BHAWNA PURI,MANDI vs. INCOME TAX OFFICER WARD, MANDI, MANDI

Against the order of the AO the assessee went in appeal before the Ld CIT(A). The CIT(A) concurred with the findings of the AO and dismissed the appeal vide paras 5.1.1 to 5.1.6 of her order dated 03.07.2025 which read as under: 5.1.1 I have carefully considered the facts and circumstances of the case, GOA, SOF, the submissions of the appellant, and the findings recorded by the Assessing Officer. The appellant has challenged the addition of Rs. 36,16,472/- made u/s 68 of the Income-tax Act, 1961, on the ground that the AO was not justified in treating a portion of the cash deposited during the demonetization period as unexplained cash credit. The total cash deposits made by the appellant in three different bank accounts during the demonetization window, i.e., from November 9, 2016, to December 30, 2016, amounted to Rs. 47.89 lakh. Out of this, the Assessing Officer, after examining the explanation offered by the appellant and evaluating the available documentary evidence, accepted a total amount of Rs. 11,73,028/- as explained. The balance amount of Rs. 36,16,472/- was treated as unexplained and added to the total income of the appellant u/s 68, which deals with unexplained credits. 5.1.2 The appellant contended that the entire cash deposit was explainable and sourced from accumulated savings, gifts from family members, agricultural income, tuition fees, and earnings from event- related activities over several years. However, these assertions remained vague and were unsupported by verifiable evidence. For 3 instance, in respect of the cash gifts of Rs. 2,00,000/- each allegedly received from the appellant’s mother and mother-in-law, the appellant submitted affidavits in the course of assessment proceedings. The Assessing Officer also accepted agricultural income of Rs. 2.72 lakh based on the orchard lease agreement and available bills. Beyond this, the appellant’s explanation fell short of evidentiary standards. 5.1.3 The most significant claim made by the appellant pertained to agricultural income of Rs. 24.50 lakh over seven years from leasing an orchard. However, the orchard lease agreement clearly showed that the property was co-owned by six individuals, making the appellant’s share only one-sixth of the total lease amount. Despite this, the appellant attempted to claim the entire sum, which was not only factually incorrect but also misleading. The AO correctly restricted the allowable income to the appellant’s proportionate share for the relevant assessment year. Furthermore, no records were presented to support the actual receipt of such income over the claimed period. Even assuming the income had accrued, the absence of any evidence to show cash accumulation and retention over seven years, without depositing in banks, rendered the claim highly improbable. The assertion that large amounts of cash were saved and kept at home over several years due to customary rural practices or for emergency purposes lacks credibility, especially in the case of an educated individual who maintained multiple active bank accounts. It is highly improbable that a financially literate person, with access to formal banking infrastructure, would consistently choose to accumulate substantial cash holdings rather than use secure, interest- bearing accounts. What makes the claim even more questionable is the fact that the entire cash deposits were made in demonetized currency notes of Rs. 500 and Rs. 1,000 denominations. This casts serious doubt on the genuineness of the explanation, because if the cash had truly been accumulated gradually over a span of years—as claimed through gifts, part-time earnings, and household savings—one would reasonably expect it to comprise a mix of denominations and to include some amount in smaller or newer notes. The uniformity of the denomination suggests that the cash was not accumulated over time, but rather acquired or pooled together shortly before the demonetization period. This directly contradicts the narrative of long- term savings and instead aligns with the inference that the source of funds is unexplained u/s 68 of the Act. 5.1.4 The appellant also contended that substantial savings had been accumulated over 10 to 11 years from tuition work, event management, part-time jobs, and support from relatives. However, no documentary proof such as tuition fee receipts, event income bills, personal ledgers, or statements of income and expenditure were submitted to support this claim. More importantly, no corresponding cash flow statements, bank entries, or declarations in earlier income tax returns were produced to substantiate the existence or accumulation of such savings. It is a well-established principle under 4 section 68 that the burden of proof lies on the appellant to provide a satisfactory explanation about the nature and source of any sum credited or deposited. In the absence of reliable evidences, this burden remains undischarged. General statements regarding holding cash for emergencies or vague references to rural customs do not constitute valid or acceptable explanations under the law, particularly in the case of an individual who is financially literate, familiar with the banking system, and actively maintains multiple bank accounts. In the absence of contemporaneous records, corroborative documents, or consistent financial conduct supporting such claims, these assertions remain self-serving and fail to discharge the burden of proof mandated u/s 68 of the Income Tax Act. 5.1.5 The appellant’s reference to public statements made by Government authorities during demonetization, assuring that deposits of legitimate income would not be questioned, does not alter the legal position. The AO is duty-bound to examine any deposit in accordance with the law, and section 68 clearly mandates that unexplained credits or cash deposits must be satisfactorily explained. Judicial precedents, including the decision of the Hon’ble Supreme Court in CIT v. P. Mohanakala (291 ITR 278), strengthen the requirement that explanations must be credible and supported by evidence. In the present case, the appellant’s explanation fails on both counts: it lacks credibility and is not backed by corroborative documentation. The AO has exercised due diligence, provided opportunities to the assessee to explain the deposits, and allowed partial relief wherever minimal documentary evidence was available. Therefore, the allegation of arbitrary or high-handed action does not hold merit. 5.1.6 In view of the above, it is evident that the appellant has not discharged the burden of proving the source and nature of the cash deposits amounting to Rs. 36,16,472/- during the demonetization period. The explanation offered by the appellant is not supported by proper document, and the long-term retention of cash remains implausible in the given context. The Assessing Officer has rightly invoked section 68 and made the addition to income, applying the applicable provisions of section 115BBE, which deals with taxation of unexplained income at a special rate. This action is in conformity with law and supported by the factual matrix of the case. Even during the course of appellate proceedings, the documents submitted by the appellant fail to establish the genuineness of the transactions or substantiate the nature and source of the cash deposits. The appellant’s failure to produce credible and corroborative material evidence, her reliance on vague and general statements, and the unjustified attempt to claim full ownership over income derived from a jointly held asset collectively fall short of satisfying the statutory requirements under Section 68 of the Income Tax Act. The evidentiary material placed on record does not meet the requirements of Section 68 of the Income Tax Act, which mandates a clear, credible, and verifiable explanation regarding the source of deposits. Mere affidavits or general narrations unsupported by contemporaneous evidence cannot discharge the statutory burden, and thus, the explanation 5 offered by the appellant fails the legal test under Section 68. Hence, the addition of Rs. 36,16,472/- is upheld as valid and legally sustainable. The ground raised by the appellant contesting this addition is found to be devoid of merit and is accordingly dismissed.

Now the assessee is in appeal before us.

During the course of hearing the Ld. AR reiterated that the assessee and her siblings jointly owned an apple orchard leased to one Shri Sawaran Singh for seven years (2010–2016) and that the lease proceeds were received in cash and retained by her for several years. It was contended that the cash so held represented genuine agricultural receipts belonging to the family, which were later deposited in her bank account during demonetization. It was argued that the authorities below failed to appreciate that there was no prohibition in law against keeping cash, and the explanation was supported by an agreement and affidavits of family members. 7. Per contra, the Ld. DR relied upon the detailed findings of the Assessing Officer recorded in paras 2 to 3 of the assessment order (pages 8–10) and the reasoning of the CIT(A) in paras 5.1.1 to 5.1.6 of the appellate order. The DR emphasized that the AO had meticulously examined the assessee’s explanation and found that:

The appeal of the assessee is partly allowed in the above terms.