Facts of the Case

The assessee, Sudhir Kumar Tiwari (HUF), filed its return of income for Assessment Year 2017-18 declaring a modest income. The case was selected for limited scrutiny through CASS on the issue of cash deposits in bank accounts during the demonetization period.

The Assessing Officer sought an explanation regarding the source of such deposits and subsequently treated a sum of ₹1,00,000 as unexplained money under Section 69A of the Income-tax Act.

The assessee contended that the deposited amount represented past savings of the HUF and its members. The addition was sustained by the lower appellate authority, leading to appeal before the ITAT.

Issues Involved

  1. Whether cash deposits made during the demonetization period could be treated as unexplained money under Section 69A.
  2. Whether the explanation of past savings provided by the assessee was sufficient to discharge the burden of proof.
  3. Whether provisions of Section 115BBE were applicable in the circumstances.

Petitioner’s (Assessee’s) Arguments

  • The assessee explained that the deposits represented accumulated past savings of the HUF and its members.
  • There were no other significant deposits during the demonetization period indicating undisclosed income.
  • The explanation was reasonable considering the quantum of income and family savings.
  • The addition was arbitrary and not supported by evidence of undisclosed sources.

Respondent’s (Revenue’s) Arguments

  • The Revenue contended that the assessee failed to satisfactorily establish the source of cash deposits.
  • It was argued that unexplained deposits during demonetization warranted addition under Section 69A.
  • The Assessing Officer’s action was justified based on available material.

Court Findings / ITAT Order

The Tribunal carefully examined the facts and observed:

  • The assessee had provided an explanation that the deposits represented past savings of the HUF and its members.
  • There were no other substantial deposits during the demonetization period suggesting undisclosed income.
  • The amount involved was relatively small and consistent with household savings.

Considering these factors, the ITAT held that the explanation was plausible and could not be rejected without contrary evidence.

Accordingly, the addition of ₹1,00,000 made under Section 69A was deleted and the appeal of the assessee was allowed.

Important Clarification by ITAT

Cash deposits during the demonetization period cannot automatically be treated as unexplained income. Where the assessee provides a reasonable explanation supported by surrounding circumstances, addition under Section 69A may not be sustainable.

Link to download the order -  https://itat.gov.in/public/files/upload/1662984139-NEW%20ITA%20NO.%2025%20Alld%202022%20Sudhir%20Tiwari.pdf

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