2025 (6) TMI 1478 - AT - Income Tax

Unexplained money u/s. 69A - cash deposits during the demonetization period - as argued deposits are out of cash withdrawals made by the assessee during the impugned assessment year - HELD THAT - Department has not pointed out to any specific circumstance / any specific expenditure which was incurred by the assessee to show that the cash so withdrawn by the assessee was not available with the assessee for redeposit during the demonetization period. In the case of Sudhirbhai Pravinkant Thake 2016 (3) TMI 171 - ITAT AHMEDABAD held that when assessee had demonstrated that he had withdrawn cash from bank and there was no finding by authorities below that this cash available with assessee was invested or utilized for any other purpose it was not open to Authority to make addition on basis that assessee failed to explain source of deposits in favour of assessee. Again in the case of ACIT vs. Baldev Raj Charla 2008 (12) TMI 241 - ITAT DELHI-C held that where there were sufficient cash withdrawals to cover cash deposits in question merely because there was time gap between withdrawal of cash and cash deposits explanation of assessee could not be rejected and addition on account of cash deposit could not be made. We are of the considered view that the assessee has been able to explain the source of cash deposits made by the assessee in the aforesaid bank account during the demonetization period. Appeal of the assessee is allowed.

Summary

Issues Presented and Considered

The core legal questions considered by the Tribunal in this appeal are:

1. Whether the addition of Rs. 54,50,000/- as unexplained cash deposits under section 69A of the Income Tax Act was justified on facts and in law.

2. Whether the Assessing Officer erred in making the assessment under section 143(3) of the Income Tax Act by including the said amount as unexplained income.

Issue-wise Detailed Analysis

Issue 1: Legitimacy of Addition of Cash Deposits as Unexplained Money under Section 69A

Relevant Legal Framework and Precedents: Section 69A of the Income Tax Act empowers the Assessing Officer to treat unexplained cash credits or deposits as income of the assessee if the source of such money is not satisfactorily explained. Section 115BBE provides for taxation of such unexplained income at a special rate of 60%. Penalty proceedings under section 271AAC may also be initiated for concealment of income.

Precedents relied upon include:

• Sudhirbhai Pravinkant Thaker vs. ITO: Where the assessee demonstrated cash withdrawals from the bank and there was no finding that such cash was utilized elsewhere, addition on account of cash deposits was not justified.
• ACIT vs. Baldev Raj Charla: Even if there is a time gap between cash withdrawals and deposits, if sufficient withdrawals cover deposits, the explanation cannot be rejected merely on the basis of timing.

Court's Interpretation and Reasoning: The Assessing Officer and the Commissioner of Income Tax (Appeals) rejected the assessee's explanation that the cash deposits during the demonetization period were redeposits of earlier cash withdrawals made for medical treatment of the mother. Both authorities noted the absence of documentary evidence supporting medical or travel expenses and found the explanation to be general and unsubstantiated.

However, the Tribunal analyzed the bank statements and found that the assessee had withdrawn Rs. 1,12,46,500/- in cash during the period January 2016 to October 2016, which substantially exceeded the cash deposits of Rs. 54,50,000/- made during the demonetization period. The Department failed to point out any specific expenditure or utilization of the withdrawn cash that would negate the possibility of redepositing the unutilized portion.

Key Evidence and Findings:

• Bank account statements showing detailed dates and amounts of cash withdrawals and deposits.
• Table submitted by the assessee illustrating cash withdrawals amounting to Rs. 1,12,46,500/- and cash deposits of Rs. 54,50,000/- during the demonetization period.
• Absence of any evidence from the Department disproving the availability of withdrawn cash for redeposit.
• Supporting documents submitted by the assessee included passport and death certificate of the mother but lacked documentary proof of medical or travel expenses.

Application of Law to Facts: The Tribunal applied the principles established in the cited precedents, emphasizing that in the absence of any finding that the withdrawn cash was spent or invested elsewhere, and given that withdrawals exceeded deposits, the source of the cash deposits was satisfactorily explained. The mere absence of documentary evidence for medical expenses was insufficient to reject the explanation, especially when the Department failed to identify any specific utilization of the withdrawn cash.

Treatment of Competing Arguments: The Department's reliance on the lack of documentary evidence and general nature of the explanation was considered but found inadequate. The Tribunal gave greater weight to the bank statement evidence and the legal position that unexplained cash deposits cannot be added if the source is otherwise explained by prior withdrawals.

Conclusion: The Tribunal held that the assessee had satisfactorily explained the source of the cash deposits and therefore, the addition under section 69A was not justified.

Issue 2: Validity of Assessment under Section 143(3)

The Assessing Officer's assessment under section 143(3) included the addition of Rs. 54,50,000/- as unexplained income. The Tribunal's findings on Issue 1 directly impact this issue.

The Tribunal found that since the addition was not justified, the assessment order based on such addition was erroneous. Hence, the assessment under section 143(3) was not sustainable to the extent of the disputed addition.

Significant Holdings

"When assessee had demonstrated that he had withdrawn cash from bank and there was no finding by authorities below that this cash available with assessee was invested or utilized for any other purpose, it was not open to Authority to make addition on basis that assessee failed to explain source of deposits in favour of assessee."

"Where there were sufficient cash withdrawals to cover cash deposits in question, merely because there was time gap between withdrawal of cash and cash deposits, explanation of assessee could not be rejected and addition on account of cash deposit could not be made."

The Tribunal established the core principle that unexplained cash deposits under section 69A cannot be added as income if the assessee satisfactorily explains the source by demonstrating prior cash withdrawals from the same account and the Department fails to prove that the withdrawn cash was expended or invested elsewhere.

Final determinations:

• The addition of Rs. 54,50,000/- as unexplained cash deposits under section 69A was set aside.
• The assessment order under section 143(3) was held unsustainable to the extent of this addition.
• The appeal was allowed in favour of the assessee.