ANAND S PANDEY,THANE vs. INCOME TAX OFFICER, THANE WEST

There is a delay of 160 days in filing the present appeal, as noted by the Registry. The assessee has filed an application seeking condonation of the delay. In the application, it has been stated that the assessee is a Non-Resident Indian residing in the United Arab Emirates since 2016 and was not conversant with the procedural requirements and limitation governing further appellate proceedings. It has further been explained that, since substantial relief had already been granted by the learned CIT(A), the assessee was initially under a bona fide belief that the matter stood substantially resolved. Upon subsequently obtaining professional advice, the assessee was advised to challenge the addition which continued to survive. The assessee has also referred to the time consumed in coordinating with the authorised representative in India and collecting the relevant records while residing abroad.

Having considered the explanation furnished by the assessee, we are satisfied that the delay was not deliberate or actuated by any mala fide intention. In the facts and circumstances of the case, sufficient cause has been shown for not filing the appeal within the prescribed period. The Departmental Representative did not object to condonation. We accordingly condone the delay of 160 days and admit the appeal for adjudication on merits.

The assessee has raised the following grounds:

The assessee is an individual. During the relevant previous year, the assessee purchased a residential flat for a consideration of Rs.60,00,000/-. The Assessing Officer noticed that a sum of Rs.54,00,000/- had been financed by way of housing loan from Axis Bank. Since, according to the Assessing Officer, the assessee had not satisfactorily explained the balance consideration of Rs.6,00,000/-, the same was treated as unexplained investment under section 69 of the Act.

Before the learned CIT(A), the assessee furnished further documentary evidence explaining the balance amount. The explanation furnished before the learned CIT(A) was that the consideration had been financed as follows: - Rs.54,00,000/- by way of home loan from Axis Bank; - Rs.3,00,000/- from the assessee's NRE account; - Rs.2,00,000/- from the bank account of the assessee's brother; - Rs.40,000/- in cash; and - Rs.60,000/- towards TDS.

The learned CIT(A) accepted the assessee's explanation in respect of Rs.4,00,000/-, but sustained the addition of Rs.2,00,000/-. The statement of facts filed before us records that the surviving addition was sustained solely because cash of an equivalent amount had been deposited in the bank account of the assessee's elder brother before the brother made payment to the builder on behalf of the assessee.

The assessee's case, as emerging from the statement of facts, is that the payment by the elder brother was made on behalf of the assessee as part of an informal family arrangement and mutual adjustment between close family members. It is further specifically pleaded that there is no finding that the cash deposited in the brother's bank account belonged to the assessee or that the assessee had routed any undisclosed money through the brother.

When the appeal was called for hearing, none appeared on behalf of the assessee. We have, however, considered the grounds of appeal, the statement of facts, the orders of the authorities below and the material available on record. Considering that the controversy lies in a narrow compass and the relevant facts are available on record, we proceed to dispose of the appeal on merits.

The learned Departmental Representative relied upon the order of the learned CIT(A) and supported the addition sustained therein.

We have heard the learned Departmental Representative and carefully perused the material available on record. The limited issue before us is whether the learned CIT(A) was justified in sustaining the addition of Rs.2,00,000/- under section 69 of the Act.

It is not in dispute that the assessee purchased the immovable property for Rs.60,00,000/- and that the major part of the consideration, namely Rs.54,00,000/-, stood financed through a housing loan from Axis Bank. The learned CIT(A), after examining the further evidence placed before him, accepted the assessee's explanation regarding the other components except the sum of Rs.2,00,000/- paid by the assessee's brother to the builder. The record before the CIT(A) itself showed payment of Rs.2,00,000/- by the brother from his account to the builder.

The reason for rejecting this part of the explanation was not that the payment to the builder from the brother's account was fictitious, nor that the brother was not identifiable, nor that the payment had not reached the builder. The objection was that an equivalent amount of cash had been deposited in the brother's bank account shortly before the remittance to the builder and that the source of such cash deposit had not been explained.

In our considered view, the issue has to be examined in the correct perspective. The addition before us is under section 69, which concerns an investment made by the assessee which is not recorded in the books, if any, maintained by him and in respect of which the assessee offers no explanation about the nature and source thereof or the explanation offered is not found satisfactory. In the present case, so far as the sum of Rs.2,00,000/- is concerned, an immediate and identifiable source of the investment has been placed on record, namely, payment by the assessee's brother from his bank account directly to the builder.

