Facts of the Case

During scrutiny assessment proceedings, the Assessing Officer observed substantial cash deposits in the assessee’s bank account. The AO treated these deposits as unexplained money and added the amount to the income of the assessee under the relevant provisions of the Income-tax Act.

The assessee explained that the deposits were sourced from known and legitimate means and were not undisclosed income. However, the AO rejected the explanation and made the addition. The Commissioner of Income Tax (Appeals) confirmed the assessment order.

Aggrieved by the decision, the assessee filed an appeal before the Income Tax Appellate Tribunal, Allahabad.

Issues Involved

  1. Whether the cash deposits in the bank account constituted unexplained income.
  2. Whether the AO was justified in invoking Sections 68/69A without conclusive evidence.
  3. Whether the assessee’s explanation regarding the source of deposits was properly considered.
  4. Whether the addition sustained by the CIT(A) was legally valid.

Petitioner’s (Assessee’s) Arguments

  • The assessee contended that the cash deposits were from explained sources and duly accounted for.
  • The AO failed to conduct proper inquiry to disprove the explanation furnished.
  • No material evidence was brought on record to show that the deposits represented undisclosed income.
  • The addition was based on presumptions rather than concrete proof.

Respondent’s (Revenue’s) Arguments

  • The Revenue argued that the assessee failed to satisfactorily explain the nature and source of the cash deposits.
  • In the absence of adequate supporting evidence, the AO was justified in treating the deposits as unexplained.
  • The Department supported the order of the CIT(A) sustaining the addition.

Court Order / Findings

The ITAT Allahabad examined the facts and evidence on record and observed that additions under Sections 68 or 69A require the Revenue to establish that the amounts represent unexplained income.

The Tribunal held that merely identifying cash deposits in a bank account does not automatically justify addition unless the explanation of the assessee is found to be false or unsupported by evidence.

In the present case, the Revenue failed to bring any independent material to demonstrate that the deposits were from undisclosed sources. Suspicion alone cannot replace proof in tax proceedings.

Important Clarification

  • Cash deposits do not automatically constitute unexplained income.
  • The burden initially lies on the assessee to explain the source, but the AO must rebut the explanation with evidence.
  • Additions cannot be sustained on conjectures or suspicion.
  • Proper inquiry and verification are essential before invoking Sections 68 or 69A.

Link to download the order –https://itat.gov.in/public/files/upload/1606305856-ITA%20No.255.pdf

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