Addition deleted as cash withdrawals during pre-demonetization more than cash deposited during demonetization

ACIT Vs Omaxe Forest SPA and Hills Developers Ltd. (ITAT Delhi)

ITAT Delhi held that when the assessee has shown cash withdrawals during pre demonetization period more than the cash deposited during demonetization then the source cannot be disputed. Accordingly, addition u/s. 68 deleted.

Facts- The present appeal is preferred by the revenue contesting that CIT(A) has erred in deleting addition of Rs. 2 Cr. made u/s 68 of the Act ignoring the impounded documents seized from the business premises of M/s Omaxe Limited clearly evidencing that the company M/s Omaxe Forest SPA and Hills Developers Ltd. was having Cash-in-hand as on 08.11.2016 was Rs. 5,15,350/- only.

Conclusion- Held that when the assessee has shown cash withdrawals during pre demonetization period more than the cash deposited during demonetization then the source cannot be disputed merely on the assumption that such withdrawn amount may have spent by the assessee for some other purpose without any adverse positive material showing such facts.

The Hon’ble jurisdictional High Court held that in absence of any material in support of the view that withdrawals were spent for some other purpose, the conclusion of Tribunal has to be held has right in treating the cash withdrawals from the bank as source of cash found. In the present case said preposition rendered by the Hon’ble High Court of Delhi supports the conclusion of ld. CIT(A) that the source of cash deposited during demonetization period by the assessee was opening cash balance and cash withdrawals during pre demonetization period which are higher than the amount of cash deposited by the assessee. As we have noted above, the AO has ignored main cash book while disputing the source of cash and making addition and the ld. CIT(A) considered entire facts and circumstances in the right prospective and thereafter considering the totality of facts and circumstances and prepositions rendered by Hon’ble jurisdictional High Court of Delhi granted relief to the assessee. Thus, we are unable to see any ambiguity perversity or any valid reason to interfere with the findings arrived by the ld. CIT(A) and hence we uphold the same.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal has been filed against the order of CIT(A)-30, New Delhi dated 31.10.2022 for A.Y. 2017-18.

2. The grounds raised by the revenue are as under:-

i) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is right in deleting addition of Rs. 2 Cr. made us 68 of the Act ignoring the impounded documents seized from the business premises of M/s Omaxe Limited as Annexure A-4 (Page No. 87 to 91 and 97-100) clearly evidencing that the company M/s Omaxe Forest SPA and Hills Developers Ltd. was having Cash-in-hand as on 08.11.2016 was Rs. 5,15,350/- only (as per page nos. 87 to 91 and as per page no. 97-100)?

ii) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in appreciating the facts that the assessee company failed to produce documentary evidence regarding amount payable on account of wages etc for which cash withdrawal was made?

iii) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is right in not appreciating the fact that the assessee could not explain the reason for hording such cash for a long time despite the fact that company is a running concern and requires frequent cash payment?

iv) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is right in ignoring that there is no pattern of such huge cash deposits in the preceding year?.

3. The ld. CIT(DR), supporting the assessment order, submitted that in the circumstances of the case and in law the Ld. CIT(A) is right in deleting addition of Rs. 2 made us 68 of the Act ignoring the impounded documents seized from the business premises of M/s Omaxe Limited as Annexure A-4 (Page No. 87 to 91 and 97-100) clearly evidencing that the company M/s Omaxe Forest SPA and Hills Developers Ltd. was having Cash-in-hand as on 08.11.2016 was Rs. 5,15,350/- only (as per page nos. 87 to 91 and as per page no. 97-100). He further submitted that the Ld. CIT(A) has erred in appreciating the facts that the assessee company failed to produce documentary evidence regarding amount payable on account of wages etc for which cash withdrawal was made and the fact that the assessee could not explain the reason for hording such cash for a long time despite the fact that company is a running concern and requires frequent cash payment. The ld. CIT(DR) vehemently submitted the ld. CIT(A) has ignored that there is no pattern of such huge cash in the preceding financial period and the AO was right in making addition in the hands of assessee. The ld. CIT(DR) lastly, submitted that first appellate order may kindly be set aside by restoring that of the AO.

