70,000 found during search was unexplained money liable to addition under Section 69A.
  2. Whether bank deposits of ₹5,70,000 constituted unexplained investment under Section 69.
  3. Whether the Commissioner of Income-tax (Appeals) was justified in enhancing income.
  4. Effect of prior year findings treating closing cash balance as NIL.

 petitioner’s (Assessee’s) Arguments

  • The cash found was from legitimate withdrawals and past savings.
  • Funds advanced to daughter and son-in-law were returned and formed the source of cash.
  • She had substantial income in earlier years, making possession of cash reasonable.
  • Cash deposits were from withdrawals made earlier.
  • Enhancement by CIT(A) was made without proper opportunity.

Respondent’s (Revenue’s) Arguments

  • The explanation during assessment contradicted the statement recorded during search.
  • No documentary evidence supported the alleged loan to relatives.
  • Significant expenditure on the husband’s funeral ceremonies had depleted available cash.
  • Earlier appellate order for the preceding year determined closing cash balance as NIL, which was not challenged.
  • No withdrawals were shown to justify the bank deposits.
  • Proper notice for enhancement had been issued but no response was filed.

Court Order / Findings (ITAT)

  • The assessee failed to establish the source of cash found during search.
  • The explanation regarding loan to relatives was unsupported and inconsistent.
  • Prior year findings that closing cash balance was NIL remained binding since not appealed.
  • Consequently, no opening cash balance was available for the relevant year.
  • Cash deposits in bank lacked any demonstrated source.
  • Enhancement by CIT(A) was valid as notice had been issued and no reply was furnished. 

Important Clarification by Tribunal

  • Failure to challenge findings in earlier years can adversely affect subsequent assessments.
  • Cash flow statements without supporting evidence are insufficient.
  • Inconsistent explanations weaken credibility.
  • Burden of proving source of cash lies on the assessee.

Link to download the order    https://itat.gov.in/public/files/upload/1678168093-ITA%20No.%20572%20Alld%202014%20Smt.%20Parvati%20Devi%20LH%20Late%20Kamla%20Devi.pdf

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