Addition u/s 69 sustained as no evidence produced to prove source of cash deposit

M. Natarajan Vs ITO (ITAT Chennai)

ITAT Chennai held that addition under section 69 of the Income Tax Act sustained as no corroborative evidence produced to prove the source for the cash deposits during demonetization period.

Facts- The case was selected for scrutiny for verification of cash deposits made during demonetization period and thus, consequent notice u/s. 143(2) of the Income-tax Act, 1961 was issued and duly served on the assessee. During the course of assessment proceedings, the AO noticed that the assessee has made cash deposits of Rs. 48,59,000/- between 15.11.2016 and 01.12.2016 to his savings bank account. The AO, has called upon the assessee to explain source for cash deposits made during demonetization period.

In response, the assessee submitted that source for cash deposits was out of sale proceeds of ancestral property (agricultural land). He further, submitted that initially receipts from sale of property was deposited into joint account of assessee and my sister-in-law and later my sister-in-law has withdrawn money from her bank account on 29.01.2013 and gave a gift to the assessee. The source for cash deposit is out of gift received from my sister-in-law. Therefore, he submitted that question of making additions does not arise.

However, rejected arguments of the assessee and made additions towards cash deposits in Axis bank as unexplained money of the assessee. CIT(A) rejected the arguments of the assessee and sustained the additions. Accordingly, being aggrieved, the present appeal is filed.

Conclusion- In absence of corroborative evidence to support the arguments taken by the assessee, it is difficult to accept the evidences filed by the assessee to prove the source for cash deposits during demonetization period. Therefore, we are of the considered view that there is no error in the reasons given by the AO and CIT(A) to sustain additions made towards cash deposits made during demonetization period and thus, we are inclined to uphold the findings of the CIT(A) and dismiss appeal filed by the assessee.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

This appeal filed by the assessee is directed against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 07.06.2022 and pertains to assessment year 2017-18.

2. At the outset, we find that there is a delay of 177 days in filing of appeal before the Tribunal, for which a petition for condonation of delay along with affidavit explaining said delay has been filed. The ld. Counsel for the assessee, referring to petition filed by the assessee submitted that the assessee could not file appeal before the Tribunal within time allowed under the Act due to sudden demise of auditor Shri. Muralidharan, who was handling tax matters.Later, the assessee could able to identify another Counsel who can handle tax matters and in the process there is a delay of 177 days. The said delay is neither intentional nor for want of any undue benefit. Therefore, in the interests of justice, delay in filing of appeal may be condoned.

3. The ld. DR, on the other hand opposing petition filed by the assessee submitted that reasons given by the assessee neither comes under bonafide reasons nor reasonable cause as provided under the Act, for condonation of delay and thus, petition filed by the assessee should be dismissed.

4. We have heard both the parties and considered relevant contents of petition filed by the assessee for condonation of delay. We find that the assessee could not file appeal within time allowed under the Act due to sudden demise of his auditor Shri. Muralidharan. It was further noticed that the assessee was able to identify another counsel who can handle tax matters and represent his case and this process took considerable time. The delay of 177 days in filing of appeal is neither intentional nor to derive any undue benefit. Thus, we condone the delay in filing of appeal and admit appeal filed by the assessee for adjudication.

5. The assessee has raised the following grounds of appeal:

“A. For that the order of the Ld. Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, [“CIT(A)”] and Assessing Officer (“AO”), is erroneous, bad in law, and was passed ignoring the facts and merits of the case, disregarding the evidences and the case laws relied on by the appellant.

B. For that the Ld. CIT(A) failed to appreciate that the Ld. Assessing Officer (AO) while acknowledging in page 4 [para 1(1)] of his assessment order that Rs.70 lakhs was withdrawn by the appellant’s sister-in-law (Smt. Pakkiriammal) during the financial year (FY) 2012-13 and there is a doubt whether the withdrawal was given to the assessee, the Ld. AO could have examined Smt. Pakkiriammal by virtue of the powers vested in him under section 133(6) / 131 of the Income-Tax Act, 1961 (“Act”).

