2018 (2) TMI 596 - AT - Income Tax

Addition on account of cash deposited in bank account - Held that - AO has not brought on record that the cash in hand available with the assessee was not utilized for depositing in the various bank account. Particularly when, the AO himself accepted the deposits of ₹ 15,20,900/- in various bank accounts out of the said cash in hand available with the assessee, so there was no occasion to doubt the deposits of ₹ 26,55,000/- out of the cash in hand amounting to ₹ 49,30,572/- available with the assessee as on 01.04.2010. Therefore, considering the totality of the facts, delete the addition made by the AO and sustained by the CIT(A). - Decided in favour of assessee.

Issues Involved:
1. Sustenance of addition of ?26,55,000/- made by the AO on account of cash deposited in the bank account.
2. Validity of the cash flow statement and Balance Sheet provided by the assessee.
3. Application of the test of human probabilities by the authorities.
4. Non-filing of Wealth Tax Returns by the assessee.

Detailed Analysis:

1. Sustenance of Addition of ?26,55,000/-:
The primary grievance of the assessee was the sustenance of the addition of ?26,55,000/- made by the AO on account of cash deposits in the bank accounts. The AO observed that the assessee was not having any regular source of income and had earned income from short-term capital gain on the sale of immovable properties. The AO found that the assessee had made cash deposits in two ICICI bank accounts amounting to ?26,55,000/- during the relevant period. The AO asked the assessee to explain the source of these deposits. The assessee submitted that the deposits were made out of an opening cash balance of ?49,30,572/- as on 01.04.2010, which was reflected in his cash book. However, the AO treated the cash deposits as income from undisclosed sources due to the non-filing of Wealth Tax Returns and lack of satisfactory explanation regarding the source of the cash.

2. Validity of Cash Flow Statement and Balance Sheet:
The assessee contended that the cash deposits were supported by the cash flow statement and Balance Sheet, which were prepared regularly but not filed with the return of income. The assessee provided copies of the cash books for the assessment years 2008-09 to 2011-12 and the final account of the proprietorship firm, M/s Trade India. The assessee claimed that the cash deposits were made out of the brought forward cash in hand, which was generated from time-to-time withdrawals from bank accounts and the sale of properties. The AO, however, doubted the validity of these documents, treating them as self-serving and not trustworthy.

3. Application of the Test of Human Probabilities:
The CIT(A) applied the test of human probabilities, observing that the assessee's conduct of depositing cash in various installments over a period of one year was not coherent with the manner in which a prudent man would behave. The CIT(A) noted that the assessee was maintaining six bank accounts and frequently withdrawing small amounts of cash through ATMs, which contradicted the claim of having a huge cash balance. The CIT(A) held that the assessee's explanation was not satisfactory and confirmed the addition made by the AO, citing various case laws to support the decision.

4. Non-Filing of Wealth Tax Returns:
The AO and CIT(A) both emphasized the non-filing of Wealth Tax Returns by the assessee for the relevant assessment years. The AO observed that the assessee failed to provide Wealth Tax Returns showing cash in hand and payment of Wealth Tax, which led to the conclusion that the cash deposits were from undisclosed sources. The assessee argued that non-filing of Wealth Tax Returns should not be a ground to reject the source of the deposits, especially when the cash flow statement and cash book provided a clear explanation.

Tribunal's Decision:
The Tribunal considered the submissions of both parties and the material on record. It noted that the AO accepted the deposits in Oriental Bank of Commerce and HDFC Bank but doubted the deposits in ICICI Bank without bringing any material on record. The AO did not dispute the opening cash balance of ?49,30,572/- as on 01.04.2010 or the sale of properties by the assessee. The Tribunal found that the AO's addition was based on suspicion rather than concrete evidence. It referred to the judgment of the Hon’ble Delhi High Court in CIT Vs Kulwant Rai, where it was held that the assessment based on suspicion without material evidence is not sustainable. The Tribunal concluded that the AO failed to substantiate that the opening cash in hand was used elsewhere and not for depositing in the bank accounts. Therefore, the Tribunal deleted the addition of ?26,55,000/- made by the AO and sustained by the CIT(A).

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the addition of ?26,55,000/- and concluding that the cash deposits were satisfactorily explained by the opening cash balance and the cash flow statement provided by the assessee. The decision emphasized the importance of concrete evidence over suspicion and the proper application of the test of human probabilities.

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