ITO Vs M. Muniswamy Reddy (Karnataka High Court)
The Karnataka High Court dismissed the Revenue’s writ appeal and upheld the quashing of an assessment made under Section 144 involving addition of ₹32,00,500 as unexplained cash deposits under Section 69A r/w 115BBE. The Court noted that the assessee had provided a plausible explanation supported by evidence, including a registered agreement of sale showing receipt of ₹26,50,000 and proof of income of the son supporting the balance ₹4,50,000.
The Assessing Officer had rejected the explanation on presumptive grounds, such as questioning why cash was retained for two years and relying on notions of “human conduct”, which the Court held to be unsustainable and arbitrary. It observed that expecting the assessee to prove that the same physical cash was retained over time imposes an impossible burden of proof.
The Court held that once a reasonable explanation of source is furnished, the addition under Section 69A cannot be sustained without contrary evidence. Accordingly, the assessment order, demand notice, and penalty proceedings were rightly quashed by the Single Judge, and no interference was warranted.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
Heard Sri Y.V. Raviraj, learned Senior Standing Counsel for the petitioners and Sri Vikram Huilgol, learned Senior Advocate along with Sri Aloke Madappa, learned counsel for Smt. Maria Joseph, learned counsel for caveator-respondent.