Once such immediate source is demonstrated, the question is whether the assessee could further be required to establish the source from which the brother obtained the money deposited in his own bank account. On the facts before us, there is no finding by either of the authorities below that the cash deposited in the brother's account had emanated from the assessee. There is no material brought on record demonstrating that the assessee first provided cash to his brother and thereafter obtained an equivalent payment to the builder. In the absence of such nexus, an inference that the impugned investment represented the assessee's unexplained money cannot rest merely on the existence of an antecedent cash deposit in a third party's bank account.

The principle governing the extent of the assessee's burden in such circumstances has been considered by the Hon'ble juri ictional High Court in Gaurav Triyugi Singh v. ITO [2020] 121 taxmann.com 86 (Bom.). After referring to Pr. CIT v. Veedhata Towers (P.) Ltd. [2018] 403 ITR 415 (Bom.), the Hon'ble High Court in para 14 and 15 observed: “assessee is only required to explain the source of the credit. There is no requirement under the law to explain the source of the source.”

The Hon'ble High Court further observed that the assessee was not required to explain the sources of the source.

We are conscious that the aforesaid decisions arose in the context of section 68, whereas the present addition has been made under section 69. Nevertheless, the underlying principle regarding the absence, for the year under consideration, of a general statutory obligation to establish the source of the source is relevant while examining whether an investment can be treated as belonging to the assessee merely because the person who funded the investment had an antecedent cash deposit in his bank account.

The factual similarity with the decision of the Hon'ble Gujarat High Court in DCIT v. Rohini Builders [2002] 256 ITR 360 (Guj.) is also significant. In that case, the Revenue had relied upon cash deposits in creditors' bank accounts shortly before issuance of cheques to the assessee. The Hon'ble High Court endorsed the view of the Tribunal which held that the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source.

There is another statutory aspect. The wider requirement regarding explanation of the source of funds in the hands of a creditor in cases of loan, borrowing or other liability was introduced in section 68 by the Finance Act, 2022, with effect from 1 April 2023, and therefore applies from Assessment Year 2023-24. Judicial decisions dealing specifically with Assessment Year 2020- 21 have noticed that such enlarged source-of-source obligation did not govern that year.

Therefore, even applying the more rigorous framework ordinarily employed while examining credits, the mere fact that cash had been deposited in the bank account of the assessee's brother shortly before payment to the builder would not, by itself, establish that such cash belonged to the assessee. A suspicious circumstance may justify further enquiry, but suspicion, howsoever strong, cannot substitute evidence establishing that the money was actually that of the assessee.

In the present case, the learned CIT(A) accepted the documentary evidence explaining the substantial portion of the balance consideration and rejected only the sum of Rs.2,00,000/- because the source of the cash deposit appearing in the brother's bank account was not separately explained. The reasoning thus proceeds beyond the immediate source of the assessee's investment and effectively calls upon the assessee to establish the source in the hands of the brother. In the absence of any finding or material connecting the cash deposit in the brother's account with the assessee, such reasoning, in our view, is insufficient to sustain an addition under section 69 in the hands of the assessee.

We also notice the specific plea in ground No.5 and in the statement of facts that the addition was sustained on the basis of the cash deposit in the brother's account without a specific opportunity being given to the assessee to explain that particular adverse inference. However, since we have decided the substantive issue on merits on the basis of the material already available on record, it is not necessary to adjudicate this aspect separately.

In view of the foregoing discussion, we hold that the learned CIT(A) was not justified in sustaining the addition of Rs.2,00,000/- under section 69 merely because an equivalent cash deposit appeared in the bank account of the assessee's brother before the payment was made by him to the builder. We accordingly set aside the finding of the learned CIT(A) on this issue and direct the Assessing Officer to delete the addition of Rs.2,00,000/-.

Consequentially, the application of section 115BBE to the said amount also does not survive. Grounds relating to initiation of penalty proceedings are premature and consequential in nature.

In the result, the appeal of the assessee is allowed.

""थ" / The Respondent. संबंिधत आयकर आयु" / The CIT(A) 3. आयकर आयु"(अपील) / Concerned CIT 4. िवभागीय "ितिनिध, आयकर अपीलीय अिधकरण, मु"ई/ DR, ITAT,

Mumbai गाड" फाईल / Guard file.

ABHINAV ABHINAV ANANT ANANT स"ािपत "ित //// GAVANDE