Learn why cash withdrawn and redeposit is not considered income from undisclosed sources. Explore draft submissions backed by key judgments and legal insights.
The cash withdrawn from the bank and the same cash deposited with the bank after a time period is not income of the assessee. Draft submissions regarding with some important judgements.
Assessee makes withdrawals from the bank to meet out the expenses and to keep cash with him if it is required in the business. When he has cash in surplus through the business, he deposits the cash withdrawn earlier and also cash accumulated from the business. Detail of Cash withdrawals and cash deposited with the Bank is enclosed with this submission. Further, cash flow statement for the relevant period is enclosed with the paper book.
Ignoring the entire material, ignoring the cash withdrawals from the same bank, the Assessing Officer added to the income the entire cash deposited with the bank. The Assessing Officer overlooked the debit entries in the bank statement, he ignored peak figure, decided the case of the assessee u/s 144 of the act which is unmindful job on the part of the Assessing Officer always.
When an assessee is able to establish that withdrawals of cash and redeposit of the same after sometime gap with the bank as per the cash flow statement, such explanation of the assessee cannot be rejected by the Assessing Officer without establishing the fact that cash withdrawals were utilized, was used by assessee for other purpose and was not hold by assessee which was re deposited after some gap of time.
The same view was upheld by Tribunal in favour of the assessee in judgment of Deepali Sehgal, Meerut vs Department of Income Tax on 5 September, 2014(ITAT-Delhi).
Explanation of assessee that cash deposits in bank was from cash withdrawals made in the past cannot be rejected by the Assessing Officer simply without establishing the fact that cash withdrawn was utilized by assessee for other purpose and not hold by assessee.
The cash deposit with the bank is cash available on that date with the assessee which is consolidate effect out of the cash withdrawals earlier and cash receipts of the assessee out of the business.
Treatment of the entire cash deposited with the Saving Bank Account of the assessee as income of the assessee which cannot be possible and it is a mere presumption of the Assessing Officer. He has forgotten to check the peak credit and forgotten to consider the debit entries where sufficient withdrawals are there. At the time of opening of assessment he is expected to check the complete bank account and at the time of making assessment u/s 144 he has to check the complete bank before finalization of the assessment. Apart from gathering material for the purpose of assessment he has not checked the material required for making assessment. This appears that the Assessing Officer was not having bank statement at the time of opening of assessment and at the time of framing assessment u/s 144 of the Act. Bank Statement for the relevant period is enclosed and is part of the paper book.
The assessee relies on the following judgments of the Hon’ble ITAT s regarding cash deposited with the bank out of the cash withdrawals from the same bank earlier to the deposit.
Gordhan, Delhi, Vs. Assessee Dt. 19.10.2015 ITAT, Delhi
DCIT Vs. Smt. Veena Awasthi (ITAT) (Lucknow) Dt. 30.11.2018
Shri Narayana Shibaroor Shibaraya VS ITO, ITAT, Bangalore 23.11.2022.
“No doubt it is true that when the returns and the books of account are rejected, the assessing officer must make an estimate, and to that extent he must make a guess: but the estimate must be related to some evidence or material and it must be something more than mere suspicion.” It is horrible and strange that the Assessing Officer added to the income entire cash deposited without any cogent evidence, without applying the mind, without acknowledging the earlier returns and without looking at the complete bank statement. The cash flow statement has been prepared out of the cash book daily maintained by the assesse which includes business turnover of the assesse in cash and withdrawals entries too.
As held in the judgment S. Venkat Reddy, Hyderabad vs. ITO [TS-6716-ITAT-2016(HYDERABAD)-O] (PB-Page no. 71-74): Peak credit & unexplained Credit – Only peak credit to be taxed u/s. 68, huge cash deposits in the savings bank account of assessee cannot be taxed – ITAT rules in favour of assessee; Holds that assessee having furnished the bank statement, Ld. Assessing Officer could have verified and noticed that there were credits and corresponding debits which would give an indication that some amount has been recycled and that in such cases ordinarily, peak credit is to be taken into consideration for making an addition; Ld. Assessing Officer should keep in mind the normal turnover of the assessee, the expected profit in each year, based on the earlier year’s income declared and accepted and the material available to make the addition.
The transactions could not be noted by the Assessing Officer and ignored the debit entries of the bank. No field enquiries were made. No enquiries from bank were made regarding the nature of work of the assessee. No reality of the transactions were noted, found out before treating income from undisclosed sources.
The deposits with the bank have been made out of the cash available in the cash book. Deposits have not been made from undisclosed sources.
The assessee relies on the following judgements regarding cash withdrawals from the same bank and deposits made out of the withdrawals not made from the undisclosed sources as alleged by the Assessing Officer in his assessment order.
As held in
DCIT Vs. Pawan Aggarwal ITA No. 374/LKW/2013 A.Yr. 2009-10
Hon’ble ITAT, Delhi in the case of Smt. Parminder Kaur Mathraoo Vs. ITO (ITAT Delhi)
Hon’ble ITAT, Bangalore in the case of Shri Narayana Shibaroor Shibaraya Vs. ITO in ITA No. 684/ Bang/2022 AY 2017-18
Moreover it is a cardinal principle that the entire cash deposited with the bank is not income of the assesse.
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