2018 (10) TMI 1490 - AT - Income Tax

Reopening of assessment u/s 148 - unexplained cash deposits - Held that - Though the cash withdrawals aggregating to ₹ 4,79,000/- made by the assessee during the period 21.07.2004 to 03.03.2005 cannot be held to be available with him, in toto, as such, to explain the cash deposits in his bank account during the year under consideration, but in the absence of any material which could persuade us to conclude that the said funds were totally exhausted by the assessee, therefore, part of the said amount can safely be held to be available with the assessee. We find that our aforesaid view stands fortified by the judgment in the case of Anantharam Veerasinghaiah & Co. Vs. CIT (1980 (4) TMI 2 - SUPREME COURT). Addition of ₹ 2,75,750/- i.e ₹ 6,08,250/- (-) ₹ 3,32,500/- in respect of the cash deposits made by the assessee out of unexplained sources during the aforesaid period. Still further, as regards the cash deposit of ₹ 1,00,000/- made by the assessee on 23.09.2005, after considering the cash withdrawal of ₹ 30,000/- carried out by him a day before i.e on 22.09.2005, the balance investment of ₹ 70,000/- i.e ₹ 1,00,000/- (-) ₹ 30,000/- is held to be the income of the assessee as having been made from unexplained sources. We further find that the assessee had deposited an amount of ₹ 3,54,000/- in his bank account during the period 13.10.2005 to 23.01.2006. We find, that the aforesaid cash deposits are preceded by cash withdrawals aggregating to ₹ 2,32,000/- during the period 26.09.2005 to 22.10.2005. We thus, are of the considered view that the cash deposits of ₹ 2,32,000/- (out of the cash deposits of ₹ 3,54,000/-) stands explained to be have been sourced out of the aforesaid cash withdrawals. We thus, uphold the balance addition of ₹ 1,22,000/- i.e ₹ 3,54,000/- (-) ₹ 2,32,000/- in the hands of the assessee. We thus, in terms of our aforesaid observations substitute the addition of ₹ 11,49,000/- sustained by the CIT(A), by an addition of ₹ 4,67,750/- i.e ₹ 2,75,750/- ( ) ₹ 70,000/- ( ) ₹ 1,22,000/- in the hands of the assessee. - Appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Addition of ?11,49,000 as income from unexplained sources under Section 69A of the Income Tax Act.
2. Reopening of assessment under Section 147 of the Income Tax Act.

Issue 1: Addition of ?11,49,000 as Income from Unexplained Sources under Section 69A
The assessee, engaged in trading imitation jewelry, cutlery, and footwear, filed a return declaring a total income of ?11,45,124 for AY 2006-07. The case was reopened under Section 147 of the Act. During reassessment, the Assessing Officer (A.O) questioned the source of cash deposits totaling ?13,36,250 in the assessee's bank account. The assessee claimed these deposits were sourced from preceding cash withdrawals, but failed to substantiate the identity, creditworthiness, and genuineness of the transactions. Consequently, the A.O added ?13,36,250 as income from unexplained sources. The CIT(A) reduced this to ?11,49,000 based on the peak credit method.

On appeal, the assessee argued that the cash deposits were sourced from preceding withdrawals and cited various Tribunal judgments supporting this claim. The Tribunal, however, noted that while the A.O admitted the availability of sufficient cash for deposits of ?74,000 on 04.08.2005 and ?2,00,000 on 10.09.2005, he still added these amounts as unexplained. The Tribunal disagreed with the A.O, deleting the addition of ?2,74,000.

For the remaining deposits, the Tribunal analyzed the nexus between withdrawals and deposits. It concluded that out of the total cash withdrawals of ?4,79,000 from 21.07.2004 to 03.03.2005, ?2,39,500 could be considered available for subsequent deposits. Adding available cash of ?93,000, the Tribunal found ?3,32,500 available for deposits, explaining part of the deposits made between 12.09.2005 to 23.09.2005. Thus, it sustained an addition of ?2,75,750 for these deposits. For the deposit on 23.09.2005, after considering a preceding withdrawal of ?30,000, it held ?70,000 as unexplained. For deposits from 13.10.2005 to 23.01.2006, it found ?2,32,000 explained by preceding withdrawals, sustaining an addition of ?1,22,000.

Issue 2: Reopening of Assessment under Section 147
The assessee initially contested the reopening of the assessment under Section 147. However, during the appeal, the Authorized Representative (A.R) did not press this ground. Consequently, the Tribunal dismissed this ground as not pressed.

Conclusion:
The Tribunal modified the addition sustained by the CIT(A) from ?11,49,000 to ?4,67,750, based on a detailed analysis of the nexus between cash withdrawals and deposits, and the availability of cash in hand. The appeal was partly allowed. The ground related to the reopening of assessment was dismissed as not pressed.