C. For that the Ld. CIT(A) ought to have noted that his powers being coterminous with that of the Ld. AO, the Ld. CIT(A) could have examined or caused the Ld. AO to examine Smt. Pakkiriammal about the factum of gift given by her to the appellant.

D. For that the Ld. CIT(A) and the Ld. AO failed to consider the notarized confirmation letter of appellant’s sister-in-law (Smt. Pakkiriammal – brother’s wife) that she had withdrawn Rs.50,00,000/- from her bank account with Axis Bank (Customer ID: 841300393) on 29.01.2013 and gave it to the assessee as gift out of love and affection and for being supportive to her, at every stage, particularly, at the time of her husband’s bone marrow cancer treatment.

E. For that the Ld. CIT(A) ought to have noted that where there is a doubt in the mind of the AO as to whether the cash withdrawal by the appellant’s sister-in-law was given to the appellant or not, the benefit of doubt should be in favour of the appellant, particularly, when there was nothing on record to disprove the notarized affidavit of Smt. Pakkiriammal.

F. For that the Ld. CIT(A) failed to note that the cash received by the appellant was kept for his brother’s bone-marrow cancer treatment which requires cash to meet his brother’s medical expenses, then and there, and which was subsequently paid back by his sister-in-law (Smt. Pakkiriammal).

G. For that the Ld. CIT(A) ought to have seen that only on account of demonetization of Specified Bank Notes (SBNs), the appellant deposited the cash available with him in his Axis Bank account (Customer ID: 832843234).

H. For that in the absence of any finding recorded by the Ld. AO or by Ld. CIT(A) that apart from depositing the cash into bank as explained by the assessee, there was any other user by the assessee of the amount of Rs.48,59,000/- and in the absence of that, simply because there was a time gap, the explanation of the assessee cannot be rejected.

I. For that the Ld. CIT(A) failed to appreciate that the appellant is a Central Government servant (Office Superintendent in O/o. Chief Labour Commissioner, Shastri Bhavan) having no source of income other than salary and in this backdrop, the preponderance of probability of the factum of gift from his sister-in-law of Rs. 50 lakhs is in favour of the appellant.

J. For these and other additional grounds that may be adduced before or at the time of hearing, the appellant prays that the appeal be allowed.”

6. The brief facts of the case are that, the assessee employed with Chief Labour Commissioner deriving salary income had filed his return of income for the assessment year 2017-18 on 29.03.2018, admitting a total income of Rs. 2,31,840/-. The case was selected for scrutiny for verification of cash deposits made during demonetization period and thus, consequent notice u/s. 143(2) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) dated 13.08.2018 was issued and duly served on the assessee. During the course of assessment proceedings, the AO noticed that the assessee has made cash deposits of Rs. 48,59,000/- between 15.11.2016 and 01.12.2016 to his savings bank account maintained with Axis Bank, Medavakkam Branch. The AO, has called upon the assessee to explain source for cash deposits made during demonetization period. In response, the assessee submitted that source for cash deposits was out of sale proceeds of ancestral property (agricultural land). He further, submitted that initially receipts from sale of property was deposited into joint account of assessee and my sister-in-law and later my sister-in-law Smt. Pakkiriammal has withdrawn money from her bank account on 29.01.2013 and gave a gift to the assessee. The source for cash deposit is out of gift received from my sister-in-law. Therefore, he submitted that question of making additions does not arise.

7. The AO, however was not convinced with explanation furnished by the assessee and according to the AO, the claim of the assessee that he had received gift from his sister-in-law, out of sale proceeds of agricultural land in the year 2013 is unsubstantiated and further, to make believe story to circumvent cash deposits made during demonetization period. Therefore, rejected arguments of the assessee and made additions towards cash deposits in Axis bank as unexplained money of the assessee. The relevant findings of the AO are as under:

“3.3 Submission made by the assessee was taken into account Documents furnished by the assessee were verified and the observations were noted as under. Assessee’s submissions made is devoid of merit for the following reasons:-3.3.1 The documents furnished by the assessee were verified and it IS ODS that a Sale deed dt. 21.02.2012 has been executed between Smt. Pakkiriammal, W/o. Balakrishnan and Mr. Jones. The total sale consideration received is KS. 1,80,00,000/-, The details of receipt of Rs.1.80.00,000/- is enumerated below:

