Cash Redeposit from Same Bank Account Cannot Be Treated as Unexplained: ITAT Amritsar

Joginder Kaur Vs ITO (ITAT Amritsar)

Summary: The Income Tax Appellate Tribunal, Amritsar Bench, in Joginder Kaur Vs ITO, allowed the assessee’s appeal for Assessment Year 2010-11 and directed deletion of an addition of ₹62,18,200 under Section 69A of the Income Tax Act, 1961. The addition arose from cash deposited in the assessee’s Punjab Gramin Bank account during Financial Year 2009-10. The Assessing Officer reopened the assessment under Sections 147 and 148 and treated the deposits as unexplained income.

The assessee challenged the reassessment proceedings, arguing that the Assessing Officer had failed to dispose of her objections to reopening through a separate speaking order. Relying on GKN Driveshafts (India) Ltd. Vs ITO and other judicial precedents, she contended that merely addressing the objections in the assessment order did not satisfy the prescribed procedure. The Commissioner (Appeals), however, upheld the reassessment and sustained the addition.

On merits, the assessee explained that the cash deposits were made from earlier withdrawals aggregating ₹73,50,000 from the same bank account during Financial Year 2009-10. A date-wise cash flow statement showed that ₹62,18,200 had been redeposited and sufficient cash remained available on the relevant dates. The Department did not dispute the withdrawals or establish that the withdrawn cash had been spent, invested or otherwise utilised. The Tribunal also noted that the earlier controversy concerning an agreement for the sale of agricultural land related to Financial Year 2008-09 and was not directly relevant to the assessment year under appeal.

After examining the bank statement and cash flow statement, the Tribunal held that the benefit of cash availability could not be denied without evidence of its utilisation elsewhere. The decision is consistent with the principle discussed in TaxGuru’s coverage of earlier bank withdrawals and subsequent cash deposits. The Tribunal accepted the explanation that the deposits represented redeposit of cash withdrawn from the same bank account during the relevant financial year.

Accordingly, the Tribunal deleted the entire addition of ₹62,18,200 and allowed the assessee’s appeal. Since the dispute was decided in the assessee’s favour on merits, the Tribunal treated the legal grounds concerning the validity of reassessment as academic and did not adjudicate them. The ruling highlights the importance of bank statements, cash flow reconciliation and the absence of evidence showing alternative utilisation of withdrawn cash when examining additions for unexplained deposits.

Cases Discussed

1. GKN Driveshafts (India) Ltd. Vs ITO & Ors. (Supreme Court); (2003) 259 ITR 19. The assessee relied on this decision to contend that objections against reopening must be disposed of through a separate speaking order before proceeding with reassessment. The Tribunal recorded the contention but ultimately did not decide this legal ground because the appeal succeeded on merits.

2. General Motors India (P.) Ltd. Vs DCIT (Gujarat High Court); (2013) 354 ITR 244. Cited by the assessee in support of the requirement to dispose of objections to reopening through a separate speaking order. The linked TaxGuru page discusses the applicable procedural principle; it is not identified here as the standalone judgment page.

3. Arvind Mills Ltd. Vs ACWT (Gujarat High Court); (2004) 270 ITR 469. The assessee cited this decision along with GKN Driveshafts and General Motors India in support of her objection to the reassessment procedure. No exact TaxGuru judgment URL was independently established.

4. Tarlochan Singh Vs ITO, Hoshiarpur (ITAT Amritsar); ITA No. 287/Asr/2015; 12/02/2016. The assessee relied upon this coordinate-bench decision, which was stated to have quashed reassessment proceedings for failure to dispose of objections in accordance with the applicable judicial precedents. No exact TaxGuru judgment URL was independently established.

FULL TEXT OF THE ORDER OF ITAT AMRITSAR

This appeal is preferred by the assessee against the order of the CIT (A) NFAC passed u/s 250 of the Act 61, dated 29/09/2023, for the Asst year 2010-11, which has emanated from the order of the ITO – ward – 1, Kapurthala, passed u/s 147/143(3) of the Act 61, dated 29/12/2017.

2. The grounds of appeal preferred by the assessee are as follows:

“1. That on facts and circumstances of the case, Assessing Officer has grossly erred in law in framing assessment without disposing objections raised by the assessee to re-opening of assessment prior to passing of assessment order. Assessment framed without disposing off objections raised before proceeding with the re-assessment makes the assessment order illegal and bad in law.

2. That on facts and circumstances of the case, assessment framed without disposing of objections raised to reopening of assessment is illegal and bad in law being opposed to following Judgments:

a) GKN DRIVESHAFTS (INDIA) LTD. VS. ITO & ORS. 259 ITR 19 (SC)

b) GENERAL MOTORS INDIA (P). LTD. VS. DCIT 354 ITR 244 (GUJ)

c) ARVIND MILLS LTD. VS. ACWT 270 ITR 469 (GUJ)

Wherein it has been held that Ld. Assessing Officer must pass an order by disposing of objections to the reasons recorded before passing any assessment order u/s 148 of the Act.

