PERSONAL TAX: Cash in locker may have to be explained

A search operation was carried out by the Income Tax department in the business premises of a taxpayer, who was working as a liaison officer with a builder. The search revealed cash of Rs 925,000 in a bank locker in the name of the taxpayer and his wife.

During the course of assessment, the tax officer asked the taxpayer to explain the source of the cash found in the bank locker. The taxpayer submitted vide a written reply that the cash found was his and his wife’s savings, that was retained for their daughters marriage. He further submitted that these amounts were deposited in the locker out of their savings over a period of more than five years. This explanation was not acceptable to the tax officer as the cash found in the locker was not reconciled with the cash as per the books of accounts. The officer was of the view that if there would have been cash balance in the cash book, the taxpayer could have explained the same at the time of the search itself. Accordingly, the tax officer was of the view that the explanation offered by the taxpayer was an afterthought and accordingly assessed the entire income of Rs 9,25,000 as unexplained cash.

The first appellate authority observed that the explanation given by the taxpayer was not convincing. It seemed absurd that a person would operate the bank locker and keep cash there from time to time, instead of depositing it in a savings bank account or fixed deposit, since that would earn interest too. In view of the same, the appellate authority agreed with the tax officer’s view.

Before the second appellate authority, the taxpayer argued that both he and his wife were working and have been regularly filing their tax return. The amount of cash found in the locker represent their past savings and was commensurate as per tax returns filed in the past years. The taxpayer submitted that the tax officer without considering the taxpayer’s explanation made an addition as unexplained cash. The taxpayer further submitted that it is for him to decide whether to keep the money in the locker or whether it should be deposited in the bank. The taxpayer chose to deposit the cash in the locker with which he performed his daughter’s marriage and therefore it is not correct to make the addition on the basis of the tax officer’s personal presumptions and assumptions.

The honourable tax tribunal observed that the assessee and his wife have filed their returns of income and the same have been duly accepted by the tax officer. The taxpayer has been clear that the cash in the locker has been deposited out of the savings from the past years’ income. The tribunal was of the opinion that the taxpayer has fully explained the sources and accordingly discharged the burden cast upon him. The tax officer without giving any reasons has rejected the explanation offered by the taxpayer, which in the tribunal’s opinion is not correct. Further the tribunal agreed with the taxpayer’s plea that it is his prerogative to decide whether to keep the money in the locker or deposit it in the bank to earn interest. In the present case he chose to keep the money in the locker for the purpose of his daughter’s marriage which cannot be challenged. The tribunal accordingly decided the case in favour of the taxpayer and ordered for deletion of the addition on account of unexplained cash deposits.