ITAT Deletes Section 69 Addition for Cash Deposits Explained by Bank Withdrawals

Sampathraj Rakesh Kumar Vs ITO (ITAT Bangalore)

The Bangalore Bench of the Income Tax Appellate Tribunal considered the assessee’s appeal against the order of the Commissioner of Income Tax (Appeals)-5, Bengaluru for Assessment Year 2014-15. The only issue before the Tribunal was the correctness of an addition of ₹25 lakh made under Section 69 of the Income-tax Act, 1961 on account of unexplained cash deposits in the assessee’s bank account.

The assessee, an individual deriving income as an insurance agent, filed a return declaring total income of ₹3,95,620. The case was selected for scrutiny on the basis of an AIR report reflecting cash deposits in the assessee’s savings bank account. As the assessee did not participate in the assessment proceedings, the Assessing Officer completed the assessment to the best of his judgment. The AIR report reflected two identical entries of ₹25,05,050 each dated 09.10.2013. The Assessing Officer treated the entire cash deposits as unexplained cash and added the amount to the assessee’s total income.

On appeal, the Commissioner (Appeals) accepted the assessee’s contention that the same cash deposit of ₹25,05,050 had been reflected twice in the AIR information. Accordingly, the Commissioner (Appeals) held that the assessee was required to explain only one deposit of ₹25,05,050.

Regarding the source of the deposit of ₹25,05,050, the assessee explained that ₹20 lakh represented earlier withdrawals from the bank account and ₹5 lakh represented a loan obtained from LIC of India which had subsequently been withdrawn in cash. Before the Commissioner (Appeals), the assessee produced a statement showing cash withdrawals from April 2011 to May 2013 as the source of the cash deposits of ₹20 lakh made on 25.05.2013 and ₹5 lakh made on 30.05.2013. The Commissioner (Appeals), however, rejected the explanation on the ground that, having regard to human probabilities and normal human conduct, it could not be believed that cash withdrawn over a period extending up to two years would have been retained by the assessee.

Before the Tribunal, the assessee reiterated the earlier submissions and relied upon the Karnataka High Court decision in Smt. P. Padmavathi v. ITO, which had followed S.R. Venkataraman v. Commissioner of Income-tax, Karnataka-I and Another. The assessee submitted that once withdrawals from the bank account were established, the Revenue could not reject the explanation merely because there was a time gap between withdrawal and subsequent deposit. The Departmental Representative supported the order of the Commissioner (Appeals).

The Tribunal examined the bank account and noted that the assessee had withdrawn cash aggregating ₹20,91,500 together with ₹17,71,800 withdrawn through self-cheques. After reducing the cash deposit of ₹9 lakh made in March 2013, the Tribunal found that net cash of ₹29,63,000 was available with the assessee. It also noted that the assessee had received a loan of ₹5 lakh from LIC of India, which was credited to the bank account on 14.02.2013.

The Tribunal observed that the Revenue authorities had rejected the explanation solely on the ground that it was improbable for the assessee to retain cash withdrawn from the bank for such a long period. Referring to the Karnataka High Court decision in S.R. Venkataraman, as followed in Smt. P. Padmavathi, the Tribunal noted that once the source of the money was explained through withdrawals from a bank account, the Revenue could not dictate how the assessee should deal with the withdrawn money or reject the explanation merely on assumptions regarding its retention or utilisation. The High Court had also observed that the money might have been utilised during the intervening period and later appropriated for the relevant deposit, and that such a circumstance could not be held against the assessee.

Applying the above decision to the facts of the case, the Tribunal held that the Revenue authorities were not justified in rejecting the assessee’s explanation regarding the source of the cash deposits. It directed deletion of the addition made under Section 69 and allowed the appeal filed by the assessee. The order was pronounced in open court on 3 October 2018.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This is an appeal by the assessee against the order dated 26.2.2018 of the CIT(Appeals) – 5, Bengaluru relating to assessment year 2014-15.

2. The only issue that arises for consideration in this appeal is with regard to the correctness of addition of Rs.25 lakhs made by the AO to the total income of assessee as unexplained cash deposits in the bank account u/s. 69 of the Income-Tax Act, 1961 [“the Act”] which was confirmed by the CIT(Appeals).

3. The assessee is an individual. His source of income is commission from acting as insurance agent. For the AY 2014-15, the assessee filed return of income declaring total income of Rs.3,95,620. The case of the assessee was selected for scrutiny for the reason that as per AIR report obtained, there were cash deposits in SB Account. The assessee did not participate in the assessment proceedings and therefore assessment was completed by the AO to the best of his judgment. As per AIR report, the following were the cash deposits in the bank account:-

4. The AO treated the entire cash deposits as unexplained cash of assessee and added the same to the total income. On appeal, the CIT(Appeals) accepted the contention of the assessee that the same deposit of Rs.25,05,050 of cash in the bank account had been reflected twice in the AIR obtained by the AO and therefore the amount of cash deposits in the bank account which the assessee has to explain the source is only Rs.25,05,050.

5. As far as cash deposits of Rs.25,05,050 is concerned, the plea of the assessee was withdrawals from the bank account of assessee and also loan of Rs.5 lakhs which was availed by the assessee from LIC of India which was subsequently withdrawn in cash by the assessee.