3. That on the facts & circumstances of the case, learned assessing officer has grossly erred in law in initiating proceedings u/s 147 of the Act since conditions for assumption of jurisdiction u/s 147 of the Act were lacking, in as much as, neither the reason to believe provide requisite nexus for the belief that income has escaped assessment nor there was any application of mind before assumption of jurisdiction. It may kindly be held that notice u/s 148 issued by the AO was illegal and invalid and consequent assessment framed u/s 144 r.w.s. 147 of the Act be held illegal and bad in law.

4. That on facts and circumstances of the case, order passed by the Learned Commissioner of Income Tax (Appeals) [‘CIT(A)’], is illegal and bad in law and has been passed without considering the submissions of the assessee.

5. That on facts and circumstances of the case, assessment framed u/s 147/143(3) of the Act is illegal and bad in law. Since as per order sheet assessment was to be framed u/s 144 of the Act as against framed u/s 147/143(3) of the Act

6. That on facts and circumstances of the case, learned CIT(A) has grossly erred in law in confirming addition of Rs. 62,18,200/- by treating cash deposits in bank account as unexplained Addition confirmed is illegal and bad in law.

7. That the Appellant requests for leave to add or amend the grounds of appeal before the appeal is heard or disposed off .”

3. The facts of this case are that the lady assessee Smt. Joginder Kaur, deposited an amount of Rs.62,18,200/- in cash in her bank account with Punjab Gramin Bank A/c No 85050100036426, during the FY 2009-10, relevant to the Asst year under appeal. In absence of any return on record, the AO initiated proceedings u/s 147 and notice u/s 148 was issued after obtaining necessary approval from higher authorities. In response to notice u/s 148 of the Act 61, return of income was submitted on 20/06/2017 and notice u/s 143(2) also issued on the same date.

3.1 From the records of the case it is seen that the assessee has filed objections to recorded reasons u/s 148 , on 16/11/2017 , contending that reasons recorded are factually incorrect, and filed documentary evidence consisting of a sale agreement, by virtue of which the assessee tried to explain the source of cash deposit in bank , but the AO has not disposed off the said objections to the recorded reasons u/s148 , vide a written order , which was a legal necessity as per the provisions of law laid down by the Hon’ble Apex court in the case of GKN Driveshafts ( India ) Ltd vs ITO , reported in 259 ITR – 19. The legal procedure as laid down by the Hon’ble Apex court, of disposing off the objections of the assessee, vide a speaking order, was a legal necessity, (so as to allow the opportunity to the assessee to challenge the same vide a writ application before the Hon’ble jurisdictional High court), before continuing further with the assessment proceedings. Instead, it is seen from records that the AO has considered the said objection in the body of the assessment order and has passed a remark “Before proceeding further objection of the assessee was discussed, the amount of cash deposit as per bank account is Rs.62,18,200/- and not Rs.70,43,000/- as mentioned in reasons is accepted”. No separate speaking order has been passed by the AO disposing off the objections to recorded reasons of the assessee, which is the mandate of law laid down by the Hon’ble Gujrat High court in the case of General Motors India (Pvt.) Ltd vs DCIT reported in 354 ITR – 224. Thereafter, the assessment was completed on a total income of Rs.62,18,200/- as income from undisclosed sources u/s 69A of the Act 61.

4. The matter was carried in first appeal where elaborate submissions has been filed by the assessee supported by judicial decisions, challenging the initiation of proceedings u/s 147/ 148 of the Act 61 and also on merits, explaining the source of cash deposited in bank to have come out of sale proceeds of agricultural lands effected in FY 2008-09.

5. The Ld. CIT (A) sustained the addition after considering the submissions of the assessee and the relevant part of the findings and conclusion are reproduced below:

