PRAMOD BASAVARAJ ,MYSURU vs. INCOME TAX OFFICER, WARD-1(4), MYSURU

5.1 However, the AO observed that no such confirmation letter, as claimed by the assessee, was found attached in the assessee’s e-filing account. After verification of the details furnished by the assessee, the AO held that the assessee had failed to discharge the burden of proving the genuineness of his claim regarding the source of the cash deposits. The AO further noted that considering the income declared by the assessee in earlier years and the possible savings accumulated, only a reasonable sum of Rs. 7 Lakhs could be accepted as explained. Accordingly, the balance cash deposit of Rs. 21 Lakhs was treated as unexplained money under section 69A of the Act and was brought to tax at the rate prescribed under section 115BBE of the Act.

7.1 However, the Ld. CIT(A) concluded that during the assessment proceedings the assessee had initially explained the source of cash . deposits as the return of advances given to various parties. Subsequently, the assessee changed his explanation and submitted that the return of advance money was given to his mother. According to the Ld. CIT(A), the assessee had attempted to equate his mother with the “various parties” earlier referred to, which rendered the explanation inconsistent and unreliable.

7.2 The Ld. CIT(A) observed that such shifting stands taken by the assessee clearly indicated that the explanations were afterthoughts and appeared to be no thing, but cooked-up stories devised to justify the cash deposits made during the demonetization period.

7.3 The Ld. CIT(A) further observed that the assessee had not furnished date-wise details of the advances allegedly given to his mother. It also appeared that such advances were made in cash and, as per the assessee, the source of the advances was past savings. On examination of the records, the Ld. CIT(A) noted that the assessee had not filed returns of income for the assessment years prior to AY 2012-13. This, according to the Ld. CIT(A), indicated that either the assessee had no income prior to that year or his income was below the taxable limit. The Ld. CIT(A) held that even if the assessee had managed to save a substantial portion (40%) of his income every year, it would have taken several years to accumulate cash of Rs. 25,50,000 which was claimed to have been advanced to his mother.

7.4 The Ld. CIT(A) also observed that the assessee had failed to justify why his mother would retain such a large amount of cash after receiving it from her son, when the same could have conveniently been . deposited in a bank account. It was further noted that the assessee could not satisfactorily explain why the money was returned to him in instalments as reflected in the cash book. The Ld. CIT(A) also remarked that ordinarily the property of a mother would naturally pass on to her son, and therefore the assessee had not explained the necessity of purchasing the property from his own mother or the need for advancing money to her when she was not shown to be in immediate need of funds.

7.5 With regard to the cash book produced by the assessee, the Ld. CIT(A) held that it was merely a self-serving and self-prepared document without any independent corroboration. As regards the explanation that the property could not be transferred due to differences with the concerned housing society, the Ld. CIT(A) observed that the assessee had not elaborated on the nature of objections that the society could possibly raise when a mother intended to transfer her property to her own son.

7.6 In view of the above observations, the Ld. CIT(A) concluded that the assessee had failed to satisfactorily explain the source of the cash deposits of Rs. 28 Lakhs in his bank account. Accordingly, Ld. CIT(A) directed the AO to treat the entire sum of Rs. 28 Lakhs as unexplained money under section 69A of the Act instead of Rs. 21 Lakhs and therefore dismissed the appeal of the assessee.

9.1 The Ld. AR submitted that the balance sheet as on 31st March 2016 clearly reflects the advances made by the assessee to various parties on the assets side. However, the same could not be properly furnished during the assessment proceedings as the assessee was attending to his ailing father during that period. It was further contended that both the AO and the Ld. CIT(A) have erroneously treated the cash deposits made during the demonetization period as unexplained money under section 69A of the Act. Accordingly, Ld. AR prayed that the addition made by the AO and sustained by the Ld. CIT(A) be deleted.

11.1 The assessee has explained that the impugned cash deposits represent the return of advances earlier given for purchase of property and construction of a house. In support of the said explanation, the assessee has placed on record the balance sheet reflecting advances, the cash book, bank account statements, confirmation letter from his mother regarding return of advance and the property documents which were proposed to be transferred to the assessee. These documents form part of the paper book filed before us.

