The Chennai Bench of the Income Tax Appellate Tribunal rules that once a taxpayer provides credible documentation, the tax authorities cannot dismiss their explanation solely based on suspicion or assumption, reinforcing a shift towards evidence-based assessments in cash-deposit disputes.
The Chennai Bench of the Income Tax Appellate Tribunal has reinforced a principle that often decides cash-deposit disputes: once a taxpayer backs the source of money with credible records, the tax department cannot ignore that evidence simply because the explanation seems unlikely on instinct.
The case involved ₹76.45 lakh deposited in cash. The taxpayer said the money came from sale proceeds under registered deeds and from the dissolution of a partnership firm, with the trail supported by documents. The assessing officer rejected that account, arguing that the taxpayer had allegedly lent the cash interest-free to members of a Jamaat and therefore could not plausibly still have the funds available for deposit.
The tribunal disagreed, saying the taxpayer had met the initial burden of proof. It held that documentary evidence, including registered sale deeds, had established the source of the cash and that any further claim that the money had been spent elsewhere needed positive evidence from the Revenue, not mere suspicion or assumptions about what a prudent person would have done.
The ruling fits a broader pattern in recent Chennai ITAT decisions. In March, the tribunal said cash deposits during demonetisation could not be treated as unexplained where the corresponding sales were accepted and reflected in the books. In another March ruling, it deleted an addition of ₹1.71 crore after holding that demonetisation-period cash deposits were backed by property sale proceeds and properly recorded accounts. Other April and July decisions from the same bench also favoured taxpayers where property transactions, business receipts or cash withdrawals had been explained with records.
Taken together, the cases suggest a consistent message: tax liability has to rest on evidence, not on a general impression that a transaction appears improbable. The Chennai bench’s latest ruling is likely to be cited in disputes under Sections 68, 69 and 69A, as well as in cases involving demonetisation-era deposits and additions taxed at the higher rate under Section 115BBE.
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