For the given assessment year, the assessee’s return was selected for limited scrutiny to examine cash deposits during the demonetization period. Notices under sections 143(2) and 142(1) of the Income-tax Act, 1961 with questionnaires were issued and after taking into consideration the submissions filed by the assessee, the returned income declared by the assessee was accepted. Subsequently, the Principal Commissioner held the order passed by the Assessing Officer erroneous and prejudicial to the interests of the Revenue and set it aside directing the Assessing Officer to pass a fresh order in accordance with law after providing sufficient opportunity to the assessee.

Upon appeal before the Hon’ble Tribunal, the assessee contended that the deposit of cash during the financial year relevant to the assessment year in question, was out of opening cash-in-hand at the beginning of the financial year and that the opening cash-in-hand was from (i) maturity proceeds from life insurance (ii) policies on death of her husband, (iii) compromise and settlement amounts received pursuant to court orders, (iv) sale of shares (v) sale of plot of land and (vi) withdrawals from the bank account. The Assessee further explained that the reason for keeping cash was due to insecurity of the assessee and undergoing mental trauma on account of death of her husband, divorce proceedings of her daughter and various court cases. The Assessing Officer had examined these submissions and carried out verification from the banks and after examining earlier years’ tax returns, had accepted them in support of cash available at the beginning of the year and deposit therefrom during the demonetization period. Further, regarding other receipts on maturity of insurance policies and sale of land, the factum of these transactions and necessary evidence on record had not been disputed by the Principal Commissioner. The Principal Commissioner could not fathom the explanation of the assessee holding the same against human probability, on the assessee keeping such huge cash-in-hand for such a long period of time.

Held that the human probability must be seen in context of surrounding circumstances of the assessee prevalent at the relevant point in time and a reasonable inference has to be drawn. In the present case, the assessee had sufficiently explained and demonstrated the availability of cash which she kept in her possession instead of depositing it with the bank or any other person and thus, she had discharged the initial onus placed on her. In absence of any contrary evidence on record, the explanation deserved acceptance. (AY.2017-18)