“6.11 The facts of the case as stated by the appellant, as verified in the remand report and as rebutted by the appellant have been outlined above. The issue for determination is whether the appellant’s explanation is supported by cogent evidence. In this regard it is seen that the source of cash arises from the agreement to sale dated 10/04/2008. This agreement is not registered and no evidence has been brought on record to show that the agreement was acted upon. Though there is mention of part payment made by way of Demand Draft, the appellant has not adduced statement of the bank account wherein it was deposited. Admittedly, none of the purchasers have appeared and confirmed that the cash was paid by them as explained by the appellant. They have not proved that they were having sufficient creditworthiness for making such huge payment. Finally, there is no evidence in record to show that the land was actually transferred to the purchasers in terms of agreement dated 10/04/2008. It is thus clearly seen that the appellant has not proved any of the contents of the unregistered document. A major part of the cash deposit is stated to be received from the father-in-law of the appellant. No confirmation of the father-in-law in form of gift deed or otherwise has been adduced. Since, it was stated that the father-in-law, Shri Channan Singh distributed his share of the sale consideration to his sons, a confirmation by the sons, acknowledging receipt of monies has also not been adduced. Also, if it is assumed for sake of assumption that the money was returned back to the parties upon cancellation of agreement, from where it was repaid and its source details were not furnished. Hence, authenticity of the claim is also in doubt. It is also pertinent to note that if version of Shri Sanjay Kumar is considered to be factual, the money in question was received in FY 2008-09 and the cash deposits are made in FY 2009-10. If at all, the cash was intended to be deposited in the bank, then no explanation regarding the storage of cash in the interim is given. No plausible reason for taking a year to deposit the cash in bank is given. All these factors, clearly show that the appellant failed to give any plausible explanation supported by cogent evidence for explaining the source of the cash deposited which is added to the income u/s 69A of the Income Tax Act.

6.12 Therefore, on the basis of the aforesaid discussion, the grounds raised on the merit of the addition fail and are DISMISSED.”

6. Now the assessee is before the tribunal on various grounds contained in the memorandum of appeal and the first two grounds relates to the issue of failure on the part of the AO to dispose off the objections to the recorded reasons filed by the assessee in response to notice u/s 148 of the Act 61, vide a separate speaking order, before continuing with the assessment proceedings.

7. The Ld. AR of the assessee, has filed a paper book consisting 68 pages containing copies of all submissions filed before the assessing officer and CIT (A) and copy of the remand report dated 06/12/2018 and the response of the assessee to such report and written arguments filed before the CIT(A). The Ld AR also filed a judgement set containing 115 pages, which are the copies of various judicial decisions he relies upon in support of his arguments. He also files a brief synopsis which is placed on record.

8. At the very outset, the Ld. AR drew the attention of the bench to the fact that the AO has failed to dispose off the objections filed by the assessee to the recorded reasons , vide a separate speaking order , which was the mandate of law , as laid down by the Hon’ble Supreme court in G K Drive Shaft ( India ) Ltd vs ITO 259 ITR – 19 ( SC ) , and the same view has also been endorsed by the Hon’ble Gujrat High court in the case of General Motors India Pvt Ltd vs DCIT reported 354 ITR 244 ( Gujrat HC ) , and also in the case of Arvind Mills Ltd vs ACWT 270 ITR 469 ( Gujrat ) .

8.1 He submitted that the AO in the instant case has considered and disposed off the objections of the assessee filed against the recorded reasons, vide a consolidated order (the assessment order), which is not as per mandate of law and the Ld. CIT (A) was also not legally justified in his remark in the appeal order by commenting “Therefore, in letter and spirit the objection raised was effectively disposed of. Therefore, no prejudice is caused to the appellant by the failure to pass an order in so far as no appeal would lie against an order wherein the objection is accepted”.

8.2 He submits that the procedure demands that the AO should dispose off the objections to the recorded reasons vide a speaking order, which should be distinct and separate from the assessment order, allowing the opportunity to the assessee to challenge the said order, if so desired, before the jurisdictional High court in writ.

8.3 Thereafter, allowing a reasonable time to pursue the legal remedy, the AO can proceed with the assessment hearing of the case and pass the final assessment order as per provisions of law.

8.4 He further submits that an identical issue has already been decided by the Amritsar bench of the Tribunal ( SMC ) in the case of Tarlochan Singh vs ITO Hoshiarpur in ITA No 287/ASR/2015 dated 12/02/2016, where on identical facts , the Bench has quashed the assessment order , following the legal precedent laid down by the Hon’ble Gujrat High court in the case of General Motors India Pvt Ltd ) ( supra ), and relying on the same he prays that the assessment in the instant case may please be quashed.

9. The Ld. AR further submits that apart from the legal issues narrated above and without prejudice to the same , he would like to argue on the merits of the case also , and urged us to take up ground number – 6 of the appeal memo , whereby he contends that the source of cash deposited in the bank account of the assessee during the FY 2009-10 , is fully explained to have come out of cash withdrawals from the same bank account of the assessee, during the same financial year, and he refers to the copy of the bank statement issued by Punjab Gramin Bank , Kapurthala , which is placed in page number 11 to 13 of the synopsis and also refers to the cash flow statement for the period 01/04/2009 to 22/03/2010 , placed in synopsis page number – 10 .

9.1 He submitted that it is the same bank account of the assessee with Punjab Gramin Bank , Kapurthala , A/c No 85050100036426 , in the name of Smt Joginder Kaur ( assessee ) wife of Bukan Singh , which has formed the basis of initiation of reassessment proceedings and it is the same bank account which is the basis of AIR report.