4. Replying to the above, the ld. AR submitted that the AO made addition on the basis of his own whims and fancies without any relevant and reliable positive material against the assessee and the ld. CIT(A) after appreciating the entire facts and circumstances of the case deleted the baseless addition therefore the first appellate order may kindly be upheld. Further drawing our attention towards conclusion of ld. CIT(A) in paras 9.2 to 9.12 of first appellate order the ld. AR submitted that the assessee successfully demonstrated that the cash deposited post demonetization period was duly explained with the available cash balance on 8.11.2016 which was created due to earlier cash withdrawals from banks accounts and keeping in view such undisputed facts and the opening cash balance available with the assessee in the beginning of the year the amount of cash deposit was tallied with the cash balance as on 31.03.2016 which was brought as opening balance on 01.04.2016 as per audited financial statements signed on 21.05.2016 i.e. prior to demonetization period therefore the ld. CIT(A) was right in deleting the addition. The ld. AR submitted that appeal of revenue may kindly be dismissed upholding the first appellate order.

5. On careful consideration of above submissions, first of all, from the assessment order we note that the AO made addition u/s. 68 of the Act, by observing that the assessee has failed to furnished any satisfactory explanation of the source of cash deposited during demonetization period. From the first appellate order we note that the ld. CIT(A) granted relief to the assessee with following observations and findings:-

9.2 I have carefully considered the assessment order and the submissions of the appellant as well as the assessment records. The findings regarding various observations made by the A leading to the impugned addition of the amount of cash deposited post-demonetization, are as follows:

9.3 The AO has observed that cash withdrawals made by the assessee are not near the dates of cash deposits, and further that if the assessee had withdrawn cash for wage payments/deals, it is not understandable as to why such expenses were not actually incurred. The AO has observed that the assessee company being a running concern, could not have mounted cash for so long and hence the assessee cannot be given favour in a case where the cash is withdrawn long time back. In this regard, it is important to consider the following comparative charts incorporating monthly opening cash balance, cash sales, cash withdrawals, cash deposits, cash expenses and monthly closing cash balance as per the cash books of the appellant for F.Ys. 2015-16 and 2016- 17 submitted during the appellate proceedings:

9.4 It is pertinent to mention here that similar comparative charts for F.Ys. 2015-16 and 2016-17 were also submitted during assessment proceedings, with supporting cash books and bank statements. There are however some minor differences between the two sets of comparative charts viz. charts submitted during assessment proceedings are only upto 8.11.2015 and 8.11.2016 and further incorporate only the major cash withdrawals from bank and cash deposits into bank. The set of comparative charts furnished during assessment proceedings is extracted below:

9.5 I have considered the comparative charts as submitted during appellate as well as assessment proceedings. On the basis of the following observations, I am not in agreement with the reasons given by the AO to treat the cash deposited post-demonetization as unexplained. From the comparative charts for complete financial years 2015-16 and 2016-17, it is observed that the appellant usually maintains a hish cash balance in the books of account. This is evident from the opening cash balance of Rs. 70,18,114/ – as on 01.04.2015, which is also corroborated by the cash balance as on 31.03.2015 as per the IT and audit report for A.Y. 2015-16, which was filed much before demonetization and is therefore not a subject matter of manipulation.

