Affidavits, if credible and corroborated, sufficient to explain source of cash deposits

Affidavits, if credible and corroborated by other evidences, can be sufficient to explain the source of cash deposits -ITAT

In a recent judgment, the Hon’ble Ahmedabad ITAT has held that affidavits, if credible and corroborated by other evidences, can be sufficient to explain the source of cash deposits. Mere suspicion or conjecture is not sufficient to sustain an addition under Section 69A of the Act.

ABCAUS Case Law Citation:
ABCAUS 4073 (2024) (06) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) National Faceless Appeal Centre in part sustaining the addition u/s 69A of the Income Tax Act, 1961 (the Act) for cash deposits in bank account

The assessee was a women engaged in some embroidery, crochet work and sundry art work since last more than 40 years having income below the taxable limit and, hence, was not liable to file return of income.

On the basis of data analytics and information gathered during “Operation Clean Money”, it was revealed that assessee deposited large amount of cash in two different bank accounts during the demonetization period in old currency of Rs. 500/- and Rs.1000/-. In both these bank accounts, assessee was one of the joint-account holders along with other family members. All of the family members are senior citizens.

A notice u/s 142(1) of the Act was issued to the assessee asking to prepare and file true and correct return of income.

The assessee filed the return of income in response to the notice u/s 142(1) of the Act declaring a meagre income of Rs. 40,000/-. The assessee also furnished the information as called by the AO stating that she was not having any business income and that the cash deposited in the joint bank account includes personal savings and cash withdrawals of two brothers, who were assessed to tax and also having taxable share of business income.  In support of the same, the assessee also submitted the copies of return of income for last three years of her bothers.

The AO without taking into consideration the submission made by the assessee and the return of income filed by the assessee, passed order u/s 144 of the Act adding cash deposits u/s 69A of the Act being unexplained Money. The AO assessed the income u/s 115BBE of the Act at the rate of 60% and also initiated penalty proceedings u/s 271AAC and 271F of the Act.

The Tribunal observed that when assessee had filed the return of income and responded to the notice of the Assessing Officer, the conditions for invoking Section 144 of the Act are not met. Therefore, the assessment made by the AO u/s 144 of the Act, would not sustain. Various judicial decisions have held that invoking Section 144 of the Act is improper, if the assessee has filed a return of income and complied with the notices. The courts have quashed such assessments, emphasizing that best judgment assessments are intended only for cases where the assessee fails to file returns or comply with statutory notices.

The Tribunal observed that in the present case, the assessee had furnished the details of cash deposits, during the course of the appellate proceedings. The Affidavits of relatives confirming that the cash deposited in the bank account of the assessee belongs to them were also produced before the CIT(A). The assessee also produced the return of income of the relatives.

It was also observed that the part of the deposits was not relating to cash deposit and it iwas related to the maturity proceeds of the fixed deposits.

The Tribunal further observed that there was an addition on substantive basis in the hands of brother of the assessee and the same amount deposited in the joint bank account held by the assessee.

Looking at the facts of the case, the Tribunal opined that CIT(A) was not correct in upholding the half of the assessment in the hands of assessee u/s 69A of the Act.

The Tribunal opined that affidavits, if credible and corroborated by other evidences, can be sufficient to explain the source of cash deposits. Neither the AO nor the CIT(A) had provided concrete reasons or evidences to reject the Affidavits and the explanation provided by the assessee. Mere suspicion or conjecture is not sufficient to sustain an addition under Section 69A of the Act.

The Tribunal set aside the order of CIT(A) and deleted the entire addition made u/s.69A r.w.s 115BBE of the Act, in the hands of the assessee by the AO. It was also directed that the proceedings for initiation of penalty proceedings u/s. 271AAC(1) & 271F of the Act be dropped. 

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