3.3.2 On verification of the bank statement, it was noted that SB account number 911010053682747 of Smt. Pakkiriammal (Assessee’s sister in law) maintained with Axis Bank, Medavakkam Branch showed an amount of Rs. 1,08,00,000/-being the proceeds received from sale of property being deposited during the financial year 2011-12. However, the total consideration received is Rs. 1,80,00,000/-. Hence, submission made by the assessee that entire amount received was centrally deposited into the account of Smt. Pakkiriammal SB A/c. No. 911010053682747 is not correct. In respect of the balance amount i.e Rs. 72,00,000/- assessee has not submitted any proof / evidence as to which account the said balance amount was deposited or to whom it has been paid.

1. Similarly on verification of bank statement for the financial year 2012-13 sb a/c. number 911010053682 747 pertaining to Smt. Pakkiriammal, it is observed that Smt. Pakkiriammal had withdrawn Rs. 10 lakhs on 6.10.2012, Rs. 50 lakhs on 29.01.2013 and 16.03.2013 Rs. 10 lakhs, It is to be observed here that there was a total cash withdrawal of Rs. 70 lakhs. Similarly on 8.4.2019 Smt. Pakkiriammal had withdrawn Rs.9,50,000/-, It is not known whether the impugned cash withdrawal made was given to the assessee or whether it was withdrawn for mneeting out some other expenditures or for the purpose of investment.

2. It is to be noted that even though if it is accepted that out of the sale proceeds received from sale of property and after resolving family issues, share of the assessee could have been either transferred to his account either by way of cheque, through net banking etc., since both Smt. Pakkiriammal and assessee are having bank accounts with the same bank and branch i.e Axis Bank. There is no necessity for withdrawal of cash and redepositing them during demonetization period.

3. On which date the said amount was given to the assessee and from whom, assessee had received the impugned cash of Rs. 48,59,000/- was not furnished by the assessee.

4. If the assessee goes to claim that he had received cash of Rs. 48,59,000/- from Smt. Pakkiriammal out of the cash withdrawals of Rs. 70 lakhs being made during financial year 2012-13-and Rs. 9,50,000/- on 8.4.2019 from her sb alc. number 941010053682747. Why the impugned cash of Rs. 48,59,000/- was not immediately deposited in the bank account. It is to be noted that if the assessee was in possession of cash of Rs.48,59,000/-, why assessee still choose to withdraw cash of Rs. 1,500 to Rs.10,000/- on various dates during the financial year 2O16-17 from sb account number 909010040488405 maintained with Axis Bank, Medavakkam Branch, Chennai.

5. It is also to be noted here that assessee had not given any valid explanation / proof for the availability of cash in his hand and depositing them during demonetisation period.

6. When assessee was in the habit of deposits / withdrawing amount from bank, it shows that assessee was aware of banking procedures.

7. No prudent person will hold such Specified Bank Notes (SBNs) in hand in large number in his possession and deposit the same into the bank account on various dates spread over for 10 to 15 days. It has been observed that the time period between cash in hand and deposit of such cash in bank account should not be too long and therefore, must not be against human probabilities. In the case or the assessee, it is seen that the deposits of SBN notes are made on 15.11.2016 and on 01.12.2016 spread over for 15 days, which the assessee could not substantiate withreasonable explanation.

3.4 Therefore, onus was squarely upon the assessee to explain the nature and Source of deposits in the said bank accounts. Assessee was given sufficient Opportunity to explain the nature and source. The only explanation came from the assessee was that the cash deposit made during demonetisation period represents his share amount received from sale of ancestral property.

3.5 It is held that the assessee had neither any plausible explanation to offer with regard to the cash deposit nor had placed any evidence or placed on record any material which could show that impugned cash deposits made were cash received by him, being his share from sale of ancestral property.