9.2 He submitted that all discussions in the assessment order and the remand report and also in the Ld. CIT (A) order, relating to receipt of cash against agreement of sale of landed property and deposit of the same in bank account is related to the period financial year 2008-09 (relevant to the assessment year 2009-10) which is the immediately earlier year and the earlier year is not our concern.

9.3 He submitted that even if we focus on the bank statement for the period April 2009 till March 2010, which pertains to Assessment year 2010-11, the year under appeal, it will be seen that the opening bank balance as on 01/04/2009 was Rs.20. 30 lakhs and there has been subsequent credit , in the same account by way of bank transfer , on various dates, which has not been disputed by the AO , and the said amount has been withdrawn by the assessee in CASH on various dates totaling to Rs.73,50,000/- and out of the same cash an amount of Rs. 62,18,200/- , has been redeposited in the month of March 2010, and as such the source of deposit of cash in bank account stands fully explained by the cash withdrawn from the same account within the same financial year itself.

9.4 The date wise cash flow statement reflecting cash drawn from bank and deposit in bank is reproduced for ready reference:

JOGINDER KAUR
CASH FLOW STATEMENT

9.5 He further submitted that it is not the case of the department that the cash withdrawn from bank in the month of April 2009, has been utilized or invested elsewhere and there is no finding of the AO or the CIT(A) that the cash drawn from bank by the assessee within the same financial year, has been spent for some other purpose.

9.6 As such he prays that even on merits also, it is conclusively proved that there was sufficient cash available with the assessee, when the cash has been re deposited in her bank account and as such the addition made by the AO and sustained by the CIT(A) is not maintainable and the said addition may please be deleted.

10. The Ld. DR relied on the order of the CIT(A) and the remand report filed by the AO in course of first appeal proceedings, and retreated the same arguments contained in the CIT(A) order regarding the issue regarding disposal of objections by the AO, but he could not produce any legal judgments contra to the opinion expressed by the Hon’ble Gujrat High court in the case of General Motors India Pvt Ltd ) ( supra ) .

11. From the comparative study of the date wise cash flow statement filed by the assessee vis a vis the Punjab Gramin Bank statement , contained in synopsis ( page numbers 10 – 13 ), the Ld. DR , did not find any error in such statement , furnished by the assessee , which also cannot be termed as fresh evidence , because it is just a compilation and extract , from the same bank account statement, existing on record before the AO.

12. We have heard both the counsels at length and considered all the materials on record including the paper book and synopsis filed by the assessee and the various judicial citations referred to by the assessee.

12.1 We proceed to decide the issue on the merits of the case as contained in ground no 6 of the memorandum.

12.2 We find that the dispute regarding sale of land vide an agreement of sale dated 10/04/2008 , executed by the assessee and her family members and consequent receipt of sale proceeds by cash and cheque, on various dates during the FY 2008-09 as narrated by the AO in the assessment order ( page -2 and 3 / para – 2 ), and also narrated by the Ld. CIT (A) in his appeal order, are factual events that has occurred in the FY 2008-09 ( relevant to the A.Y. 2009-10 ) , and are issues to which we are not concerned at the moment, because it does not relate to the year under appeal .

12.3 We only focus on the financial transactions in the bank account of the assessee in PNB Gramin Bank , for the financial year 2009-10 ( Asst year 2010-11 ) the relevant year under appeal. We find on reading of the bank statement, that the opening balance brought forward on 1st April 2009 is 20. 30 lakhs , and there has been subsequent credit in the said account vide bank transfers ( other than cash ), to which neither the AO nor the Ld CIT(A) has raised any queries at any stage. Subsequently, the assessee has withdrawn cash from the said bank account on various dates within the financial year, as date wise reflected in the cash flow statement furnished by the assessee, and it is seen that sufficient cash balance are available with the assessee on the date of deposit of cash in the bank account in the month of March 2010 and as per contention of the assessee it is the same cash that has been redeposited. We also agree with the argument of the Ld AR, that it is not the case of the department that cash withdrawn by the assessee from PNB Gramin bank, during the period April 2009 till January 2010, (as reflected in bank account ) has been invested or spent somewhere else or has been utilized elsewhere . In absence of any such adverse finding, the benefit of cash availability cannot be denied to the assessee.

13. As such considering all factual circumstances, and considering the transactions of cash withdrawn from the same bank account by the assessee during the same financial year we allow the assessee the benefit of redeposit, in absence of any findings regarding the utilization of the said cash drawn elsewhere, and we direct the addition of Rs.62,18,200/- to be deleted.

13.1 Since we have already decided the issue on merits of the case, in favour of the assessee, the other legal grounds taken by the assessee becomes academic and as such we are not adjudicating on the same.

14. In the result, the appeal of the assessee bearing ITA No. 329/Asr/2023 is allowed.