11.2 It is true that certain inconsistencies exist in the explanation furnished by the assessee and the explanation given may not be entirely free from doubts. However, the issue cannot be decided merely on the basis of suspicion. The matter has to be examined on the basis of preponderance of probabilities and surrounding circumstances. From the material placed on record, it cannot be said that the explanation of the assessee is inherently impossible or wholly unbelievable.

Page 8 of 10 11.3 We further note that the Assessing Officer has rejected the explanation of the assessee primarily on the basis of presumptions without conducting any meaningful verification. The assessee had specifically stated that the money was returned by his mother. In such circumstances, the Assessing Officer could have easily verified the claim by making enquiry from the said person or by calling for necessary confirmation and supporting evidence. However, no such effort was made by the Assessing Officer. In our considered view, once the assessee has given a specific explanation along with supporting documents, it was incumbent upon the Assessing Officer to carry out necessary verification before drawing an adverse inference.

11.4 At this juncture, we also find support from the decision of the Hon’ble Karnataka High Court in the case of S.R. Venkata Ratnam v. CIT in (1981) 127 ITR 807 (Kar.), wherein it was held that once the assessee discloses a particular source of money, the revenue authorities cannot reject the explanation merely on conjectures and surmises without making proper investigation. The Hon’ble High Court held that when the assessee had stated that the funds originated from withdrawal from a bank deposit, the Assessing Officer ought to have either verified the claim from the bank or called upon the assessee to substantiate the same. Without undertaking such verification, the explanation could not be rejected merely on the ground that the conduct of the assessee appeared improbable. The relevant para is reproduced below: “There is some force in the argument of the learned counsel for the petitioner and the argument advanced by the revenue is, therefore, without any force. Once the petitioner-assessee disclosed the source as having come from the withdrawal made on a given date from a given bank, it was not for respondents Nos. 1 and 2 to concern themselves with what the assessee did with that money, i.e., whether he had kept the same in his house or utilised the services of a bank by depositing the same. The ITO had only two choices .

Page 9 of 10 before him. One was to reject the explanation as not believable for the reason that on his investigation no such pigmy deposit was ever made in the bank. In the alternative he ought to have called upon the assessee-petitioner to substantiate his claim by documentary evidence. Having exercised neither of the choices, it was not open to the ITO to merely surmise that it would not be probable for the assessee to keep Rs. 15,000 unutilised for a period of two years. The ITO should have given an opportunity to the assessee to substantiate his assertion as to the source of his capital outlay.”

11.5 The ratio laid down in the above decision squarely applies to the facts of the present case. Here also, the Assessing Officer has rejected the explanation of the assessee without conducting basic enquiry from the person who allegedly returned the money to the assessee.

11.6 We also draw support from the decision of the Hon’ble Supreme Court in Umacharan Shaw & Bros. v. CIT (1959) in 37 ITR 271 (SC). In the said case, the Hon’ble Supreme Court held that the conclusions of the Assessing Officer cannot be based merely on surmises and conjectures and that suspicion, however strong, cannot take the place of proof. Though the facts involved in that case were different from the facts of the present case, the core legal principle laid down by the Hon’ble Supreme Court is squarely applicable. In the present case also, the explanation of the assessee has been rejected primarily on the basis of doubts and presumptions without carrying out necessary verification. Therefore, applying the above settled principle of law, the addition made merely on suspicion cannot be sustained. The relevant para is reproduced below: “Taking into consideration the entire circumstances of the case, we are satisfied that there was no material on which the Income-tax Officer could come to the conclusion that the firm was not genuine. There are many surmises and conjectures, and the conclusion is the result of suspicion which cannot take the place of proof in these matters.”

11.7 In these circumstances, though the explanation offered by the assessee may not be entirely free from doubts, the material brought on record by the Revenue is not sufficient to sustain the addition made under section 69A of the Act. Suspicion, howsoever strong, cannot take the place of evidence.

11.8 Accordingly, considering the preponderance of probabilities, surrounding circumstances and the failure of the Assessing Officer to conduct necessary verification, we are of the view that the addition made by the Assessing Officer and enhanced by the learned CIT(A) cannot be sustained. The same is therefore deleted. The grounds raised by the assessee are allowed.

Order pronounced in court on 6th day of March, 2026