2016 (11) TMI 661 - AT - Income Tax

Unexplained cash deposited in the Bank - Intra-Bank Deposit - Held that - As far as the third part, i.e., cash withdrawals from Over Draft Account in IDBI Bank and corresponding deposits in the Catholic Syrian Bank Ltd are concerned, the assessee has been able to demonstrate the nexus between the withdrawals and deposits. This evidence in the form of bank accounts cannot be rejected only on presumption that the assessee had already had cash balance and there is no need for him to withdraw from the OD account. Such presumption cannot override the written evidence in the form of bank statements and explanation of reasonable nexus. Consequently, the addition in respect of Intra Bank A/c of IDBI Bank and the Catholic Syrian Bank Ltd is deleted. Remaining two items, the assessee could not demonstrate the sources of alleged availability of opening balance. Similarly, in respect of cash loans, the assessee could not establish the creditworthiness of the depositors. In view thereof, it is held that in respect of opening cash and small loans as mentioned above, the assessee failed to discharge its onus; consequently, the additions in respect of the same are upheld, whereas the addition in respect of Intra-Bank Deposit is deleted. - Decided partly in favour of assessee. Deemed dividend u/s 2(22)(e) - Held that - The nature of transactions reflected from the assessee s account and company account demonstrates that it was a running current account and the transactions therein are not in the nature of loans and advances so as to be termed as deemed dividend. Therefore, respectfully following the judgment of Hon ble Gujarat High Court in the case of Schutz Dishman Bio-Tech (P) Ltd (2016 (1) TMI 84 - GUJARAT HIGH COURT ), the addition made u/s 2(22)(e) is deleted.- Decided in favour of assessee

Summary

Issues:
1. Addition of cash amount deposited in the Bank as unexplained.
2. Addition of deemed dividend u/s 2(22)(e) of the Act.

Analysis:

Issue 1: Addition of cash amount deposited in the Bank as unexplained
The appeal challenged the addition of ?15,00,000 as unexplained cash deposited in the bank. The Commissioner of Income Tax (Appeals) confirmed this addition based on estimated basis. The assessee contended that the cash balance, small loans, and inter-bank deposits were legitimate. The cash balance was justified by the sufficient opening cash balance, loans were supported by confirmations, and inter-bank deposits were explained by the need to avoid banking obligations. Detailed bank statements were provided to reconcile the transactions. The Tribunal found a reasonable nexus between cash withdrawals and deposits, deleting the addition related to inter-bank deposits. However, the Tribunal upheld the additions for opening cash balance and small loans due to the inability to prove the sources and creditworthiness of the depositors.

Issue 2: Addition of deemed dividend u/s 2(22)(e) of the Act
The second ground challenged the addition of ?4,96,196 as deemed dividend u/s 2(22)(e) of the Act. The assessee, an employee director, engaged in transactions with a company through a running current account. The transactions were not loans or advances but adjustments based on need. Citing a Gujarat High Court judgment, the Tribunal agreed that the transactions were not in the nature of loans or deposits, thus not falling under section 2(22)(e) of the Act. The Tribunal dismissed the Revenue's appeal, upholding that the transactions were adjustments and not loans or advances, leading to the deletion of the deemed dividend addition.

In conclusion, the Tribunal partially allowed the assessee's appeal, deleting the addition related to inter-bank deposits and deemed dividend while upholding the additions for opening cash balance and small loans. The Tribunal's decision was based on the evidence presented and the legal interpretation of the transactions, leading to the dismissal of the Revenue's appeal.