Case Law Details
Hemavathi Ramesh Vs ITO (ITAT Bangalore)
The Income Tax Appellate Tribunal (ITAT) Bangalore recently made a landmark ruling in the case of Hemavathi Ramesh vs the Income Tax Officer (ITO), reinforcing that cash deposits derived from earlier deposits are not entirely exempt from taxation. The judgement pertained to the Assessment Year 2017-18, in the aftermath of the demonetization period in India.
In this case, the ITAT Bangalore examined a situation where an individual’s cash deposits, primarily from house property and other sources, were scrutinized under the Income Tax Act, 1961. The issue in contention was whether the CIT(A) was justified in confirming the addition of Rs.8,66,000 under section 69A of the Act.
The court’s decision pivoted around two main aspects. Firstly, the acceptance of the sum of Rs.5,50,000 as a lease deposit prior to the demonetization period, which was contended by the assessee to serve as a legitimate source of the disputed cash deposits. Secondly, the recognition of sundry receipts and gifts amounting to Rs.2,50,000, already taxed and claimed by the assessee as another valid source.
Citing precedents set by the Hon’ble High Court of Karnataka, the tribunal held that cash deposits made from previous withdrawals cannot be entirely disregarded. As such, the tribunal permitted a deduction of Rs.6,50,000 from the original contested amount, and the remaining balance of Rs.2,16,000 was deemed taxable under section 69A of the Act.
Conclusion: This ruling by the ITAT Bangalore underscores the thorough inspection and nuanced understanding of income sources during the taxation process. Furthermore, it amplifies the importance of maintaining accurate financial records, particularly for cash transactions. It also provides a significant precedent for future cases involving the legitimacy of cash deposits during tax assessment.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal at the instance of the assessee is directed against order of CIT(A), dated 13.02.2023 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2017-18.
2. The solitary issue raised is whether the CIT(A) is justified in confirming the addition of Rs.8,66,000/- under section 69A r.w.s. 1 15BBE of the Act.
3. Brief facts of the case are as follows:
Assesse is an individual, deriving income from house property and other sources. For the Assessment Year 2017-18, return of income was filed on 31.03.2018 declaring total income of Rs.4,80, 110/-. The assessment was selected for scrutiny and notice under section 143(2) of the Act was issued on 13.08.2018 and duly served on the assessee. During the course of assessment proceedings, assessee was asked to show cause as to why cash deposited amounting to Rs.12,40,000/- during the demonetization period ought not to be brought to tax. In response to the show cause notice, assessee filed reply. The AO accepted the explanation regarding Rs. 1 lakh, out of the rental income of Rs.2,41,000/- and Rs.2,74,000/- out of the past savings. Regarding balance amount of Rs.8,66,000/-, AO held that the assessee’s explanation was unsatisfactory regarding the source of cash deposited and brought to tax Rs.8,66,000/- under section 69A of the Act. The AO also applied the rate of tax as provided under section 11 5BBE of the Act.
4. Aggrieved, the assessee filed appeal before the First Appellate Authority (FAA). The CIT(A) confirmed the addition of the AO and dismissed the appeal of the assessee.
5. Aggrieved by the order of the CIT(A), assessee has filed the present appeal before the Tribunal. Assessee has filed Paper Book comprising of 58 pages inter alia enclosing therein copies of the show cause notice, replies filed before the AO, copy of the written submissions filed before the CIT(A), the bank statements which reflected the cash deposits, affidavit in support of the lease deposits, lease rentals, etc. The learned AR submitted that the AO, having accepted that assessee was in receipt of Rs.5,50,000/- as lease deposit on 04.2016, the same ought to have been accepted as a source of cash deposit. Further, the learned AR placed on record the return of income filed along with the statement of income of the assessee and contended that assessee had disclosed income from other sources amounting to Rs.2,64,804/- comprising of bank interest of Rs. 14,804/- and sundry receipts and gifts of Rs.2,50,000/- for which the assessee has duly paid the taxes. Accordingly, the learned AR submitted that for a sum of Rs.2,50,000/- also, the credit should be given while calculating the addition under section 69A of the Act.
6. The learned Standing Counsel relied on the order of the AO and the CIT(A).
7. I have heard the rival submissions and perused the material on record. Assessee has placed on record the details with regard to the receipt of 5,50,000/- being advance of lease agreement. The above said amount has been received on 12.04.20 16. The lessee to the said agreement has also given confirmation to the effect that an amount of Rs.5,50,000/- was paid on 12.04.2016. The AO does not dispute the fact of receipt of Rs.5,50,000/- on 12.04.2016. The reasoning of the AO in not taking the same as a source of cash deposited during the demonetization period was that amount was received six months prior and assessee could not have held the cash for more than six months. The Hon’ble High Court of Karnataka in the case of S. R. Venkataka Ratnam Vs. CIT reported in 127 ITR 807 and in the case of Smt. P. Padmavathi and ITO in ITA No.414/2009, judgment dated 06.10.2010, had held that cash deposits out of earlier withdrawal cannot be totally disbelieved. The relevant finding of the Hon’ble High Court in the case of S. R. Venkataka Ratnam Vs. CIT (supra) reads as follows:
“5. There is some force in the argument of the learned counsel for the petitioner and the argument advanced by the revenue is, therefore, with out any force. Once the petitioner assessee disclosed the source as having come from the withdrawn made on a given date from a given bank, it was not for respondents Nos. 1 and 2 to concern themselves with what the assessee did with that money, i.e., whether he had kept the same in his house or uitlised the services of a bank by depositing the same. The ITO had only two choice before him. One was to reject the explanation as not believable for the reason that on his investigation on such pigmy deposit was ever made in the bank. In the alternative he ought to have called upon the assessee-petitioner to substantiate his claim by documentary evidence. Having exercised neither of the choice, it was not open to the ITO to merely surmise that it would not be probable for the assessee to keep Rs. 15,000 unutilised for a period of two years. The ITO should have given an opportunity to the assessee to substantiate his assertion as to the source of his capital outlay.”
8. In the instant case, since the fact that receipt of Rs.5,50,000/- has not been doubted by the AO, I am of the view that some amount would be available with the assessee for making the impugned cash deposits. On facts of the instant case, I reasonably estimate a sum of Rs.4,00,000/- as available for making the impugned cash deposits.
9. Further, the assessee has placed on record the return of income and statement of income wherein the assessee had offered to tax a sum of 2,50,000/- being sundry receipts and gifts. I am of the view that a further reduction of Rs.2,50,000/- is also required while determining the source of cash deposit. Therefore, I grant a deduction of Rs.6,50,000/- (Rs.4,00,000/- + Rs.2,50,000/-) and balance amount of Rs.2,16,000/- alone shall be brought to tax under section 69A of the Act.
9. In the result, appeal filed by the assessee is partly allowed.