9.6 It is also observed from the chart for F.Y. 2016-17 that the opening cash balance as on 01.04.2016 was of Rs.4,34,574/- that is verifiable from the audited balance sheet for the F.Y. 2015-16 signed on21.05.2016. It is also noted that the appellant company is subsidiary of M/s Omaxe Ltd which is listed on BSE and NSE. The consolidated financial statements of M/s Omaxe Ltd were signed on 24.05.2016 for A.Y.2016-17 and filed with BSE and NSE on 24.05.2016, therefore was not subject to manipulation. The cash balance as on 01.04.2016, has been further increased to higher level by way of bank withdrawals which can also not be manipulated. The cash balance has been maintained at a higher level for the remaining F.Y. upto the date of demonetization, by making major cash withdrawals of Rs. 1,00,20,000/- in April 2016, Rs.2,81,00,000/- in August, 2016, Rs.68,00,000/- in September, 2016 and Rs.53,00,000/- in October, 2016. The wisdom behind maintaining such high level of cash balance cannot be a subject matter of finger-pointing by the AO, and is best left to the business prudence of the assessee. However, the fact remains that high levels of cash balance have been shown in the audited financial statements of the appellant which was signed prior to demonetization. Maintenance of large cash in hand is evident in the audited statements of the appellant in the earlier years as well. Further, the levels of cash withdrawals from bank accounts and cash deposits into bank accounts are also high. The cash withdrawal from bank accounts of the appellant was Rs. 1,01,74,500/- during F.Y. 2015-16 and the same was Rs.6,30,90,000/- during F.Y. 2016-17. Cash amounting to Rs.5,71,40,000/- was withdrawn by the appellant from April to October, 2016 i.e. before the demonetization. Similarly cash deposited into bank accounts was Rs. 1,70,00,000/- during F.Y. 2015-16 as compared to cash deposit of Rs.3,00,00,000/- (normalized to Rs. 1,00,00,000/- after adjusting for the forced deposit of Rs.2,00,00,000/- due to demonetization) during F.Y. 2016-17 which needs to be considered alongwith opening cash balance of Rs.4,34,574/-as on 01.04.2016. Therefore, the trend of substantial cash withdrawals and deposits was similar in both the years. Infact, substantial cash withdrawals as well as deposits into the bank accounts is very much a regular feature of the business of the appellant and hence there is nothing unusual in either the cash withdrawals or the cash deposits made during the year under consideration. It is also observed that the appellant has a low or negligible level of cash receipts through sales in both the years. However, the cash expenses in the F.Y. 2016-17 was comparatively higher vis-à-vis preceding year, therefore, it cannot be said the cash expenses were suppressed by the appellant during the F.Y.2016-17 to show higher cash balance at the time of demonetization. It is also noteworthy that the assessee has not tried to explain the post-demonetization cash deposits by showing cash sales, which are miniscule. A similar trend is observed in the preceding year also wherein the level of cash sales is negligible. The AO has remarked in a generalized manner that cash is normally withdrawn for immediate expenses such as wage payments, which have not been shown by the appellant. The said observation is not well-founded since substantial amount of cash expenses have been shown by the appellant and more importantly the A has not established that wage payments or any other expenses of meaningfully higher magnitude were being made in cash earlier and have now not been shown. Such generalized allegations without marshaling appropriate facts are not proper. It is thus seen that there was no unusual trend in cash withdrawals, cash deposits, cash sales, cash expenses and level of cash balances during the year under consideration as compared to the preceding year. The AO’s observation that the assessee company being a running concern, could not have mounted cash for so long, amounts to mere surmises since the fact of maintenance of high cash balances across extended period of several months is duly established from the ITs and audit reports as well as cash withdrawals of the appellant from its bank accounts, both of which are a matter of record and are not subiect to manipulation. It is an established principle that business prudence behind such practices is not subject to questioning.

9.7 As regards the time gap of a few months between cash withdrawal and cash deposit into the bank accounts, similar trend is observed in the preceding year also, thereby establishing that such time gap too was a normal feature of the assessee’s business. E.g. substantial cash withdrawal of Rs. 1,00,00,000/- was made in the month of August 2015 and the same was not deposited back into the bank accounts till the month of March, 2016.

