ITAT Deletes Rs 7 Lakh Section 69A Addition, Says Suspicion Alone Cannot Replace Proof

The ITAT Mumbai deleted the Rs 7 lakh addition under Section 69A of the Income Tax Act, holding that the assessee’s explanation for the cash, supported by confirmations and bank records, was satisfactory. It ruled that suspicion alone cannot justify an addition once credible evidence is produced.

On November 16, 2022, the Income Tax Authorities had conducted a search and seizure operation on M/s Metropolis Healthcare Ltd and other associated entities under Section 132 of the Income-tax Act, 1961, among which the assessee’s residential premises were also included.

During the operation, the tax authorities found a locker held jointly by the assessee and her wife in Vishwas Sahakari Bank, Nashik, when opened, the department found cash amounting to Rs 700,000 in it. When investigated, the assessee admitted that the cash belonged to him and his family; however, he did not have any documentary evidence to explain the source of the cash.

However, during the assessment proceedings, the assessee claimed that out of the total cash, Rs 1.50 lakh pertained to his father-in-law and was kept for medical emergencies concerning his mother-in-law; Rs 1.50 lakh was cash gifts received by his grandson, and the remaining amount of Rs 4 lakh was just savings accumulated over years, cash withdrawn from the bank accounts and kept for emergencies. The assessee also produced confirmations, bank statements, photographs of the ceremony, and evidence of related expenses.

However, since the assessee failed at producing the supporting documents explaining the source of the cash, the Assessing Officer (OA) treated the cash as unexplained money under Section 69A of the Income Tax Act and taxed it under Section 115BBE of the Income Tax Act.

The aggrieved assessee filed an appeal before the Income Tax Appellate Tribunal (ITAT) Mumbai. When the case was analysed by the tribunal, it was noted that the assessee had consistently maintained the same explanation throughout the proceedings. It noted that the tax authorities also could not produce any evidence showing that the confirmations or supporting documents were false. The Bench emphasised that mere suspicion cannot replace legal proof and that once a reasonable explanation supported by evidence is furnished, the burden shifts to the Revenue to disprove it.

The ITAT also noted that the assessee was regularly filing income tax returns, had disclosed substantial income, and had demonstrated regular cash withdrawals from bank accounts. Relying on Supreme Court judgements, the Tribunal held that the explanation was satisfactory and directed the deletion of the Rs 7 lakh addition made under Section 69A of the Income Tax Act. The appeal of the assessee was accordingly allowed.

The tribunal held that “considering the entirety of facts and circumstances and having regard to the material brought on record, we are of the considered view that the assessee has satisfactorily explained the source of the cash found in the locker and the Revenue has failed to bring any cogent material to rebut the explanation furnished by the assessee. Accordingly, the addition of Rs.7,00,000 made under section 69A of the Act is directed to be deleted.”