Medical Treatment withdrawals Earlier: ITAT Deletes Cash Deposit Addition

Suresh Surindersing Yadav Vs ITO (ITAT Mumbai)

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has provided relief to assessee Suresh Surindersing Yadav by deleting an addition of ₹29,24,571 made to his income on account of unexplained cash deposits. The case pertains to the Assessment Year (A.Y.) 2017-18, a period that notably included the demonetization drive. The ITAT’s decision hinged on the assessee’s explanation that the cash deposits originated from prior withdrawals from the same bank accounts, maintained for medical emergencies.

The genesis of the dispute lies in the assessment proceedings for A.Y. 2017-18. The assessee had filed his return declaring an income of ₹25,93,460. His return was selected for scrutiny due to significant cash deposits, totaling ₹59,67,000, which included ₹34,50,000 deposited during the demonetization period across three different savings bank accounts with DCB Bank. When asked to explain the source of these deposits, the assessee contended that the cash originated from an opening cash in hand balance and substantial prior cash withdrawals from the same bank accounts. He further explained that due to a prevailing medical ailment, a significant amount of cash was kept readily available to address any potential medical emergencies.

The Assessing Officer (AO), however, was not convinced by the assessee’s explanation and treated the entire ₹59,67,000 as unexplained cash under Section 69A of the Income Tax Act, 1961, levying tax under Section 115BBE. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] granted partial relief, accepting the availability of ₹30,42,429 as cash in hand but sustained the balance addition of ₹29,24,571. The assessee subsequently appealed this sustained addition before the ITAT.

Before the ITAT, the core of the assessee’s argument was that the cash deposits were merely a re-deposit of funds previously withdrawn from the same bank accounts. The assessee presented evidence of cash withdrawals totaling ₹67,91,000 from DCB Bank between April 2015 and March 2017, with ₹29,87,000 of this amount withdrawn specifically during the year under consideration. The assessee emphasized that these withdrawals exceeded the total cash deposits questioned by the tax authorities. It was argued that once the assessee provided a plausible explanation supported by bank statements, the onus shifted to the Revenue to demonstrate that the withdrawn cash had been utilized elsewhere, an onus which the AO failed to discharge.

The ITAT, after reviewing the submissions and bank statements, found merit in the assessee’s contentions. The Tribunal noted that the amount of cash withdrawn by the assessee in the current and preceding financial years was indeed greater than the cash deposited. Crucially, the ITAT observed the “absence of any findings of the lower authorities regarding the usage/utilization of the said cash withdrawn for any other purpose.” This lack of contrary evidence from the Revenue strengthened the assessee’s claim.

While not explicitly citing specific judicial precedents within the order, the ITAT’s approach aligns with a well-established principle in income tax jurisprudence concerning cash credits and prior cash withdrawals. Several tribunals and High Courts have consistently held that if an assessee explains cash deposits by demonstrating prior withdrawals from their bank account, and the department fails to prove that the withdrawn cash was spent elsewhere, the explanation should be accepted.

One notable principle often invoked in such cases is that a mere re-deposit of previously withdrawn cash does not constitute an unexplained cash credit under Section 69A. The burden is initially on the assessee to explain the source of the cash deposit. However, once a plausible explanation, such as prior withdrawals, is provided, the burden shifts to the revenue authorities to establish that the withdrawn funds were utilized for some other purpose, rendering them unavailable for re-deposit. If the department cannot discharge this shifted burden, the addition cannot be sustained. This principle has been upheld in various cases, including, for instance, in the context of demonetization deposits where the source was explained by past withdrawals, provided the withdrawals themselves were legitimate and verifiable.

In conclusion, the ITAT held that the CIT(A) erred in sustaining the balance addition. By accepting the assessee’s explanation that the cash deposited was sourced from earlier withdrawals, the Tribunal effectively deleted the entire remaining addition of ₹29,24,571. The ITAT also dismissed the penalty initiation under Section 274 read with Section 271AAC(1) as premature and held that the levy of interest under Sections 234B, 234C, and 234D of the Act was consequential, requiring no separate adjudication. The appeal was thus partly allowed, providing significant relief to the assessee.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The assessee has filed the present appeal against the impugned order dated 20.09.2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment year 2017-18.

2. In this appeal, the assessee has raised the following grounds: –

“1. That under the facts and circumstances of the case, Ld. CIT(A) of National Faceless Appeal Center (NFAC), Delhi has erred in law as much as in fact in sustaining the addition of Rs. 29,24,571/- out of addition of Rs. 59,67,000/-made by the AO on account of alleged unexplained cash credit being amount deposited in the bank account of the assessee during FY 2016-17 relevant to AY 2017-18 which period also includes demonetization period which is added u/s 69A/115BBE of the Income Tax Act, 1961 (“the Act”) and levying tax thereon u/s 115BBE of the Act. The addition of Rs. 29,24,571/- sustained by the CIT(A) is liable to be deleted.

