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Facts
The assessee filed a return of income for AY 2017-18. During the demonetization period, cash deposits of Rs. 17.40 lacs were made in his bank account. The assessee claimed these funds were received from his uncle, Shri Boddireddy Damodar Reddy, for safe custody.
Held
The Tribunal held that the assessee's explanation for the cash deposits was not satisfactory and lacked human probability. The contradictory statements regarding the relationship between the assessee and Shri Boddireddy Damodar Reddy further weakened the claim.
Key Issues
Whether the assessee's explanation for the source of cash deposits amounting to Rs. 17.40 lacs during the demonetization period is plausible and supported by evidence.
Sections Cited
143(3), 143(2), 133(6), 69A, 69
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Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
(Appellant) (Respondent) यनर्ााररती द्वारा/Assessee by: Ms.S.Sandhya, AR राजस् व द्वारा/Revenue by: Shri Rakesh Chintagumpula, DR सुनवाई की तारीख/Date of Hearing: 08/05/2025 घोर्णा की तारीख/ 14/05/2025 Date of Pronouncement: आदेश / ORDER प्रयत रवीश सूद, जे.एम./PER RAVISH SOOD, J.M. The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income Tax (Appeals) [“CIT(A)”], National Faceless Appeal Centre, Delhi dated 29.01.2025, which in turn arises from the assessment order passed by the Assessing Officer (“the AO”) u/s 143(3) of the Income Tax Act, 1961 (“the Act”) dated 26.12.2019.
The assessee has assailed the impugned order on the following grounds of appeal before us:
1. The order of the learned CIT(A) is erroneous both on facts and in law; 2. The learned CIT(A) erred in confirming the addition of Rs.17,40,000/- made by the Assessing Officer without properly considering the explanation submitted by the appellant; 3. The learned CIT(A) ought to have accepted the appellant’s contention that the amount was kept by one Shri B.Damodar Reddy who confirmed the fact; 4. The learned CIT(A) ought to have accepted that Mr.Damodar Reddy was having the source and deposited the amount in the bank account; 5. Any other ground that may be urged at the time of hearing.
Succinctly stated, the assessee had filed his return of income for the A.Y.2017-18 on 08.11.2017, declaring an income of Rs.4,10,649/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act.
During the course of the assessment proceedings, the AO based on AIR information obtained by him u/s 133(6) of the Act observed that the assessee had during the demonetization period made cash deposits in Specified Bank Notes (SBNs) of Rs.17.40 lacs in his bank account No.621880604638 with State Bank of India. On being queried, the assessee submitted that the subject cash deposited in his bank account was sourced from the amount of Rs. 40 lacs that was received by him from Sri Boddireddy Damodar Reddy, his uncle, who had retired as a Head Master on 31.12.2015. Elaborating further, the assessee stated that Shri Boddireddy Damodar Reddy (supra) had withdrawn his retirement benefits out of fear of his children who were pressurizing him to gift the said amount to them. The assessee submitted that an amount of Rs.17.40 lac out of the amount that was received by him from Shri Boddireddy Damodar Reddy was deposited in his aforementioned bank account. However, the explanation of the assessee did not find favor with the AO. The AO was of the view that it was improbable for any prudent person to give a substantial amount of cash to another person for safe custody without any written agreement or surety. The AO was further of the view that the explanation of the assessee regarding the source of the cash deposited in his bank account was a concocted story and the money actually belonged to him. Accordingly, the AO based on his aforesaid observation held the entire amount of Rs.17.40 lac (supra) as having been sourced out of the unexplained money of the assessee u/s 69A of the Act.
Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without any success. For the sake of clarity, the observations of the CIT(A) are culled as under :
“6. Decision I have carefully examined the submission of the appellant as reproduced in the preceding paragraph and the facts emanating from the A. O’s order, wherein addition has been made. 6.1 The brief facts of the case are that the case of the assessee was selected for scrutiny under CASS. During the course of assessment proceedings, it was noted that there were abnormally high cash deposits into the bank account of the assessee which were claimed as a gift received from his uncle Sri Boddireddy Damodar Reddy. The AO observed that the appellant failed establish his relationship with Sri B. Damodar Reddy and in that regard, no documentary evidences were furnished. In the confirmation letter filed, Shri B Damodar Reddy mentioned the assesse as his son-in- law, whereas the assesse stated that he was just a family friend. The AO further observed that no person will give such huge amount of cash to an individual for safe custody without any agreement or surety. Therefore, the AO found the explanation of the appellant, regarding cash deposits in the bank account, as unsatisfactory and therefore he made an addition of Rs.40 lakhs u/s. 69A.
7. All the grounds raised by the appellant are in respect of addition of Rs.17,40,000/- made by the AO. Since the only issue involved is of addition made u/s 69A on account of unexplained cash credits found credited in the books of account of appellant. It is imperative to look upon the ratios laid down by the various Hon’ble Courts in respect of unexplained credit / money found credited in the books / bank accounts of the assessee.
7.1 The fundamental question involved is that whether or not the AO was justified in making the addition of Rs. 17,40,000/-under section 69A in the hands of the assessee, and the most critical thing to be examined in this regard is explanation of the assessee with respect to these credits. There is no, and there cannot be any, dispute on the fundamental legal position that the onus is on the assessee to prove ‘bonafides’ or 'genuineness' of the money credited in his bank account. This approach finds support from the scheme of Section 69A / 69, which provides that where any sum is found credited in the books / bank accounts of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, such sum may be charged to income tax as the income of that assessee for that previous year. The burden is thus on the assessee to prove the nature and source thereof, to the satisfaction of the Assessing Officer. Everything thus hinges on the explanation given by the assessee and on how acceptable is the explanation so given by the assessee. The next question is as to what the kind of explanation that the assessee is expected to give.
7.2 As noted by Hon'ble Delhi High Court, in the context of issuance of share capital and in the case of PCIT Vs Youth Construction Pvt Ltd [(2013)357ITR197 (Del)],"it involves three ingredients, namely, the proof regarding the identity of three applicants, their creditworthiness to purchase the shares and the genuineness of the transaction as a whole".
7.3 That is the approach adopted by Hon’ble Courts above all along. In the case of CIT v. United Commercial and Industrial Co (P.) Ltd [1991] 187 ITR 596 (Cal)], Hon'ble Calcutta High Court has held that under the scheme of Section 69A "it was necessary for the assessee to prove prima facie the identity of creditors, the capacity of such creditors and lastly the genuineness of transactions".
7.4 Similarly, in the case of CIT v. Precision Finance (P.) Ltd [1994] 208 ITR 465 (Cal)], it was observed that "it is for the assessee to prove the identity of creditors, their creditworthiness and genuineness of transactions”.
7.5 While examining the issue of genuineness of the transactions entered into by the assessee, it is also important to keep in mind Hon'ble Supreme Court's observation, in the case of CIT v. Durga Prasad More [(1971) 82 ITR 540 (SC)], to the effect that "Science has not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and Tribunals have to judge the evidence before them by applying the test of human probabilities".
7.6 Similarly, in a later decision in the case of SumatiDayal v. CIT [(1995) 214 ITR 801 (SC)], Hon'ble Supreme Court rejected the theory that it is for alleger to prove that the apparent and not real, and observed that, "This, in our opinion, is a superficial approach to the problem. The matter has to be considered in the light of human probabilities........... Similarly the observation .......... that if it is alleged that these tickets were obtained through fraudulent means, it is upon the alleger to prove that it is so, ignores the reality. The transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available.....In our opinion, the majority opinion after considering surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winning from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably".
