Cash Deposits During Demonetisation Not 'Unexplained Money' If Traceable To Previous Year's Balance: Chhattisgarh High Court

Section 69 of the Income Tax Act, 1961 requires the assessee to provide proof of income and provide a proper explanation of the source of such unexplained income.

Justices Sanjay K. Agrawal and Deepak Kumar Tiwari stated that the factum of liquidation/refund of short-term loans and advances and its consequential accumulation as cash-in-hand as on 31-3-2016 could have been examined in the assessment year 2016-17 only particularly when the Assessing Officer has not discharged the burden cast upon him to implicate the assessee into the sweep of Section 69A.

In this case, the original assessee late. Kalawati Agrawal filed her return of income in respect of assessment year 2017-18 on 9-1-2018 declaring a total income of ₹ 12,83,090/-.

In the relevant assessment year (demonetization announced by the Central Government on 8-11-2016), the assessee had deposited a sum of ₹ 23,00,000/- in Specified Bank Notes (SBN) in her bank account on 1-12-2016 and reflected the said cash deposits at Part-E – Other Information Column D14(a) of return of income filed in ITR-1S.

The Assessing Officer in its assessment order passed under Section 143(3) of the IT Act made an addition of ₹ 23,00,000/- treating it as unexplained money invoking the deeming fiction engrafted under Section 69A of the IT Act charging the same to higher rate of tax as prescribed under Section 115BBE of the IT Act.

Feeling aggrieved and dissatisfied with the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) which was dismissed.

The assessee submitted that the accepted closing cash balance of the assessment year 2016-17 could not be taxed in the assessment year 2017-18, because each year is an independent assessment unit under the IT Act and it is contrary to the provisions contained in Section 69A of the IT Act which clearly provides that “where in any financial year the assessee is found to be owner of any money” and the assessee was found to be owner of the money in the preceding years viz., assessment year 2016-17.

The bench opined that the provisions of Section 69A of the IT Act contemplate that the 'money' (cash deposit in the present case) could be deemed to be in the nature of income only in the financial year in respect of which the assessee is found to be the owner and in the instant case, by offering plausible explanation tracing the source of money to closing balance of preceding year, the assessee was found to be the owner of the 'asset'/cash in the assessment year 2016-17.

Hence, the explanation of nature and source of such money and invocation of deeming fiction engrafted under Section 69A could have been sought/examined by the Assessing Officer in the assessment year 2016-17 and could not have been done in the assessment year 2017-18 going by the express language contained in Section 69A and not otherwise, added the bench.

The bench agreed with the ITAT and opined that the ITAT is absolutely unjustified in dismissing the appeal partly upholding the addition of ₹ 20,50,000/- treating it as unexplained money invoking the deeming fiction engrafted under Section 69A of the IT Act charging the same to higher rate of tax as prescribed under Section 115BBE of the IT Act.

The bench held that ₹ 20,50,000/- cannot be said to be unexplained money under Section 69A of the IT Act.

In view of the above, the bench allowed the appeal.

Case Title: Nanakchand Agrawal v. The Income-tax Officer

Case Number: TAXC No. 8 of 2024

Counsel for Appellant/Assessee: S. Rajeswara Rao

Counsel for Respondent/Department: Ajay Kumrani

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