When assessee is given immunity from disclosing chicken, can’t be asked to disclose eggs – ITAT deleted addition u/s 69A
In a recent judgment, ITAT quashed addition u/s 69A towards interest income on money declared under IDS-2016 observing that when the assessee is given immunity not to disclose chicken, how he can be asked to disclose the eggs?
ABCAUS Case Law Citation:
4736 (2025) (09) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming addition towards unexplained money u/s 69A of the Income Tax Act, 1961 (the Act) treating the subsequent interest income earned on Money Lending Transaction declared under IDS, 2016.
The assessee was engaged in jewellery business in which proprietorship concern. The assessee e-filed his ITR for the year under reference u/s 139(1) of the Act showing income from pension and income from other sources. Subsequently, the case was selected for ‘Limited Scrutiny’ to examine the issue “Cash Deposit during the year” through CASS and notice u/s 143(2) was issued and duly served upon the assessee which was complied with.
The assessee was asked to prove source of cash deposit made by him in his bank account. The assessee submitted that the main source of cash deposit was from the market lending declared by the assessee in Income Declaration Scheme 2016 and thereby the balance amount pertained to the interest earned on that assets till the realization of the same in cash.
The AO vide notice asked the assessee to show cause as to why the amount claimed to be interest should not be treated as unexplained money u/s. 69A of the Act.
The assessee relied upon the question no. 8 of the circular no. 25 of 2016 issued by the CBDT wherein it was stated that if an assessee declares undisclosed asset under IDS, 2016 no enquiry would be made from the seller of such property.
Since the assessee had disclosed market lending in cash and thereby that being an asset even for that lending converted into cash and thereby in that process assessee also earned interest , the AO applying the theory of human probability took a view that since the assessee could not explain the source of cash deposit sourced as interest income on that market lending as undisclosed money as per provision of section 69A of the Act.
Before the Tribunal the assessee submitted that he had declared a sum of Rs.1,50,00,000 under Income Declaration Scheme “(IDS)”, 2016. The Assessee had filed Form No. 1 under IDS declaring “market lending along with interest”. Department accepted the VDIS and issued Form No. 4 with the above narration. The Assessee had paid tax @45% on the above income declared under IDS. The declaration was accepted by the Department. The Assessee subsequently deposited the said cash in its bank account.
It was further submitted that since, it was a case of Market Lending, post declaration under IDS, Assessee started recovering the sum from the borrowers along with interest from the date of IDS till actual recovery of the money. The income declared under IDS amounting to Rs.1,50,00,000 and further interest earned thereon, during the intervening period, was deposited in the bank.
It was submitted that AO sought the details of persons from whom said interest for the intervening period, was earned and on Assessee’s failure to do so invoked the provisions of Section 115BBE.
The Tribunal observed that the assessee had disclosed assets in the form of “Market lending inclusive of interest, against security of hundi, undated cheque and property document as on 31.03.2016.” The purpose of the scheme IDS 2016 was to encourage disclosure of hitherto undisclosed income. The assessee who seeks the benefit of the scheme is bound to pay tax, surcharge and penalty. Those who availed themselves of the scheme received immunity from prosecution under the Income-tax Act and the Wealth-tax Act. Certain conditions also provided immunity from the Benami Transactions (Prohibition) Act, 1988. Since, the assets were disclosed by the assessee under the IDS, 2016, Rule 4 allowed the assessee to file a declaration of income or income in the form of investment in any assets. Based on that set of facts, the declaration made by the assessee was accepted. In the process of receiving back those advances which were of course in cash, the assessee also received interest from the declared assets till the assets were actually realized in terms of money.
The Tribunal observed that it was not disputed that the assessee had made a declaration for advances given on interest and disclosure of assets in the form of money advanced. The assets along with the interest amount was disclosed along with the modus operandi of doing that money lending activity. The assessee explained that the interest income offered was not the past income, but the income of interest earned on that advances post IDS i.e till the date of realization of the advances by the assessee.
The Tribunal opined that the assessee, based on that set of facts, was entitled to claim as per the clarification given in reply to question no. 8 of Circular No. 25 of 2016 issued by the CBDT equally applicable to the facts of the present case.
The Tribunal questioned the authorities as to when there cannot be disclosure of advances, how the question of disclosure of interest on that would arise. In other words, when the assessee is given immunity not to disclose chicken, how he can be asked to disclose the eggs.
The Tribunal held that the immunity given to the assessee cannot be taken away merely on the fact that the assessee has offered the interest for the intervening period without disclosing the names of the parties. The assessee cannot be expected to disclose a fact for which otherwise he has the immunity from disclosing.
Accordingly, the assessee was allowed the immunity not to disclose the name of the parties from whom assessee has realized the advances and interest thereupon and the appeal was allowed.
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