7.7 An addition under Section 69A can be made where any sum is found credited in the books of account for any previous year, and the assessee either offers no explanation about the nature and source as regards the same, or the explanation offered by him in the opinion of the assessing officer is not found to be satisfactory. That before adverting further, the relevant extract of the aforesaid statutory provision, viz. Section 69A, which reads as under: — Unexplained money,etc 69A. Wherein any financial year the assessee is found to be 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 the source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the assessing officer, Satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year 7.8 That a bare perusal of the aforesaid deeming section therein reveals there has to be ownership of money, bullion, jewellery or valuable article by the assesse. Further, if the assessee offered no explanation about the nature and source of such assets or deposits, or the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as income of the assessee for that previous year. The expression “the assessee offers no explanation” means where the assessee offers no proper, reasonable and acceptable explanation as regards to the sum found credited in the books maintained by the assessee. It is true, the opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record.
This is the settled position of law that a statutory provision has to be strictly construed and interpreted as per its plain literal interpretation, and no word howsoever meaningful it may so appear can be allowed to be read into a statutory provision in the garb of giving effect to the underlying intent of the legislature.
7.9 In a much-related case of identical facts of abnormally huge cash deposits in the bank accounts by a jeweller, the Hon’ble ITAT Hyderabad, ‘B’ Bench in the case of Assistant Commissioner of Income Vs M/s. Vaishnavi Bullion Private Limited in & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021, Hon’ble ITAT upholds the addition of about Rs.100 Cr. as unexplained credit in the batch of appeals involving two jewellery and bullion dealers in the context of post-demonetisation cash deposits; 7.9.1 The Hon’ble ITAT rejects Assessee’s submission of receiving cash from thousands of customers immediately after announcement of demonetisation. ITAT remarks, “The assessee either deposited its undisclosed amount or otherwise helped undisclosed, unanimous and unidentifiable persons to convert their undisclosed prohibited currency into bullion after notification of demonetization. In both circumstances, the action of the assessee was not permissible in the eyes of the law’; 7.9.2 The Hon’ble ITAT Holds the addition to be sustainable under Section 69A, relies on SC ruling in Apex Labs to reject Assessee’s submission that even though the transactions are held illegal by the Revenue only the income can be taxed under the Act which does not differentiate between legal and illegal incomes; Also holds that demonetised currency was received by the Assessee and was wrongfully deposited with the bank, thus, upholds the assessment order by concluding that the Assessee mischievously and unscrupulously brought the demonetised currency into the network; 7.9.3 Discards Assessee’s claim that money was received from the customers and upholds Revenue’s stand that no legal sale of gold could be made with use of prohibited currency; the Hon’ble ITAT takes a stern view on Assessee’s conduct by observing that, “The persons like assessee have given a setback to well- intended and well-thought policy of Government of India and they have used this as an opportunity to convert their or others’ ill-gotten money into bullions. ... The above said act of the assessee is not only against the law but also against the interests of the nation.”; 7.10 Thus, the judicial authorities have taken an extremely adverse view of such practices adopted by various assessees to make an attempt of trying to explain the huge cash deposits in their bank accounts during the demonetization period. It has been stated by the appellant that the retirement benefits of Shri B Damodar Reddy were given to him for safe custody. In this context, it is observed that it is highly improbable that a person would draw the sum received as retirement benefit in cash and give it to an individual for safe custody. In fact, generally keep their money in the bank for safe custody. Keeping cash in the custody of an individual does not in any way guarantee the safety of the money. Further, the moot point is even if this custody is given why would the custodian deposit only Rs.17,40,000/-, in specified bank notes, during the demonetization period in his bank account. The natural expectation would be that he would deposit the entire cash amount of Rs.40,00,000/-. Based on preponderance of probability, the explanation given by the appellant is not satisfactory. Accordingly, the addition made by the AO, u/s.69A, of Rs. 17,40,000/- is hereby confirmed. As a result, the appeal is dismissed.”
The assessee, being aggrieved with the order of the CIT(A) has carried the matter in appeal before us.
We have heard the learned authorized representatives of both parties, perused the orders of the lower authorities and the material available on record.
We have thoughtfully considered the contentions advanced by the learned authorized representatives of both the parties, qua the solitary issue involved in this present appeal i.e, sustainability of the assessee’s explanation as regards the source of cash deposited amounting to Rs.17.40 lac in his bank account.
