2022 (11) TMI 623 - AT - Income Tax

Unexplained cash u/s 69A - assessee submitted that cash was deposited out of loan and advances recovered in the current year which were given in the preceding year and out of cash withdrawal and also out of the profit earned from business during the year - HELD THAT - As perused the cash book and other details in support of the recoveries of the loan shown by the assessee and find that the assessee after recovery of the loan has shown deposits in the bank account which was subsequently withdrawn and again the advance was made by the assessee to the same parties. In many of the cases as perused the confirmation and find that the assessee after recovery of the loans and advances has again made the loans and advances in the short span of time. Therefore it is difficult to believe the version of the assessee that he has recovered loan advances in cash and deposited the same in the bank and again given the loans and advances to the same parties after making withdrawal from the bank. Indeed, the transaction shown by the assessee with respect to such loans and advances certainly seems to be abnormal but the same cannot be rejected until and unless it is cross verified from the concern parties. As such no addition can be made based on surmise and conjecture. Had there been any doubt about the credibility of the loan shown by the assessee, the onus was upon the revenue to disprove the contention of the assessee based on the relevant documentary evidence. Accordingly in the absence of any cross verification, we are not inclined to uphold the finding of the authorities below about the source of cash deposit. With respect to the bank withdrawal, we note that the assessee has claimed to have withdrawn from the bank which is evident from the order of the authorities below. Admittedly, the advances were made by the assessee as on 31 March 2014, thus it is transpired that withdrawal from the bank was utilized for making such loans and advances to the extent of the amount discussed above. However there was some amount left out of the withdrawal from the bank amounting which probably has been utilized by the assessee for making the cash deposit in the bank. Assessee has declared an income in the income tax return and therefore a presumption can be drawn that there was cash available with the assessee to the tune of such profit declared by the assessee in the income tax return which probably has also been utilized to some extent for making the deposits in the bank. Thus a cumulative reading of the above stated facts reveals that there was sufficient cash available with the assessee for making the deposits in cash in the bank. Accordingly we set aside the order of the learned CIT(A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is hereby allowed.

Summary

Issues Involved:
1. Legitimacy of the addition of Rs. 10,40,800/- as unexplained cash deposits under section 69A of the Income Tax Act, 1961.

Detailed Analysis:

1. Legitimacy of the Addition of Rs. 10,40,800/- as Unexplained Cash Deposits under Section 69A of the Income Tax Act, 1961:

Background:
The assessee, engaged in the grocery business and share and commodity trading, declared a sale of Rs. 4,75,700/- and a net profit of Rs. 3,17,065/- for the relevant year. The Assessing Officer (AO) observed cash deposits of Rs. 10,40,800/- in the assessee's personal savings bank account and questioned the source of these deposits.

Assessee's Explanation:
The assessee claimed that the cash deposits were sourced from:
- Loans and advances recovered during the year.
- Cash withdrawals.
- Profit earned from business during the year.

AO's Findings:
The AO rejected the explanation on the grounds that:
- The opening cash balance was only Rs. 1,412/-.
- Loans and advances increased from Rs. 6,53,000/- to Rs. 8,13,000/-.
- No household expenses were shown, and withdrawals were minimal.
- Cash deposits were made just before payments to Bhumika Commodities Pvt Ltd. for investments in shares and commodities.
As a result, the AO added Rs. 10,40,800/- as unexplained cash under section 69A of the Act.

CIT(A) Proceedings:
The assessee presented additional evidence, including balance sheets, cash books, and a list of loan parties with supporting documents. The CIT(A) forwarded these to the AO for a remand report. The AO maintained that the cash deposits were not justified due to:
- Net increase in loans and advances.
- Negative cash balances in the cash book.
- The pattern of deposits followed by withdrawals.
The CIT(A) upheld the AO's addition, citing a lack of substantiation for the cash deposits and referencing relevant case law, including Sudhir Kumar Sharma HUF Vs. CIT Punjab & Haryana and Kavita Chandra Vs. CIT Punjab & Haryana, which supported treating unexplained cash deposits as unaccounted income.

ITAT Proceedings:
The assessee appealed to the ITAT, reiterating the sources of cash deposits and providing a cash book. The assessee's detailed explanations included:
1. Recovery of loans given in earlier years amounting to Rs. 5,18,000/-.
2. Bank withdrawals amounting to Rs. 8,59,000/-.
3. Business income of Rs. 3,17,065/-.

ITAT Findings:
The ITAT analyzed the evidence and found:
- The recovery of loans was substantiated with confirmations and identity proofs, but the pattern of re-advancing loans raised doubts. However, without cross-verification, the AO's rejection of this explanation was not upheld.
- Bank withdrawals were partly used for loans and advances, leaving Rs. 2,51,000/- potentially available for deposits.
- The declared business income suggested available cash for deposits.
Thus, the ITAT concluded that there was sufficient cash available for the deposits and directed the AO to delete the addition, allowing the assessee's appeal.

Conclusion:
The ITAT allowed the appeal, concluding that the assessee had sufficiently explained the source of the cash deposits, and the addition of Rs. 10,40,800/- under section 69A was not justified. The order was pronounced on 11/11/2022 at Ahmedabad.