2019 (8) TMI 1191 - AT - Income Tax

Addition on cash deposits - availability of funds for re-depositing in the said bank accounts - HELD THAT - Admittedly, there is no law that funds withdrawn from the banks cannot be held/retained in cash by the parties. There can also be no blanket period which can be judicially considered to be a reasonable time. The fact that there is a gap of about four months by itself in the peculiar circumstances does not lead to any conclusion which detracts from the merits of the claims made. The reasonableness of the explanation has to be decided considering the facts and the peculiar circumstances of each case. On a perusal of the decision of the jurisdictional High Court in the case of Smt. Kavita Chandra Vs CIT, Panchkula 2017 (3) TMI 1253 - PUNJAB AND HARYANA HIGH COURT relied upon by the Revenue, it is seen that the said decision prevails in peculiar facts and circumstances of the case wherein it was a consistent finding of fact available on record to the Hon'ble High Court that the withdrawals made were for the purpose of business and thus, were not available for redeposit back in the bank account. In the said circumstances, claim of re-deposit after a gap of 2-3 months was held to be not possible. In the facts of the present case, it is seen that there is no such allegation. No evidence has been made available by the Revenue to support the possibly unarticulated suspicion that the funds have been utilised elsewhere. - Appeal of assessee of allowed.

Summary

Issues Involved:
1. Justification of proceedings initiated under section 148 of the Income Tax Act, 1961.
2. Legitimacy of the addition of ?16,00,000/- made by the Assessing Officer concerning cash deposits in the assessee's bank accounts.

Issue-wise Detailed Analysis:

1. Justification of Proceedings Initiated Under Section 148 of the Income Tax Act, 1961:
The assessee did not press this ground during the hearing, indicating a withdrawal of contention regarding the initiation of proceedings under section 148 of the Income Tax Act, 1961. Consequently, this issue was not deliberated further in the judgment.

2. Legitimacy of the Addition of ?16,00,000/-:
The primary contention revolved around the addition of ?16,00,000/- made by the Assessing Officer (AO) due to cash deposits in the assessee's bank accounts. The assessee argued that he is a simple agriculturist and had withdrawn specific amounts from his bank accounts, which were later re-deposited after a gap of about four months. The AO doubted these re-deposits, considering the explanation as a "contrived story."

The Revenue's argument highlighted that the assessee was not a simple agriculturist, as significant efforts were required to serve notice, indicating an attempt to avoid notice. The AO questioned the purpose of the withdrawals and the identical re-deposits, suggesting that the explanation would have been more credible if the exact withdrawn amounts were re-deposited. The Revenue relied on the case of Smt. Kavita Chandra Vs CIT to support their stance.

The assessee's representative countered by emphasizing the accepted fact that the assessee is an agriculturist with no other source of income. It was argued that the withdrawals and re-deposits were explainable and that the insistence on a written agreement for the purported purchase was unreasonable. The representative contended that oral agreements are permissible and that the tax authorities' demand for a written agreement was unfair.

Upon reviewing the submissions and material on record, the Tribunal noted the AO's concern about the time lag between withdrawals and re-deposits. The AO had accepted the opening cash balances and the source of cash deposits within an acceptable timeframe but found the four-month gap for the ?8,00,000/- deposits improbable. The Tribunal found the tax authorities' insistence on a written agreement to be arbitrary and unreasonable, especially when no evidence suggested that the funds were utilized elsewhere.

The Tribunal concluded that the reasonableness of the explanation should be decided based on the facts and peculiar circumstances of each case. The Tribunal distinguished the present case from the Smt. Kavita Chandra case, noting that there was no evidence to support the suspicion that the funds were used elsewhere. Thus, the Tribunal allowed the assessee's appeal, directing the deletion of the sustained addition.

Conclusion:
The appeal was allowed, and the addition of ?16,00,000/- was directed to be deleted. The Tribunal found the tax authorities' insistence on a written agreement and the suspicion of funds being used elsewhere to be unsupported by evidence. The judgment emphasized the need to consider the peculiar circumstances of each case when evaluating the reasonableness of explanations for cash transactions.