2. That under the facts and circumstances of the case, Ld. CIT(A) of NFAC has failed to appreciate the explanation of the assessee that these deposits were out of earlier cash withdrawals made from the same bank for which all the evidence was submitted and it was also explained that the cash withdrawals remained unutilized and were forming part of the ‘cash in hand’. Thus, there was no reason to disbelieve the explanation of the assessee regarding cash deposit having been made out of earlier cash withdrawals and was forming part of ‘cash in hand’ as per cash flow submitted along-with copy of bank account. The explanation submitted by the assessee was perfectly plausible and could not have been rejected by the CIT(A) of NEAC.

3. That under the facts and circumstances of the case, Ld. CIT(A) of NFAC while partly sustaining the addition, has failed to appreciate that after the assessee has submitted explanation with regard to cash deposit in the bank out of earlier cash withdrawals from the same bank account, the burden was shifted on the Revenue to show that the cash withdrawals were utilized by the assessee somewhere else and without discharging such onus by the AO, the addition of Rs. 28,00,000/- could not be sustained.

4. That under the facts and circumstances of the case, Ld. CIT(A) of NFAC and AO have failed to appreciate that there is no law preventing the assessee either to withdraw cash out of bank account and keeping the same as cash in hand and such act of the assessee does not warrant any explanation to justify the redeposit of the cash withdrawn by her forming part of cash in hand, therefore, invocation of provisions of section 69A/115BBE of the Act is wholly unwarranted and unlawful.

5. That under the facts and circumstances of the case Ld. AO has erred in law as much as in fact in initiating penalty u/s 274 r.w.s 271AAC (1) of the Act.

6. That under the facts and circumstances of the case, the Ld. AO has erred in law as much as in fact in levying the interest under 234B, 234C and 234D of the Act.”

3. The only grievance of the assessee is against the addition of Rs.29,24,571/- sustained by the learned CIT(A) on account of cash deposited in the assessee’s bank account.

4. We have considered the submissions of both sides and perused the material available on record.

5. The brief facts of the case are that the assessee is an individual and for the year under consideration, filed her return of income on 31.07.2017, declaring a total income of Rs.25,93,460/-. The return filed by the assessee was selected for limited scrutiny through CASS, inter alia, for verification of larger cash deposits during the year. Accordingly, statutory notices under 143(2) and section 142(1) were issued and served on the assessee. During the assessment proceedings, it was observed that the assessee deposited cash aggregating to Rs.59,67,000/- during the year under consideration, which, inter alia, also included cash deposits of Rs.34,50,000/- during the demonetization period in its three different savings bank accounts held in DCB Bank. Accordingly, the assessee was asked to explain the nature and source of such huge cash deposits. In response, the assessee submitted that the cash was deposited out of the opening cash in hand and the regular cash withdrawals by the assessee during the year under consideration. It was further submitted that the assessee was suffering from a medical ailment and therefore such huge cash in hand was maintained to meet any medical emergency. The Assessing Officer (“AO”) vide order dated 14.12.2019 passed under section 143(3) of the Act disagreed with the submissions of the assessee and by treating the entire cash deposited as unexplained made the addition of Rs.59,67,000/- under section 69A r.w. section 115BBE of the Act.

6. The learned CIT(A), vide impugned order, granted partial relief to the assessee and accepted her contention only regarding the availability of cash in hand total amounting to Rs.30,42,429/- and sustained the balance addition of Rs.29,24,571/-. From the perusal of the bank statement forming part of the paper book, we find that during the year under consideration as well as in the preceding year the assessee withdrew a total of Rs.67,91,000/- from its bank account maintained with DCB Bank out of which Rs.29,87,000/- was withdrawn in the year under consideration itself. The details of which are as follows: –

7. Therefore, from the above details, it is evident that the amount of cash withdrawn was more than the amount of cash deposited by the assessee in his bank account. Therefore, in the absence of any findings of the lower authorities regarding the usage/utilization of the said cash withdrawn for any other purpose, we agree with the submissions of the assessee that the cash withdrawn during the year under consideration was deposited in her bank account. Accordingly, the balance addition of Rs.29,24,571/- sustained by the learned CIT(A) is also deleted. As a result, Grounds No. 1 to 4 raised by the assessee are allowed.

8. Ground No.5 raised in assessee’s appeal pertains to the initiation of penalty under section 274 r.w. section 271AAC(1) of the Act, which is premature in nature. Therefore, this ground is dismissed.

9. Ground No.6 raised in assessee’s appeal pertains to the levy of interest under section 234B, 234C and 234D of the Act, which is consequential in nature. Therefore, this ground needs no separate adjudication.

10. In the result, the appeal by the assessee is partly allowed.

Order pronounced in the open Court on 30/06/2025