An internal transfer between bank accounts cannot constitute an unaccounted deposit absent cogent contrary evidence.

A search under Section 132 of the Income Tax Act, 1961 was conducted against the assessee and his family members on 20 March 2012, during which information regarding undisclosed foreign bank accounts, including accounts with HSBC, Geneva and ABN AMRO Bank, was found.

In statements recorded under Section 132(4), the assessee and his son admitted that substantial amounts held in HSBC accounts had not been disclosed to the Department.

For Assessment Year 2005–06, the Assessing Officer treated USD 43,40,000, equivalent to ₹19,09,60,000, transferred into a jointly held HSBC, Geneva account as an unaccounted deposit and made a substantive addition in the assessee’s hands and a protective addition in his son’s hands under Sections 68/69A of the Act.

The Commissioner of Income Tax (Appeals) deleted the addition after accepting the assessee’s explanation that the HSBC deposit represented an internal transfer from an existing ABN AMRO Bank account, where the funds had been available from an earlier period.

The Tribunal upheld the deletion, observing that the account was attributable to the assessee’s son and finding no infirmity in the CIT(A)’s order.

The Revenue challenged the Tribunal’s order under Section 260A of the Act.

Whether, on the facts and in law, the Tribunal erred in deleting the substantive addition of ₹19,09,60,000 made in respect of alleged unaccounted deposits in the HSBC, Geneva account, despite the assessee’s failure to produce the complete relevant bank statement to establish the source of the deposit?

Whether the Tribunal erred in deleting the protective addition of ₹19,09,60,000 without recording a clear finding regarding ownership of the deposits, while relying on the assessee’s explanation and supporting documents?

Whether the concurrent factual findings of the CIT(A) and the Tribunal gave rise to any substantial question of law warranting interference under Section 260A of the Act?

The Court applied Section 260A of the Income Tax Act, 1961, under which an appeal to the High Court lies only where a substantial question of law arises.

It considered Sections 68 and 69A, which permit taxation of unexplained credits or unexplained money where the assessee fails to satisfactorily explain their nature and source.

The Court also applied the evidentiary principle that an addition cannot be sustained merely on presumption where the assessee provides a plausible and verifiable explanation supported by material, and the Department produces no cogent evidence disproving that explanation.

The Court treated the issue as one governed principally by concurrent findings of fact.

The CIT(A) had found, on the basis of the material produced, that the USD 43,40,000 credited to the HSBC account on 10 December 2004 was transferred from the ABN AMRO account, where funds of approximately USD 54,00,000 had already been available and had been credited in January 2004.

The transfer therefore did not represent a fresh or unexplained deposit introduced during Financial Year 2004–05.

Although the Revenue contended that the assessee had not produced the complete bank statement and had admitted the unexplained nature of the funds, the Court held that the appellate authorities had accepted the explanation after examining the available bank records and that the Assessing Officer had not brought any cogent contrary evidence on record.

Consequently, the proposed challenge sought reappreciation of factual findings rather than determination of a substantial question of law under Section 260A.

The CIT(A) and the Tribunal were therefore justified in deleting both the substantive and protective additions of ₹19,09,60,000.

No substantial question of law arose for consideration under Section 260A.

Tax Appeal Nos. 324 and 329 of 2022 were accordingly dismissed.