When the provisions of Section 69A are invoked burden of proof lies on the AO to establish source of unexplained money
In a recent judgment, ITAT Delhi has held that settled law is that where the AO invoked the provisions of Section 69A of the Income Tax Act, the burden of proof lies on the AO to establish the source of alleged unexplained money and statements recorded during the course of search plays decisive role.
ABCAUS Case Law Citation:
4779 (2025) (10) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the addition made by the Assessing Officer (AO) u/s 69A of the Income Tax Act, 1961 (the Act).
The appellant assessee was an individual and is engaged in the trading of chemicals etc. A search and seizure operation was carried out by the Investigation Wing of Department on a group of cases and during the course of search, lockers owned by the assessee were also searched.
Large amount of cash was found in the Locker related to the assessee. The assessee was asked to explain the source of the same for which it was stated that it is generated out of speculative business of food grains, rice, pulses etc. and assessee offered the same as speculative income in the computation income filed before AO in assessment proceedings.
The AO held that the same as undisclosed income remained unexplained and invoked the provisions of section 69A of the Act on the additional income offered for tax by assessee and further invoked the provisions of 115BBE of the Act.
Before the Tribunal, the assessee submitted that during the course of search, the immediate source of the cash found in lockers was asked in the statements recoded u/s 132(4), in reply whereof it was stated by the assessee that this cash was accumulated from the speculative transactions carried on by him of food grains, pluses, wheat, oil etc. and offered the same for tax as current year’s business income.
It was further submitted that the assessee had explained the source of cash as earned out of the speculative business and, therefore, it may be unexplained, the same cannot be held as earned out of undisclosed/unknown sources.
It was further submitted that the AO had applied the provisions of section 69A which is a deeming provision and applied where the assessee was found to be owner of the cash and such cash is not recorded in the books of account maintained by the assessee and the assessee offers no explanation about the source and nature of the cash or the explanation so offered is not found satisfactorily in the opinion of the AO.
It was prayed that the AO has wrongly invoked the provisions of section 69A of the Act by treating the said cash as earned out of undisclosed sources and further erred in invoking the provisions of section 115BB of the Act.
The Tribunal observed that in the statements recorded of the assessee u/s 132(4) of the Act, with regard to the source of such cash, assessee explained the source as speculative trading transactions in wheat, food grains, pulses, oil etc. and further in reply to question it was stated that assessee had no documents with respect to these speculative transactions.
The Tribunal observed that the provisions of Section 69A are applicable where the assessee was found the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the same or the explanation offered is not satisfactorily then the same may be treated deemed income of the assessee.
The Tribunal opined that it is settled law that where the AO invoked the provisions of Section 69A of the Income Tax Act, the burden of proof lies on the AO to establish the source of alleged unexplained money. The AO must provide evidence to justify claims of undisclosed income, as outlined by Section 101 of the Indian Evidence Act. Section 115BBE does not apply if the excess cash is proven to be business income.
The Tribunal further observed that the Co-ordinate Chandigarh Bench of the Tribunal had held that once the assessee has surrendered the amount of the income and explained the source of same as sales which are not recorded in the books of accounts, the source of the same stood explained. The Co-ordinate Bench further observed that no other source of income of the assessee is on record, therefore, the provisions of Section 69A could not be invoked and the income should be treated as business income.
The Tribunal further noted that another Co-ordinate Bench of the ITAT has held that the statement of the Assessee has to be read as a whole and not in piecemeal especially where the Revenue is relying on the same statement and in such circumstances, the defence available to the Assessee in terms of part of the statement not been considered by the Revenue cannot be ignored.
The Tribunal opined that statements recorded during the course of search plays decisive role and was to be considered as the admission of assessee with respect to the source of the income found during the course of search. The assessee in the statements recorded u/s 132(4) at the time of search, had very categorically stated that cash was accumulated out of speculative transactions carried on by him. It was also a matter of fact that the AO had not brought on record any other source of income nor any other source was found during the course of search except the speculative business as admitted by the assessee.
Accordingly, the Tribunal held that income declared by the assessee as speculative business income could not be held as undisclosed income under the provisions of section 69A of the Act.
As a result, the appeal of the assessee was allowed.
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