3.6 Considering the entire facts on record, no material was brought on record to explain the source of cash deposit made during the specified period in the bank account maintained with Axis Bank, Medavakkam Branch. When the test of human probabilities are applied to the facts and circumstances of the case, it would be clear that assessee failed to explain the source of cash deposit in the bank accounts through any cogent and reliable evidence and surrounding circumstances speak against the assessee. In view of the above, cash deposit made during the specified period amounting to Rs. 48,59,000/-is treated as unexplained investment as per provisions of section 69 of the Income Tax Act and added to the income returned.”

8. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee has reiterated his arguments taken before the AO and submitted that he and his sister-in-law has sold an ancestral property and shared the consideration. Initially, the sale proceed was deposited in joint account with sister-in-law and subsequently, amount has been withdrawn from said account and his sister-in-law gave gift to the assessee. The source for cash deposits into bank account is out of amount received from sister-in-law. Therefore, submitted that the AO has erred in ignoring evidences filed by the assessee and made additions. The ld. CIT(A), after considering relevant submissions of the assessee and also by following the Doctrine of preponderance of probabilities, opined that the appellant has failed to substantiate cash deposits aggregating to Rs. 48,59,000/- in bank account with known source of income and thus, rejected arguments of the assessee and sustained additions made by the AO. The relevant findings of the CIT(A) are as under:

“I have considered the arguments of the Appellant and also findings of the AO. The Appellant has made an attempt to explain that cash deposit of Rs.48,59,000/- in the bank account. As per the Appellant’s claim, he has received the money in January 2013 from his sister-in-law on account sale of ancestral property. The cash was with him for almost 4 years before he deposited the same in his bank account post demonetisation. In my considered opinion It seems highly improbable that such a huge amount of cash of Rs.48,59,000/-remained in hand with the Appellant for almost 04 years (January 2013 to November, 2016) and was deposited only when there was announcement of demonetisation in November 2016. It Is noted from a perusal of the impugned assessment order and also the submissions of the Appellant and discussions made above that the Appellant has not been able to furnish any reason or explanation for his claim of keeping huge cash in hand. No details of personal/ household expenses incurred in cash has been brought on record by the Appellant to further substantiate his claim. The Appellant has not maintained books of accounts and has not furnished relevant balance-sheets and documentary evidences have been submitted by the Appellant that there was Cash and to the extent of Rs.48,59,000/- which was subsequently deposited post demonetisation in November-December, 2016.

From perusal of facts of this case. the Doctrine of preponderance of probabilities is clearly attracted. The normal rule which governs civil proceedings is that a fact can be said to be established if it is proved by a preponderance of probabilities. This is for the reason that under Section 3 of the Evidence Act, 1872, a fact is said to be proved when the court either believes it to exist or considers its existence so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it exists. The belief regarding the existence of a fact is thus to be founded on a balance of probabilities. A prudent man faced with conflicting probabilities concerning a fact-situation willact on the supposition that the fact exists, if on weighing the various probabilities he finds that the preponderance is in favour of the existence of the particular fact as a prudent man. So the Court applies this test for finding whether a fact in issue can be said to be proved. The first step in this process is to fix the probabilities, the second to weigh them, though the two may often intermingle. The impossible is weeded out at the first stage and the improbable at the second. Within the wide range of probabilities, the Court has often a difficult choice to make but it is this choice which ultimately determines where the preponderance of probabilities lies. Important issues7 like those which affect the status of parties demand a closer scrutiny than those like the loan on promissory note. The nature and gravity of an issue necessarily determines the manner of attaining reasonable satisfaction of the truth of the issue. In civil cases this, normally, is the standard of proof to apply for finding whether the burden of proof is discharged. The normal rule which governs civil proceedings is that a fact can be said to be established if it is proved by a preponderance of probabilities and not the one relating to beyond reasonable doubt.

In this case, it is evident from the facts that preponderance of probability is working against the Appellant. The Appellant has failed to substantiate that the cash aggregating to Rs.48,59,000/- received by him from his sister-in-law in January 2013 was actually kept in hand all these years to be subsequently deposited in his bank accounts during the period of demonetization.

In view of the above discussion, I find no reason to interfere in the assessment order passed by the AO. The addition of Rs. 48,59,000/- made by the AO u/s. 69 of the Act, is therefore, confirmed. The Appeal is dismissed.”

