Income Tax Appeal Tribunal
In an important decision, the Income Tax Appellate Tribunal (ITAT) has given relief to the taxpayers and made it clear that no cash deposit can be considered as undisclosed income merely on the basis of suspicion or conjecture. This decision is considered important especially for the cash deposit cases that happened during demonetization 2016 in India.
what was the whole matter
This case is related to ITO vs Purnima Das. In this case, the taxpayer had withdrawn around Rs 15 lakh cash from his bank account before 2016. Later, during demonetization in November-December 2016, the same amount was deposited back in the bank. During the investigation, the Income Tax Department tried to impose tax on these deposited funds considering them as undeclared income. The department believed that keeping such a huge amount of money in the house for a long time is not a normal practice.
Tax officer’s argument
Citing human probability, the Assessing Officer (AO) said that no sensible person keeps so much cash at home. According to him, people usually invest money or keep it in the bank so that they can get interest. On this basis the officer rejected the taxpayer’s explanation.
What did ITAT say?
ITAT refused to accept this argument and ruled in favor of the taxpayer. The tribunal said that.
- There were clearly records of withdrawal of money from the bank
- There was no evidence to prove that the money was spent elsewhere
- Just no one does it as if tax cannot be imposed on the basis of logic
The tribunal stressed that no explanation can be rejected merely because it seems unusual. Solid evidence is necessary to prove him wrong.
Why is this decision important?
At the time of demonetization, a large number of people had deposited their cash in the bank. After this, the Income Tax Department started investigation in many cases and many times questions were raised only on the basis of behavior. It has become clear from this decision that tax determination should not be based only on assumptions or personal thinking, but on evidence.
What are the lessons for taxpayers?
This decision gives an important message to the taxpayers.
- Always keep records of bank transactions safely
- Maintain simple cash flow
- Maintain coordination between bank statements and source of income. This decision of ITAT has made it clear that even strong suspicion cannot take the place of evidence. If a person has a legitimate source of cash and his records exist, he cannot be taxed merely on the basis of unusual behaviour.