Although the assessee had claimed that the subject cash deposit in his bank account was sourced from the amount of Rs.40 lac that was received by him from Shri Boddireddy Damodar Reddy, his uncle, who had retired as a Head Master on 31.12.2015 and had handed over the said amount to him for safe custody, but, the said explanation in itself suffers from certain serious infirmities.
As observed by the CIT(A), Shri Boddireddy Damodar Reddy (supra), vide his letter addressed to the Income Tax Officer, Ward- 2, Warangal, had initially stated that Shri Chemmala Srinivas, i.e, the assessee was his son-in-law, but, thereafter, in his “affidavit” dated 05.05.2025 had claimed that the assessee was his friend’s son, Page 14 & 15 to 17 of APB. We find that the assessee had in his submissions filed before the CIT(A)/NFAC claimed that Shri Boddireddy Damodar Reddy (supra) had handed over to him cash aggregating to Rs. 46.40 lac, viz. (i) the amount of the retirement benefits withdrawn by him from bank account: Rs.40 lac; and (ii). out of cash in hand lying with him: Rs.6.40 lac. It is further claimed by the assessee that the amount of Rs. 46.40 lac (supra) was deposited in his bank account and that of his parents, viz. (i) Shri. Chemmala Srinivas (assessee); Rs.17.40 lakhs (ii) Shri Chemmala Narayana (assessee’s father - PAN: BIXPC6660G): Rs.17 lac; and (iii). Smt.Chemmala Laxmi (assessee’s mother - PAN: BJMPC9294G): Rs.12 lac.
We have given thoughtful consideration and concur with the view taken by the AO that it is beyond preponderance of human probability that any person without any agreement or surety will hand over a substantial amount of cash to an individual for safe custody. On a specific query by the Bench as to whether the aforesaid amount of Rs. 46.50 lac (supra) had been returned to Shri Boddireddy Damodar Reddy (supra), the Ld.AR answered in negative.
We have considered the explanation of the assessee and find no infirmity in the view taken by the lower authorities, who had rightly rejected the assessee’s implausible explanation that the cash deposit of Rs. 17.540 lac (supra) in his bank account was sourced from the amount received by him for safe custody from Shri Boddireddy Damodar Reddy (supra). Rather, we are of the firm conviction that the assessee only in his attempt to explain the cash deposits (SBNs) of Rs.17.40 lac made in his bank account during the demonetization period, had tried to take benefit of the cash withdrawals made by Shri Boddireddy Damodar Reddy (supra) from his bank account No.52017586602 with State Bank of India, Branch, NGO Colony. Our conviction that the explanation of the assessee is devoid of any substance is further fortified by the fact that the cash withdrawal made by Shri Boddireddy Damodar Reddy (supra) from his aforesaid bank account is not a one-time withdrawal, but, had been made in tranches over the period 20.10.2016 to 08.11.2016. Also, the assessee’s claim that Shri Boddireddy Damodar Reddy (supra) had withdrawn his retirement benefits of Rs.40 lac and handed over the same along with cash in hand of Rs.6 lac lying available with him to the assessee for safe custody in itself does not inspire any confidence, for the reason, that if Shri Bodireddy Damodar Reddy (supra) would have apprehended that he would be dispossessed of his retirement benefits/savings by his children, who were pressurizing him for the same, then he would not have withdrawn the same in tranches and kept the same with him.
Be that as it may, we are of the view that as not only the assessee had failed to substantiate the source of the cash deposit in SBNs of Rs.17.40 lac in his bank account during the demonetization period, but also his explanation militates against the principle of preponderance of human probability as had been emphasized by the Hon’ble Supreme Court in Sumati Dayal Vs. CIT (1995) 214 ITR 801 (SC), therefore, the same had rightly been rejected by the AO. We thus, finding no infirmity in the view taken by the CIT(A), who had rightly approved the addition of Rs.17.40 lac made by the AO u/s 69A of the Act, uphold the same.
Resultantly, the appeal filed by the assessee being devoid and bereft of any substance is dismissed.
14 मई, 2025 को खुली अदालत में सुनाया गया आदेश।
Order pronounced in the Open Court on 14th May, 2025.