2016 (7) TMI 1713 - AT - Income Tax

Addition on account of unexplained cash deposits in the bank account - HELD THAT - Since in the instant case there is no material before the revenue authorities that the assessee has made investment in some other assets or made some expenditure which has come to the notice of the department therefore in absence of any such material the plea of the assessee that cash deposited in the bank account was out of the previous cash withdrawal from the bank cannot be disbelieved summarily. Since the deposit in the bank account is much less than the amount of cash withdrawn on previous occasions from the bank and since there is no material at the disposal of the Revenue that the assessee has spent the money otherwise therefore cash withdrawn earlier is available with the assessee for deposit in the bank account. In this view of the matter we set aside the order of the CIT (A) and direct the AO to delete the addition. Appeal filed by the assessee is allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issue in this case was whether the addition of Rs. 24,25,000/- to the assessee's income, made by the Assessing Officer (AO) on account of unexplained cash deposits in the bank account, was justified. The Tribunal had to determine if the cash deposits were indeed unexplained or if they could be linked to prior cash withdrawals made by the assessee.

ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents:

The legal framework revolves around Section 69 of the Income Tax Act, which deals with unexplained investments. The burden of proof lies on the assessee to explain the source of any unexplained cash deposits. Several precedents were considered, including:

• Roshan Di Hatti vs. CIT - The Supreme Court held that the onus of proving the source of money lies with the assessee.
• Sreelekha Bannerji and others vs. CIT - The Supreme Court emphasized that if the source of a receipt is not satisfactorily explained, it can be treated as income.
• CIT vs. Umadevi Bhuwalka - The Madras High Court ruled that unexplained deposits can be treated as undisclosed income.
• Mir Basheeruddin Ali Khan vs. ITO - The ITAT Hyderabad Bench held that linking cash deposits to prior withdrawals is against human probability unless substantiated with evidence.

Court's interpretation and reasoning:

The Tribunal examined whether the cash deposits could be reasonably linked to prior cash withdrawals by the assessee. The Tribunal noted that the assessee had withdrawn significant amounts from the bank, which he claimed were for purchasing agricultural land. Since the transaction did not materialize, the cash was allegedly redeposited. The Tribunal considered whether the explanation was plausible and if the time gap between withdrawals and deposits was reasonable.

Key evidence and findings:

The assessee provided evidence of cash withdrawals amounting to Rs. 33,70,000/-, which exceeded the deposits in question. The Tribunal found that the time gap between withdrawals and deposits was not substantial, with the first deposit occurring just 20 days after a significant withdrawal.

Application of law to facts:

The Tribunal applied the legal principle that the burden of proof lies with the assessee to explain the source of cash deposits. However, it also considered that the absence of evidence suggesting the utilization of the withdrawn cash for other purposes supported the assessee's claim. The Tribunal found that the explanation provided by the assessee was reasonable given the circumstances.

Treatment of competing arguments:

The Tribunal considered the Department's argument that no prudent person would withdraw and redeposit cash without a valid reason. However, it found that the assessee's explanation of intending to purchase land, although unsubstantiated by documentary evidence, was not implausible. The Tribunal also noted that the Department did not provide evidence of alternative uses for the withdrawn cash.

Conclusions:

The Tribunal concluded that the cash deposits were adequately explained by the prior withdrawals, and there was no evidence to suggest that the cash was used for other purposes. Therefore, the addition of Rs. 24,25,000/- as unexplained income was not justified.

SIGNIFICANT HOLDINGS

The Tribunal held that:

• "Since in the instant case there is no material before the revenue authorities that the assessee has made investment in some other assets or made some expenditure which has come to the notice of the department, therefore, in absence of any such material the plea of the assessee that cash deposited in the bank account was out of the previous cash withdrawal from the bank cannot be disbelieved summarily."
• The Tribunal emphasized the principle that when the source of cash deposits is explained as prior bank withdrawals, and there is no evidence of alternative use, the explanation should be accepted.
• The Tribunal directed the AO to delete the addition, thereby allowing the appeal filed by the assessee.