RESHMA KETAN DOSHI,BAGALKOT vs. INCOME TAX OFFICER, WARD-1 & TPS, BAGALKOT

January 2009, and the AO found it highly improbable that such a large amount of cash would be kept idle for nearly seven years without being spent or invested. Further, no documentary evidence such as court award for compensation or bank statements showing receipt of compensation was produced. The AO noted inconsistency in the assessee’s stand, because in earlier submissions, it was claimed that the entire compensation was kept in bank accounts, whereas later it was stated that part was kept in cash. Furthermore, the AO observed that the assessee had made investments in mutual funds, shares and insurance, making it unlikely that he would retain such large cash without deploying it. The assessee could not explain why despite having bank accounts, he kept such a huge amount in cash, particularly when he was not carrying on any business. It was also noted that the cash was deposited on 19-12-2016, nearly 40 days after demonetization began, and no explanation for this delay was given. Further, soon after the deposit, large amounts were transferred out by RTGS/cheques, and the assessee failed to furnish the destination bank statements. No details were produced of either the account where compensation was originally deposited or the accounts to which RTGS transfers were made. On these grounds, the AO held that the explanation furnished by the assessee was not acceptable and treated the cash deposit of ₹27,50,000 as unexplained money under section 69A of the Act, bringing it to tax under section 115BBE of the Act.

8.1 He further submitted that books of account maintained in the regular course carry evidentiary value and that he had discharged the initial burden of explaining the source of cash. He claimed that the onus had therefore shifted to the AO, who failed to bring any evidence to justify invoking section 69A of the Act. It was argued that the addition was based only on guesswork, suspicion and surmises.

8.2 To support his claim, the assessee filed copies of returns and computation of income for AYs 2012-13 to 2017-18, joint financial statements for FYs 2008-09 to 2015-16, and copies of cheques issued by the land acquisition authority in the joint names of family members. In further submissions, he argued that section 69A of the Act could be . invoked only when money is not recorded in books of account, whereas in his case the cash balance was shown in the balance sheets up to 31- 03-2016. On these grounds, he prayed for deletion of the addition of ₹27,50,000/-.

9.1 The ld. CIT(A) held that the joint financial statements and cheque copies produced by the assessee did not amount to proper books of account maintained in his individual capacity and did not establish continuity of cash from the date of receipt till the date of deposit. It was also emphasised that the deposit was made in the assessee’s personal bank account and not in a joint account, and that no contemporaneous evidence was furnished to show that such cash was retained over several years.

9.2 The ld. CIT(A) further explained that section 69A of the Act applies where an assessee is found to be the owner of money not recorded in his books of account, and in the present case the assessee could not demonstrate that the cash deposit was recorded in his individual books or came from a disclosed and traceable source. Mere . reference to old compensation receipts, without an unbroken trail or documentary linkage, was held to be insufficient to discharge the onus.

9.3 On these reasons, the ld. CIT(A) concluded that the AO had followed due process and had given proper reasons for making the addition. The explanation of the assessee was treated as unsubstantiated, and therefore the addition of ₹27,50,000 under section 69A of the Act was upheld and the appeal on this issue was dismissed.

11.1 On the other hand, the learned Departmental Representative supported the orders of the authorities below and submitted that the assessee has not discharged the burden cast upon him under section 69A of the Act.

12.1 It is an undisputed fact that the assessee deposited ₹27,50,000 in cash in his SBI account on 19-12-2016 and that the explanation consistently offered by him is that the same was out of compensation of ₹3.90 crore received during FY 2008-09 by the family from the Special Land Acquisition Officer. It is also not in dispute that the Assessing Officer rejected the explanation primarily on the ground that the compensation was received several years earlier, that no contemporaneous documentary evidence was produced to establish availability of such cash over the intervening period, and that the assessee failed to demonstrate a clear nexus between the alleged cash balance and the impugned deposit. The learned CIT(A) has affirmed the action of the AO by holding that the joint financial statements and cheque copies do not constitute proper books of account of the assessee in his individual capacity and that no continuous trail of cash was established.

12.2 We find that the core controversy revolves around whether the assessee is able to establish, by cogent documentary evidence, an unbroken chain of availability of cash from the date of receipt of compensation till the date of deposit in December 2016. While the . assessee has produced copies of cheques relating to compensation and certain joint financial statements, the lower authorities have rejected the same on the ground that these do not conclusively demonstrate continuity of cash in the hands of the assessee in his individual capacity. At the same time, it is also evident from the record that a comprehensive year-wise cash flow or cash-book reconciliation tracing the movement and retention of cash from FY 2008-09 onwards has not been furnished by the assessee and therefore the same was not examined in detail either by the AO or by the CIT(A).

12.3 In our considered view, when an assessee claims that cash deposited during demonetization represents old cash balance accumulated over several years, the proper course is to examine such claim on the basis of contemporaneous cash books, year-wise cash flow statements, withdrawals, investments, household drawings and closing cash balances, so as to verify whether sufficient cash was actually available with the assessee immediately prior to the date of deposit. Rejection of the explanation merely on the touchstone of improbability, without carrying out such factual verification, would not meet the ends of justice, particularly when the assessee asserts that documentary records can be produced.

12.4 Considering the totality of facts and in the interest of justice and fair play, we deem it appropriate to set aside the impugned addition and restore the issue to the file of the Assessing Officer for fresh adjudication. The AO shall grant one final opportunity to the assessee to substantiate his claim by producing:

• a complete cash book / cash ledger from the year of receipt of compensation till the date of deposit in December 2016;

• year-wise cash flow statements explaining utilization and retention of cash;

• bank statements showing receipt of compensation and subsequent withdrawals, if any;

• details of investments, household expenses and other outgoings; and • any other documentary evidence necessary to establish a continuous and unbroken trail of cash availability.

12.5 The AO shall examine the above material objectively and in accordance with law and shall pass a speaking order after affording due opportunity of being heard to the assessee. Needless to say, if the assessee fails to produce cogent evidence establishing such nexus and continuity of cash, the AO shall be at liberty to decide the issue in accordance with law. Accordingly, the issue relating to the addition of ₹27,50,000 under section 69A of the Act is set aside to the file of the Assessing Officer for fresh adjudication in the terms indicated above. Hence, the ground of appeal of the assessee is allowed for statistical purposes.