No Section 69A Addition for Monies Recorded in Bank Statements: ITAT Bangalore

Sudarshan Purushothama Vs ITO (ITAT Bangalore)

Sudarshan Purushothama, a partner in M/s. SRK OFFICE-X, filed his income tax return for the Assessment Year (A.Y.) 2017-18, declaring an income of Rs. 5,17,030. His case was selected for scrutiny under the Cash Transaction Analysis System (CASS) due to cash deposits made during the demonetization period. The Income Tax Officer (ITO) assessed his income as Rs. 18,56,029, adding Rs. 11,79,000 as unexplained money under Section 69A of the Income Tax Act.

Purushothama appealed against the addition, claiming that the cash deposits were from earlier bank withdrawals and therefore explained. The Commissioner of Income Tax (Appeals) [CIT(A)] dismissed his appeal, leading him to escalate the matter to the Income Tax Appellate Tribunal (ITAT) Bangalore.

Case Arguments

Assessee’s Arguments:

1. Source of Cash Deposits: The appellant argued that the cash deposited during the demonetization period was from prior bank withdrawals and opening cash balances, hence not unexplained.
2. Documentary Evidence: He provided bank statements and cash book summaries showing the flow of transactions, attempting to substantiate his claim.
3. Timing and Utilization: The cash withdrawals were intended for business purposes, such as construction work and purchase of timber, but remained unused due to demonetization, necessitating redeposit.

Revenue’s Arguments:

1. Unexplained Nature of Deposits: The Assessing Officer (AO) and CIT(A) contended that the deposits were not sufficiently explained. They questioned the rationale behind withdrawing large sums of cash before demonetization only to redeposit them later.
2. Lack of Supporting Evidence: The CIT(A) dismissed the appellant’s explanations as afterthoughts, lacking contemporaneous records or documentary evidence to support the claims.

ITAT’s Analysis and Decision

Section 69A Consideration: Section 69A of the Income Tax Act pertains to unexplained money, requiring that:

1. The assessee is found with money not recorded in books.
2. No satisfactory explanation is provided for the acquisition of such money.

Review of Evidence:

1. Bank Statements: The ITAT reviewed bank statements from Kotak Mahindra Bank and HDFC Bank for the relevant period. The statements indicated consistent cash withdrawals prior to demonetization.
2. Cash Flow Consistency: Analysis showed that the withdrawals and deposits matched, with no unrecorded cash unearthed during the assessment.
3. Transaction Nature: Payments towards loans and purchases were made through bank transfers, not in cash, further supporting the flow of transactions.

Conclusion: The ITAT found the AO had not disproven the appellant’s explanations nor provided contrary evidence. The withdrawals made before demonetization, which were later redeposited, were substantiated by bank records. Thus, the addition of Rs. 11,79,000 under Section 69A was deemed unjustified.