9. The ld. Counsel for the assessee, submitted that the ld. CIT(A) erred in sustaining additions made by the AO towards cash deposits ignoring all evidences filed by the assessee to prove the source for said cash deposits. The ld. Counsel for the assessee, referring to bank statement of Smt. Pakkiriammal and gift deed submitted that the appellant and his sister-in-law sold an ancestral property (agricultural land) on 21.02.2012 for a consideration of Rs. 1.8 crores and the sale proceeds was retained in her bank account. He further submitted that, Smt. Pakkiriammal has withdrawn a sum of Rs. 59 lakhs on 29.01.2013 and gifted to the appellant. The source for cash deposit during demonetization period is out of gift received from sister-in-law. The assessee has filed all details including notarized confirmation letter and affidavit from the sister-in-law. But, the AO has ignored all evidences and sustained additions made towards cash deposits.

10. The ld. DR, on the other hand supporting the order of the CIT(A) submitted that, the assessee has changed the stand right from assessment proceedings to appellant proceedings. Initially, the assessee claimed that he had received his share of consideration towards sale of ancestral property. Subsequently, he has changed his stand and argued that he had received gift from his sister-in-law Smt. Pakkiriammal. Finally, now the assessee claims that money received from his sister-in-law has been kept for medical treatment of his brother Shri. Balakrishnan and the same amount was deposited into bank account during demonetization period. There is inconsistency in arguments made by the assessee at different stages of proceedings and from the above, it is very clear that the assessee is trying to create and make believe story to circumvent cash deposits and thus, the AO and CIT(A) has rightly made additions and their order should be upheld.

11. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that the appellant had made cash deposits during demonetization period into his savings bank account maintained with Axis Bank, Medavakkam Branch. The assessee had made first cash deposit on 15.11.2016 amounting to Rs. 44,50,000/- and second cash deposit on 01.12.2016 for Rs. 4,09,000/-. The assessee claims that source for cash deposits is out of gift received from her sister-in-law Smt. Pakkiriammal on 29.01.2013. For this purpose, the appellant had filed a copy of bank statement of his sister-in-law and gift deed for evidencing gift of Rs. 50 lakhs on 29.01.2013. We have gone through evidences filed by the assessee, including bank statement and gift deed of Smt. Pakkiriammal and the timing of cash deposits and we find that there is a gap of more than 3¹/₂ years from the date of Smt. Pakkiriammal withdrawn cash from her bank account and deposit made by the assessee to his bank account during demonetization period. Since, there is a huge gap between withdrawal and deposit, the assessee needs to explain with necessary evidences the gap between date of withdrawal and date of deposits. Initially, the assessee claims to have received his share of amount towards ancestral property. The assessee has changed his stand subsequently and argued that, he has received gift from his sister-in-law. Finally, he claimed that said amount was kept for the treatment of his brother Shri. Balakrishnan and unutilized amount has been deposited into bank account. From the sequence of events and arguments of the assessee right from the assessment stage to appellant stage, we find that there is inconsistency in arguments in respect of source for cash deposits. Further, the assessee could not file any corroborative evidence to substantiate his arguments, that why the money received towards sale of property was kept in his sister-in-law bank account, when he was having right and interest in the property. Further, the assessee could not also explain how the amount withdrawn in the year 2013 was made available for depositing in the year 2016, that too during demonetization period. The arguments of the assessee that money was kept for the purpose of treatment of his brother Shri. Balakrishnan, was also unproved, because no evidence has been filed to justify his arguments and further, there was no proof as to how much was spent for treatment and how much balance was available with the assessee. In absence of corroborative evidence to support the arguments taken by the assessee, it is difficult to accept the evidences filed by the assessee to prove the source for cash deposits during demonetization period. Therefore, we are of the considered view that there is no error in the reasons given by the AO and CIT(A) to sustain additions made towards cash deposits made during demonetization period and thus, we are inclined to uphold the findings of the CIT(A) and dismiss appeal filed by the assessee.

12. In the result, appeal filed by the assessee is dismissed.

Order pronounced in the court on 12^th April, 2023 at Chennai.