Chennai ITAT Deletes ₹76.45 Lakh Addition Under Section 69: Established Cash Source Shifts Burden to Revenue
Case Overview
Case Name: Humnabad Mohammed Omer Vs DCIT (ITAT Chennai)
Relevant Assessment Year: 2017-18
Forum: Income Tax Appellate Tribunal, Chennai
The Chennai Bench of the Income Tax Appellate Tribunal has delivered a significant ruling on the scope and application of Section 69 of the Income Tax Act, 1961, holding that once an assessee furnishes credible documentary evidence establishing the original source of cash deposits, the Revenue is not permitted to invoke Section 69 merely on the ground that the assessee's explanation regarding the interim deployment of such cash appears improbable or commercially unsound. The Tribunal directed deletion of the entire addition of ₹76,45,000/- that had been sustained by both the Assessing Officer and the Commissioner of Income-tax (Appeals).
Background and Factual Matrix
Filing of Return and Scrutiny Selection
For Assessment Year 2017-18, the assessee filed his Return of Income on 04.08.2017 declaring a total income of ₹25,56,450/-. The return was picked up for scrutiny proceedings primarily to examine the origin of cash deposits aggregating to ₹76,45,000/- made during FY 2016-17 into a Central Bank of India account.
Origin of the Cash: Dissolution of Partnership Firm
The assessee had been a partner in M/s. South India Prime Tannery, Hyderabad. Following a dissolution order passed by the City Civil Court, Hyderabad, the assets of the firm were distributed among its partners. An immovable property situated at Bakaram, Hyderabad was allocated to the assessee's share. This property was subsequently sold during February 2014 for a total consideration of ₹1,04,49,000/-, with the registered sale deeds expressly recording that the entire consideration was received in cash.
The cash so received was reflected in the assessee's closing cash balance as on 31.03.2014 and, according to the assessee, remained available and was carried forward through subsequent years, out of which ₹76,45,000/- was eventually deposited into the bank account during FY 2016-17 for the purpose of discharging the income-tax liability of the erstwhile partnership firm arising from capital gains on the sale of the said property.
The Assessee's Explanation Regarding the Intervening Period
To establish a live nexus between the cash available as on 31.03.2014 and the deposits made during FY 2016-17, the assessee offered an additional explanation: during the intervening period, the cash had been temporarily advanced as small, interest-free financial assistance to economically weaker members of the Jamaat in Musheerabad, Hyderabad. The assessee stated that:
- The amounts were individually disbursed below ₹20,000/- per person
- No interest was charged, consistent with his religious beliefs and customs
- The amounts were subsequently recovered and then deposited into the bank account
Assessing Officer's Rejection and Addition Under Section 69
The Assessing Officer found the explanation relating to the interim deployment of cash to be wholly untenable. The AO's reasoning was structured as follows:
- Since amounts were individually capped below ₹20,000/- (citing the statutory bar on transactions exceeding ₹20,000/- in cash), disbursing the entire sum would have required lending to approximately 522 different individuals
- Coordinating such a large number of transactions, recovering them individually, and then consolidating the funds for a single bank deposit was considered contrary to the preponderance of human probabilities
- The claim that the assessee did not accept interest was contradicted by the fact that the assessee had consistently reported interest income in his Returns of Income over multiple years