6. Before the CIT(Appeals), the assessee filed statement showing withdrawals from April, 2009 till May 2013 as a source for lumpsum deposit of Rs.20 lakhs and Rs.5 lakhs on 25.5.2013 and 30.5.2013. This was rejected by the CIT(A) for the reason that having regard to the human probability and the normal course of human conduct, it cannot be believed that the past withdrawals i.e., withdrawals of two years earlier to the date of deposit would have been kept in cash by the assessee. For the above reason, the CIT(Appeals) rejected the plea of assessee.

7. Aggrieved by the order of CIT(Appeals), the assessee has preferred the present appeal before the Tribunal.

8. The ld. Counsel for the assessee reiterated the plea as was put forth before the CIT(A) and further relied on the decision of Hon’ble Karnataka High Court in the case of Smt P. Padmavathi v. ITO, ITA No.414 of 2009, order dated 6.10.2010. In the aforesaid decision, the source of return of loan was explained by the assessee as out of past withdrawals from the bank account. The explanation of assessee was rejected by the revenue authorities as well as by the Tribunal. On further appeal by assessee to the Hon’ble Karnataka High Court, on the question of law, viz., whether the finding of authorities that the source of cash deposits in the loan account is not properly explained, the Hon’ble High Court found that the Hon’ble Karnataka High Court in the case of ‘S.R.VENKATARAMAN v. COMMISSIONER OF INCOME-TAX, KARNATAKA-1 AND ANOTHER reported in ITR (127) 1981 Page 807, held as under:

“Once the petitioner-assessee disclosed the source as having come from the withdrawal made on a given date from a given bank, it was not for respondents Nos.1 and 2 to concern themselves with what the assesses did with that money, i.e., whether he had kept the same in ins house or utilised the services of a bank by depositing the same. The ITO had only two choices before him. One was to reject the explanation as not believable for the reason that on his investigation no 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 choices, 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.”

9. Following the aforesaid view, the Hon’ble High Court held that it was not in dispute that the assessee withdrew a sum of Rs.5,00,000/- on 18.8.2003 and Rs.2,00,000/- on 20.8.2003 from her savings account. She is an agriculturist and she had agricultural income. Once she demonstrated that she was in possession of Rs.7,00,000/- cash plus agricultural income on her hands, if after 40 days, a cash deposit is made to the extent of about Rs.5,20,000/- towards loan account, it cannot be said that the source of the said deposit is not properly explained. Merely because there is a delay of 40 days from the date of withdrawal of the money from the bank account to the date of deposit in the loan account. Once money is shown to be in the account and withdrawn, what the assessee did with that money till it was actually deposited, is not the concern of the Department. As long as the source is explained and established and when the money is withdrawn from a savings bank account and paid to discharge loan by deposit into a loan account, it is not possible to hold that the source is not explained. In that interregnum period, if the very same money is untilised for other purpose and thereafter, it is appropriated towards discharge of a loan that cannot be held against the assessee.

10. The ld. DR relied on the order of CIT(Appeals).

11. I have given a careful consideration to the rival submissions. The assessee maintains bank account with Corporation Bank and it is from this bank that cash was withdrawn and deposited by the assessee. The assessee has to explain the source of Rs.20 lakhs deposit in cash on 25.5.2013 and Rs.5 lakhs in cash on 30.5.2013. The assessee has availed a loan of Rs.5 lakhs from LIC of India and the same was received by the assessee by way of credit in his bank account on 14.02.2013. The following are the withdrawals by the assessee from the aforesaid bank account from April, 2011 till May, 2013:-

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12. Thus, the total cash withdrawn from the bank account by the assessee was Rs.20,91,500 + 17,71,800 which was withdrawn by his self-cheque. There was also a deposit of Rs.9 lakhs in the bank account in March, 2013. After excluding the cash deposit, net cash available with assessee from the withdrawals was a sum of Rs.29,63,000. The availability of cash as a source of deposit in the bank account was disbelieved by the AO for the only reason that it was highly improbable for a person to keep withdrawals in the bank account for a period of two years. In this regard, we find that the Hon’ble Karnataka High Court in the case of S.R. Venkataraman (supra) had taken a view that withdrawals of cash in the past as a source of deposit at a later point of time in the bank account cannot be disbelieved merely on the surmise that it was improbable for an assessee to keep cash withdrawn for two years. The Hon’ble High Court held that revenue authorities were not competent to dictate as to what the assessee should do with the money withdrawn from the bank. The court held that as long as the source is explained and established and if money is withdrawn from SB account and paid to discharge loan by deposit into a loan account, it is not possible to hold that the source is not explained. The Court also held that money might have been utilised in the interregnum period for some purpose and thereafter appropriated towards discharge of loan. But that fact cannot be held against the assessee. The aforesaid decision of the Hon’ble Karnataka High Court in the facts and circumstances of the present case supports the plea of the assessee. I accordingly hold that the revenue authorities were not justified in rejecting the explanation of assessee with regard to source of deposit of cash in the bank account. The consequent addition made is directed to be deleted and the appeal of the assessee is allowed.

13. In the result, the assessee’s appeal is allowed.

Pronounced in the open court on this 3^rd day of October, 2018.