2022 (11) TMI 1245 - AT - Income Tax

Unexplained cash deposits u/s 69A - assessee has made cash deposits into bank account during demonetization period - HELD THAT - The source of cash deposits have been explained from the withdrawals made by him from his capital account from partnership firm. Assessee had opening balance of Rs. 21,81,141/- and then further withdrawals of Rs. 3,57,920/-. Thus, there was clear cut cash available in the books amounting to Rs. more than 21,41,000/- which was deposited in the bank account. Thus, It cannot be held that the source of cash deposits remain unexplained and accordingly the addition as sustained by Ld. CIT(A) is deleted. Appeal of the Assessee is Allowed.

Summary

Issues Involved:
- Adequate opportunity not afforded to the appellant by the Commissioner of Income Tax (Appeal)
- Adjudication of grounds raised by the appellant
- Confirmation of additions made under section 69A of the Income Tax Act without appreciating the law
- Confirmation of additions without considering factual and legal aspects
- Challenge of addition of alleged unexplained cash deposits under section 69A of the Act

Analysis:
1. The appellant raised concerns regarding the Commissioner of Income Tax (Appeal) not providing adequate opportunity and not adjudicating several grounds. The appellant argued against the additions made under section 69A of the Act, claiming that the alleged cash deposits were duly recorded in the books of accounts. The appellant also contested the confirmation of additions without proper consideration of factual and legal aspects.

2. The case involved an individual who was a partner in multiple clothing firms, engaged in retail trading. The Assessing Officer noted cash deposits made during the demonetization period, which the appellant attributed to withdrawals from partnership firms. However, the Assessing Officer questioned the adequacy of withdrawals from the firms to explain the cash deposits, raising doubts about the appellant's daily expenses and cash management practices.

3. The Assessing Officer made an addition under section 69A of the Act on account of cash deposits in two banks. The First Appellate Authority upheld the addition partially, allowing past savings as an ad hoc basis for a portion of the cash amount. The appellant, however, presented detailed financial records and cash flow statements to justify the source of deposits, including withdrawals from partnership firms and personal bank accounts.

4. Upon review, the Tribunal found that the appellant had sufficient cash withdrawals from partnership firms and personal accounts to explain the cash deposits. The Tribunal analyzed the cash availability over the years, considering withdrawals by all partners and the appellant. The detailed cash flow statement and balance sheet provided by the appellant supported the explanation of the source of deposits, leading to the deletion of the addition made under section 69A of the Act.

5. The Tribunal concluded that the appellant's cash deposits were adequately explained by the documented withdrawals from partnership firms and personal accounts. The appeal was allowed, and the addition under section 69A of the Act was deleted based on the substantiated explanation provided by the appellant.

This detailed analysis highlights the legal arguments, factual background, and financial evidence considered in the judgment, leading to the decision in favor of the appellant.