The High Court of Allahabad at Lucknow Bench has clarified that where the assessee establishes, on the basis of audited books of account and evidences on record, that the cash deposited during the demonetisation period came out of cash in hand available with it, and the Assessing Officer neither points out any defect in the books nor brings any material on record to show that such cash had been spent elsewhere, the assessee’s explanation cannot be rejected merely on presumption, preponderance of probability, suspicion, or conjecture.

In such circumstances, the ITAT’s factual finding deleting the addition of cash deposits, does not give rise to any substantial question of law under Section 260A in the absence of perversity, added the Court.

The Division Bench comprising Justice Shekhar B Saraf and Justice Abdhesh Kumar Chaudhary observed that the cash deposits by the assessee during the period of demonetisation were from the cash in hand available with the assessee and were very much explained. It further noted that the Assessing Officer could not indicate anything to the contrary as to how that cash in hand was spent, and therefore the explanation that such cash in hand was deposited in the banks could not have been rejected.

The Bench found that the Tribunal had considered all the evidences before concluding that the assessee’s books were duly audited and free from any defect pointed out by the Assessing Officer. The Court took note of the Tribunal’s finding that the Assessing Officer had disregarded voluminous evidences filed by the assessee and had proceeded on presumption and preponderance of probability rather than on evidences available on record. In this context, the High Court approved the Tribunal’s view that though preponderance of probability is an accepted principle to judge reliability of evidences, its application must be done in a reasonable manner, and the Assessing Officer’s action was not reasonable because he was unable to point out any defect in the books of account.

Reference was made to Dhakeshwari Cotton Mills Ltd. v. CIT, (1954) 26 ITR 775 (SC), wherein the Supreme Court held that although the Income Tax Officer is not fettered by technical rules of evidence and pleadings and is entitled to act on material not acceptable in a court of law, he is nevertheless not entitled to make a pure guess and make an assessment without reference to any evidence or material at all, and there must be something more than bare suspicion to support the assessment.

Reference was also made to the Pune Bench in Usha Nararayan Chaware v. ITO, 2023 TAXSCAN (ITAT) 484, to observe that once the availability of cash in hand was established and it was not shown by the Assessing Officer that such cash was spent elsewhere, the explanation of the assessee as to its utilisation had to be accepted. The High Court expressly adopted this line of reasoning and held that, in the present case also, once availability of cash in hand stood established and nothing contrary was indicated by the Assessing Officer, the assessee’s explanation that the same cash was deposited in the bank during demonetisation could not be rejected.

A substantial portion of the judgment is devoted to explaining the concept of “perversity” and the limited scope of interference under Section 260A, and it is reiterated that findings of fact can be held perverse if they are arrived at by ignoring or excluding relevant material, taking into consideration irrelevant or inadmissible material, being against the weight of evidence, or defying logic to the extent of irrationality; but where there is some acceptable evidence on record, the conclusions cannot be treated as perverse merely because another view is possible.

Further reference was made to the decision of CIT v. Ajay Kapoor, 2013 SCC OnLine Del 2779, to underline that perversity arises where findings are based on irrelevant material, conjectures, surmises, wrong placement of onus, irrationality, or absence of evidence. The Court contrasted those principles with the facts of the present case and held that the Tribunal’s findings were supported by cogent evidence brought on record and were neither against law nor tainted by procedural irregularity.

Briefly, the primary issue before the Court was whether the ITAT had acted properly in appreciating the evidence provided by the assessee with regard to cash deposits made during the demonetisation period so as to allow the appeal in favour of the assessee. According to the Tribunal, the books of the assessee were duly audited, the Assessing Officer had not pointed out a single defect in those books, and the Assessing Officer had completely disregarded the voluminous evidences filed by the assessee while disbelieving the assessee’s explanation without bringing anything to the contrary on record.

The ITAT had specifically recorded that when, according to the assessee, cash in hand was the source of the impugned cash deposit, some further enquiries ought to have been made by the Assessing Officer before rejecting the assessee’s explanation outright. The Tribunal referred to the Pune Bench of the ITAT in Usha Nararayan Chaware v. ITO dated April 24, 2023, where addition of cash deposits during demonetisation was deleted on proper explanation as to utilisation of cash deposit. The Tribunal ultimately held that the Assessing Officer was not legally correct in making the impugned addition and that the First Appellate Authority had rightly deleted the same.

Appearances:

For the Appellant/Revenue: Advocates Kushagra Dikshit and Neerav Chitravanshi.

For Respondent/Taxpayer: Advocate PK Bajaj, for the Respondent/ Taxpayer