2022 (6) TMI 1114 - AT - Income Tax

Unexplained cash credit u/s 68 - unexplained cash deposit in the bank account during post-demonetization period - assessee s failure to establish the generation of cash deposited in the bank in high denomination during the demonetization period - HELD THAT - We note that the cash sum of Rs. 94,50,000/- was deposited in the bank account held with Union Bank of India post-demonetization period. Assessee is a limited company and has regularly maintained books of account including the cash and all relevant details. It also holds account with two other banks. During the pre-demonetization period the assessee had withdrawn cash sum of Rs. 1,02,75,000/- from Tamilnad Mercantile Bank - As claimed by the assessee, this cash was withdrawn on various dates during July, 2016 and October, 2016 for making investment in unquoted shares and also for giving advance or purchase immovable properties. So far as this fact of withdrawing of cash is concerned the same has not been disputed by the Revenue authorities at any stage. The assessee s claim is very simple that the source of cash deposit of Rs. 94,50,000/- is the cash withdrawn of Rs. 1,02,75,000/- on various dates during the year itself which were before the announcement of demonetization scheme on 08.11.2016. The first observation of the Revenue authorities that why the assessee kept the funds idle with it for few months seems to have no merit in our view as it is the prerogative of the assessee company to utilize its funds in the way it finds prudent to be done so in the interest of running a business. We do not find anything unusual of the assessee keeping the cash in hand idle with it which was withdrawn from the bank and shown in the cash book. The second interesting observation by the ld. AO is that the denomination of currency withdrawn from Tamilnad Mercantile Bank do not tally with the denomination of the currency deposited in Union Bank of India. Though this allegation of the ld. AO made on the basis of information received by the ld. AO from bank u/s 133(6) of the Act was not provided to the assessee, thereby, denying the principles of interest of justice in not providing the assessee an opportunity to cross examine the information gathered by the ld. AO in the bank of the assessee and this action of the ld. AO in itself holds the assessment proceedings bad in law, in view of the ratio laid down by the Hon ble Apex Court in the case of Andaman Timber Industries ( 2015 (10) TMI 442 - SUPREME COURT ). Even otherwise the ld. AO should have appreciated that the currency in whatever form was in Indian Rupee and the same was withdrawn from bank, duly disclosed in the audited books of account, regularly shown in the cash balance carried forward and the assessee had sufficient cash in hand as on the date of announcement of demonetization scheme on 08.11.2016 and, in our considered view there remains no doubt about the genuineness of the transaction of cash deposit of Rs. 94,50,000/- in the bank account on 16.11.2016. The assessee has successfully shown the source of the same and thus, no addition is called for u/s 68 of the Act for the cash deposit. - Decided in favour of assessee.

Summary

Issues:
Appeal against addition of unexplained cash credit under section 68 of the Income Tax Act for Assessment Year 2017-18.

Analysis:
1. The assessee deposited Rs. 94,50,000 in a bank account post-demonetization, which was questioned by the Assessing Officer (AO) under section 68 of the Act.
2. The AO doubted the origin of the cash deposit as it did not match the currency withdrawn by the assessee from another bank.
3. The AO made the addition of Rs. 94,50,000 as unexplained cash credit, which was upheld by the Commissioner of Income-tax (Appeals) (CIT(A)).
4. The CIT(A) emphasized the burden of proof on the taxpayer to explain the nature and source of cash credits under section 68.
5. The CIT(A) held that the appellant failed to establish the generation of cash, leading to the confirmation of the addition.
6. The Tribunal noted that the assessee withdrew Rs. 1,02,75,000 during the pre-demonetization period for investments and property purchases.
7. The Tribunal found no merit in the AO's argument regarding the mismatch of currency denominations between the withdrawal and deposit.
8. The Tribunal criticized the AO for not providing relevant information to the assessee for cross-examination, violating principles of natural justice.
9. The Tribunal concluded that the cash deposit was genuine, supported by audited accounts, and reversed the CIT(A)'s decision, deleting the addition of Rs. 94,50,000.
10. The Tribunal allowed the appeal, emphasizing the genuineness of the transaction and the failure of the revenue authorities to prove unexplained cash credit.

This detailed analysis covers the issues raised in the appeal against the addition of unexplained cash credit under section 68 of the Income Tax Act for the relevant assessment year.