ITAT: No Section 69 Addition Where Cash Deposits Backed by Agricultural Income

The assessee, an HUF engaged in coffee plantations, filed its return declaring modest income. The case was selected for scrutiny to examine cash deposits during the demonetisation period. The assessee explained that its income was largely agricultural and that cash received from the sale of coffee was deposited into the bank. It showed a closing cash balance of Rs. 18.29 lakh as on 08.11.2016, against which Rs. 15.93 lakh was deposited. The Assessing Officer, however, rejected the explanation and, without pointing out specific defects, arbitrarily accepted only Rs. 7 lakh as available cash, treating the balance of Rs 8.93 lakh as unexplained. The CIT(A) upheld this view.

Main Issue: Whether cash deposits during demonetisation, supported by books and agricultural income, can be treated as unexplained under Section 69 on an estimation basis.

Tribunal Held: The Tribunal allowed the appeal and deleted the addition of Rs 893,500. It was observed that the cash deposits were well within the closing cash balance reflected in the books, and no defects or inconsistencies were pointed out by the Revenue authorities. Once the assessee produces cash records and supporting documents, the burden shifts to the department to disprove them with credible material. The Tribunal strongly disapproved of the ad hoc approach of the Assessing Officer in restricting the cash balance to Rs 7 lakh without any logical basis or supporting evidence.

It held that additions under Section 69 cannot be sustained on mere suspicion, conjecture, or arbitrary estimation. The ITAT also emphasised that for invoking Section 69, the Revenue must first establish the existence of investments not recorded in the books, something which was completely absent in the present case. Since the cash deposits were duly recorded and explained through agricultural receipts and maintained books of account, the very foundation for invoking Section 69 failed. Therefore, the addition was directed to be deleted.

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