9.8 The decisions of the jurisdictional High Court cited by the appellant in the cases of Kulwant Rai(supra) and Jaya Aggarwal (supra) are also in support of these findings. In the case of Kulwant Rai, the assessee had cited withdrawal of a sum of Rs. 2 lakhs from his bank account as the source for cash found during search and the same was not accepted by the AO on the assumption that such withdrawn amount may have been spent for some other purposes. The court held that in the absence of any material in support of the view that withdrawals were spent for some other purpose, the Tribunal was right in treating the withdrawals as source of cash found. Similar is the case of the assessee where cash withdrawals from bank accounts are the source of subsequent cash deposits into such bank accounts in the absence of any material in support of the view that withdrawals were spent for some other purposes. Further, in the case of Jaya Aggarwal, the jurisdictional Court held that where the assessee withdrew cash of Rs. 2 lakhs from bank account to buy property and re-deposited cash of Rs. 1,60,000/- from the amount withdrawn after more than 7 months as the deal could not be finalized, principle of preponderance of probability as a test is to be applied and is sufficient to discharge the onus. The case of the assessee is also similar since cash withdrawals from bank are shown as source for subsequent cash re-deposit even if made at a gap of a few months. It is therefore held that holding substantial cash balances for extended periods of time and re-deposit of such cash into bank accounts was a routine business practice of the appellant company and there was nothing unusual about the same considering the nature of the business as well as trends in the preceding year.

9.9 The AO has further observed that the assessee has prepared cash books in such a way that nearby cash withdrawals can be shown as cash deposited during demonetization. In this regard, it is a matter of fact that the. bank withdrawals or deposits are reflected in the bank accounts statements as well as cash book and cannot be manipulated in any manner. The appellant has duly given the site cash books as well as main cash book whose total cash balance as on 08.11.2016 is Rs.2,07,23,542/-. The said cash balance has mostly been built up by cash withdrawals from bank accounts, which are undisputed, and the opening cash balance at the beginning of the year, which is also undisputed since the same tallies with the cash balance as on 31.03.2016 as per the IT for AY. 2016-17. The AO has ignored the main cash book of the assessee and has considered only the site cash books in arriving at the figure of cash balance as on 08.11.2016. The appellant has stated that the existence of the main cash book cannot be denied since most of the bank transactions, whether deposits or withdrawals, have been routed through the main cash book, which is the reason why the main cash book has the bulk of cash balance. It is further submitted by the appellant that cash in hand as on 01.04.2016 as per the sum total of all cash books, including the main cash book, comes to Rs.4,34,574/-, which is also the figure of cash in hand as on 31.03.2016 as per the IT for A.Y. 2016-17 filed prior to demonetization. I have examined the above contentions and find that the AO’s action in ignoring the main cash book is incorrect due to reasons cited by the appellant, since major bank withdrawals and deposits have been routed through the main cash book and if the said cash book is ignored, it would amount to ignoring. The cash withdrawals made from bank accounts as well as cash deposits therein. Further, the AO has not cited any statement recorded or logical reasoning as to why the main cash book has been ignored. Therefore the observation of the AO that the cash book has been constructed in such a manner so as to explain the cash deposits, is untenable.

9.10 The AO has further observed that since the assessee is a builder and has stated that all sales are via cheque / RTGS/ DD etc, there is no question of accepting cash generation through sales. Regarding this observation, it is noted that the appellant itself has not shown any significant cash sales in an attempt to explain the cash deposited during demonetization. In fact, the cash sales are almost NIL for F.Y. 2016-17. Therefore, this argument does not carry any force.

9.11 It has also been observed by the AO that the flagship company, M/s Omaxe Ltd has surrendered a huge amount as unaccounted income, however, the assessee has not disclosed any such unaccounted income. The said observation is not rational, firstly since any disclosure made by the flagship company does not automatically translate into any acceptance of tax evasion by the appellant. Secondly, the surrender/disclosure made by the flagship company, M/s Omaxe Ltd, is stated to be on account of a totally different matter, which has not been correlated with the addition made in the case of appellant.

9.12 It is therefore evident that the cash deposited post-demonetization is duly explained by the available cash balance as on 08.11.2016, which was in turn built up by cash withdrawals from bank accounts, which are undisputed, and the opening cash balance at the beginning of the year, which is also undisputed since the same tallies with the cash balance as on 31.03.2016 as per the audited financial statements signed on 21.05.2016, ie. prior to demonetization. Therefore, the addition of Rs.2,00,00,000/- on account of unexplained cash deposited during demonetization, is untenable and is accordingly deleted. Ground nos. 1 to 3 are allowed.

