Introduction
The case of Hemlata Kamalakar Deo v. ITO before the Mumbai ITAT highlights the principle that tax assessments must be grounded in fairness and evidentiary balance rather than rigid technicalities. The case revolved around an 80-year-old widow who deposited her lifelong savings, accumulated from the religious offerings (bhikshuki activities) of her late husband, during the demonetization period. The Income Tax Department made an addition under Section 68 of the Income-tax Act, 1961, questioning the source of the deposit. However, the Tribunal ruled in favor of the assessee, deleting the addition and emphasizing principles of justice, circumstantial evidence, and the legitimacy of her claim.
Case Facts and Background
The assessee, an 80-year-old widow and homemaker, deposited ₹13,62,000 in her bank account during the demonetization period.
The Assessing Officer (AO) made an addition under Section 68, citing the inability of the assessee to substantiate the source of cash.
The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition but provided relief of ₹2.5 lakh, acknowledging the government’s assurance that small deposits by housewives would not be scrutinized.
The ITAT Mumbai Bench overruled this decision, holding that the cash represented life savings accumulated over decades and should not be treated as unexplained income.
Key Judicial Reasoning and Analysis
1. Consideration of Circumstantial Evidence
Tax law does not operate in a vacuum; it recognizes circumstantial evidence and the principle of preponderance of probabilities. The ITAT noted that:
The assessee had been financially dependent on her late husband’s earnings as a priest who received voluntary offerings in cash.
The savings were accumulated over a period of 30 years and kept at home due to old age and medical concerns.
The deposited amount was not withdrawn post-demonetization, further substantiating that it was indeed lifelong savings and not unexplained income.
2. Practical Impossibility of Earning Such Income in One Year
The Tribunal observed that:
The assessee resided in a rented accommodation and had no independent source of income.
It was highly improbable that a senior citizen widow could have earned such a large sum within a single financial year.
Even if a conservative estimate of annual savings below the taxable exemption limit (₹2.5 lakh) was applied over past years, the accumulation of such an amount was justifiable.
3. No Contrary Evidence Provided by the Revenue
The Revenue failed to produce any concrete evidence refuting the assessee’s claim.
No evidence suggested that the deposited cash was sourced from undisclosed income.
The assessee’s affidavit was deemed credible in the absence of contradicting proof.
The Tribunal relied on the legal maxim that the burden of proving unexplained income lies on the Revenue when the assessee presents a plausible explanation.
4. Legal Precedents and Equity-Based Considerations
The Tribunal applied the principles laid down in Land Acquisition Collector v. Mst. Katiji & Ors. (1987) AIR 1353 (SC), emphasizing that procedural technicalities should not override substantive justice. The judgment recognized that:
The demonetization policy created unique financial circumstances, particularly for senior citizens and homemakers who relied on cash savings.
Tax assessments must align with the economic realities of taxpayers rather than be driven by rigid technical scrutiny.
Final Decision
The ITAT directed the deletion of the addition made under Section 68.
It further ruled that an amount of ₹1,46,752, which included internal bank transfers and credits from distant relatives, was not taxable as income.
The appeal was fully allowed in favor of the assessee, reinforcing the principle that genuine savings, even if deposited during demonetization, should not be subject to arbitrary taxation.
Key Takeaways and Professional Insights
Documentation Matters: While the assessee ultimately won, maintaining proper records of savings and transactions can preempt unnecessary litigation.
Importance of Judicial Precedents: The decision reiterates that tax assessments should factor in practical considerations and legal precedents rather than adopt a purely technical approach.
Burden of Proof on Revenue: When an assessee provides a reasonable explanation supported by circumstantial evidence, the onus shifts to the tax authorities to disprove the claim.
Demonetization-Related Relief: This case sets a precedent for similar instances where individuals deposited cash savings accumulated over years but faced scrutiny due to demonetization.
Conclusion
This judgment underscores the need for fairness in tax assessments, particularly for senior citizens and homemakers who operate outside formal financial structures. The ITAT Mumbai’s ruling in Hemlata Kamalakar Deo v. ITO reaffirms that tax laws must be applied in a manner that upholds principles of justice, reasonable inference, and economic reality rather than penalizing legitimate financial behavior.
