ITAT Deletes Rs.13 Lakh Addition Made on Cash Deposits; Sale of Agricultural Land Accepted as Source

The case was based on reassessment proceedings initiated based on information obtained through the AIMS module of the Department, that the assessee had made deposits exceeding Rs. 10 lakh in different savings bank accounts during the financial year 2014-15. Notice under Section 133(6) of the Income Tax Act was sent asking for clarification for the source of these deposits. Since no return of income had been filed, reassessment proceedings were started under Section 147.  While assessing, the assessee clarified that the cash deposits were in respect of sale consideration received for agricultural land of himself and his father, and partially in respect of a cash gift from his father, who had also disposed of another piece of agricultural land. The assessee submitted photocopies of the agreement to sell, registered sale deed, and bank statements demonstrating that deposits of Rs. 7,00,000, Rs. 3,00,000, and Rs. 3,00,000 had been made on dates falling between the agreement to sell and the registered sale deed. But the Assessing Officer rejected the explanation as there was an absence of a direct relationship between the dates of deposit and signing of the documents of land sale, and an addition of Rs. 13,00,000 as an unexplained amount under Section 69A.

Appeal Before CIT(A): The appeal of the assessee to the CIT(A) was rejected, as the appellate authority confirmed the findings of the AO that the source of the deposits had not been explained to the satisfaction. Aggrieved, the assessee filed the appeal before the Tribunal, whereby he reiterated that the cash deposits were supported by the agreement to sell and registered sale deed, and that the land sold was rural agricultural land situated at Village Rehadva, Tehsil and District Bijnor. He said that the sale consideration was received in cash, a common practice in rural transactions, and that the same was later deposited in the bank. The assessee further contended that since the land was rural agricultural land, it did not constitute a “capital asset” as defined under Section 2(14) of the Act and hence, income from its sale was exempt under Section 10(1) read with Section 2(1A).

Central Issue: Whether the addition of Rs. 13,00,000 made under Section 69A was sustainable when the assessee produced documentary evidence demonstrating that the cash deposits arose from the sale of rural agricultural land.

ITAT Held: The Tribunal reviewed the whole record, viz., the sale agreements, registered sale deeds, affidavits, and bank statements, and held that the assessee had satisfactorily discharged the burden of proof under Section 69A. ITAT observed that Section 69A comes into play where an assessee is determined to be the owner of any amount of money for which no reasonable explanation is made. But once the assessee comes forward with credible documentary evidence to explain the nature and source of such money, the burden falls on the Revenue to counter the explanation by producing opposing evidence. The Tribunal held that the documents produced by the assessee satisfactorily established the connection between the sale proceeds of agricultural land and the cash deposits in the bank. It was observed that receiving sale consideration in cash was customary in rural agricultural transactions and could not, by itself, justify treating such deposits as unexplained.

The Tribunal further observed that the agricultural land sold by the assessee was rural agricultural land situated in Village Rehadva, Tehsil and District Bijnor, which falls outside the definition of “capital asset” under Section 2(14). Thus, the sale proceeds were agricultural income exempt under Section 10(1) read with Section 2(1A). Accepting that the origin of the deposits was the proceeds of sale of rural agricultural land, the Tribunal ruled that there was no factual or legal ground to uphold the addition under Section 69A. It accordingly quashed the orders of the Assessing Officer and the CIT(A) and instructed the deletion of the whole addition of Rs. 13,00,000. The appeal of the assessee was allowed.

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