6. On careful consideration of basis taken by the AO for making addition and conclusion drawn by the ld. CIT(A) in favour of the assessee deleting the addition we note that before us. It is not the case of the AO that the assessee did not file details and documentary evidence before him and the same was filed before the ld. CIT(A) which was relied by him while granting relief to the assessee. Thus, we safely presume that entire evidence which was before the ld. CIT(A) was also produced before the AO during assessment proceedings. After observing said factual position of proceedings before the authorities below when we evaluate the impugned first appellate order then we find that the ld. CIT(A) firstly gathered from the audited financial statement of assessee that at the beginning of the financial period opening cash balance was Rs. 4,34,574/- as on 01.04.2016. He, based on copies of bank statements and cash books of assessee, further noted that the cash balance was further increase to higher level by way of bank withdrawals which cannot be manipulated. The ld. CIT(A) went in detail and further noted that the cash withdrawals during April 2016 was Rs. 1,00,20,000/-, in August 2016 was Rs. 2,81,00,000/- and in September 2016 was Rs. 68 lakh and in October 2016 was Rs. 53 lakh. The ld. CIT(A) thus, noted that during FY 2016-17 cash withdrawals were Rs. 6,30,90,000/- out of which Rs. 5,71,40,000/- were withdrawn during April to October 2016 i.e. prior to demonetization declaration.

7. After noting above factual position of trend of deposits and withdraws by the assessee from its bank account the ld. CIT(A) further observed that the assesseee has prepared cash book in the manner showing that nearby cash withdrawals can be seem shown or seem as cash deposited during demonetization period and the fact that the bank withdrawals or deposits duly reflected in the bank accounts, statements as well as cash book which cannot be manipulated by the assessee in any manner. The ld. CIT(A) noted that the side cash books as well as main cash books clearly show balance of Rs. 2,07,23,542/- as on 08.11.2016. The ld. CIT(A) went in detail and gathered that the AO has ignored main cash books of assessee and has considered only the side cash books of assessee in arriving at the cash balance as on 08.11.2016 which is not a correct Since the assessee company, as per the AO is in the business of real estate, then the keeping cash on sites of construction and keeping main cash books in the central office is a normal practice to be adopted by such company therefore ignoring main cash book is a vital omission on the part of AO which was resulted into difference in the amount of cash deposit and cash balance only based on site cash books ignoring the main cash book.

8. The ld. CIT(A) has relied on the judgment of Hon’ble jurisdictional High Court of Delhi in the case of Kulwant Rai and Jaya Aggarwal observed that when the assessee has shown cash withdrawals during pre demonetization period more than the cash deposited during demonetization then the source cannot be disputed merely on the assumption that such withdrawn amount may have spent by the assessee for some other purpose without any adverse positive material showing such facts. The Hon’ble jurisdictional High Court held that in absence of any material in support of the view that withdrawals were spent for some other purpose, the conclusion of Tribunal has to be held has right in treating the cash withdrawals from the bank as source of cash found. In the present case said preposition rendered by the Hon’ble High Court of Delhi supports the conclusion of ld. CIT(A) that the source of cash deposited during demonetization period by the assessee was opening cash balance and cash withdrawals during pre demonetization period which are higher than the amount of cash deposited by the assessee. As we have noted above, the AO has ignored main cash book while disputing the source of cash and making addition and the ld. CIT(A) considered entire facts and circumstances in the right prospective and thereafter considering the totality of facts and circumstances and prepositions rendered by Hon’ble jurisdictional High Court of Delhi (supra) granted relief to the assessee. Thus, we are unable to see any ambiguity perversity or any valid reason to interfere with the findings arrived by the ld. CIT(A) and hence we uphold the same. Accordingly, grounds of revenue being devoid of merits are dismissed.

9. In the result, the appeal of the revenue is dismissed.

Order pronounced in the open court on 18.08.2023.