ITAT Remands Addition of Cash Deposits to AO for Verification of Source from Property Sale

ITAT Remands Addition of Cash Deposits to AO for Verification of Source from Property Sale

Issue

Whether an addition of Rs. 42,20,000/- made under Section 69 (unexplained investment/money) for cash deposits in a bank account can be sustained when the assessee produces evidence (sale deed) linking the deposit to the sale of property by his father, despite previously failing to produce this evidence before the lower authorities.

Facts

• The Addition: The Assessing Officer (AO) reopened the assessment under Section 148 for AY 2013-14 after noticing cash deposits totaling Rs. 42,20,000/- in the assessee’s bank account.

• Non-Compliance: The assessee did not file a return of income and failed to comply with statutory notices during the assessment proceedings. Consequently, the AO passed an ex-parte best judgment assessment under Section 144/147, treating the entire deposit as unexplained income.

• First Appeal: The Commissioner (Appeals) [CIT(A)] dismissed the assessee’s appeal for non-prosecution and confirmed the addition, as no documents were submitted to explain the source.

• Tribunal Proceedings:

  • There was a delay of 233 days in filing the appeal, which the Tribunal condoned based on the assessee’s affidavit and the Revenue’s lack of objection.

  • The assessee submitted new evidence before the Tribunal: a Sale Deed executed between the assessee (likely as a witness or co-owner context, though the order specifies the deal was between the assessee and his father Sh. Milkha Singh) for a consideration of Rs. 42.90 Lakhs.

  • The assessee claimed the cash was deposited in a joint bank account held with his father on the same date as the sale of the property, thus explaining the source.

Decision

• The Income Tax Appellate Tribunal (ITAT) allowed the appeal for statistical purposes.

• Remand to AO: The Tribunal set aside the ex-parte order of the CIT(A) and restored the matter to the file of the Assessing Officer (AO).

• Reasoning: While noting that it was the assessee’s duty to file documents earlier, the Tribunal deemed it appropriate to give a fresh opportunity in the interest of justice.

• Direction: The AO is directed to examine the newly filed documents (Sale Deed) to verify if the source of the Rs. 42.20 lakhs is genuinely linked to the property sale and if the assessee was authorized to deposit the amount. If the source is proven, the addition is to be deleted.

Key Takeaways

• Nexus of Funds: Proving the immediate source of a cash deposit (e.g., sale proceeds of a property) is a valid defense against Section 69 additions. The timing of the deposit (same day as the sale) serves as strong corroborative evidence.

• Joint Accounts: In cases of joint bank accounts (e.g., with a father), the source of funds can often be attributed to the other holder. The tax liability falls on the person to whom the money actually belongs, not necessarily the first holder of the account.

• Fresh Opportunity: Tribunals often remand cases to the AO for factual verification if substantive evidence is produced for the first time at the appellate stage, ensuring that tax is levied only on real income and not due to procedural non-compliance.

• Section 144 Re-examination: Even a Best Judgment Assessment can be reopened for verification if the assessee provides a plausible explanation for the source of funds later.