2022 (5) TMI 733 - AT - Income Tax

Tribunal Orders Deletion of Cash Deposit Additions under Income Tax Act

The Tribunal allowed the appeal, directing the deletion of additions made towards cash deposits under Section 69 of the Income Tax Act, 1961. The ... Unexplained investment u/s 69 - Telescoping of earlier cash withdrawals against subsequent bank deposits - Onus on assessing officer to demonstrate diversion or expenditure of withdrawn cash - Acceptance of explanation where total withdrawals exceed total depositsUnexplained investment u/s 69 - Telescoping of earlier cash withdrawals against subsequent bank deposits - Onus on assessing officer to demonstrate diversion or expenditure of withdrawn cash - Acceptance of explanation where total withdrawals exceed total deposits - Deletion of addition of Rs.70,27,500/- treated as unexplained investment u/s.69 in respect of cash deposits into City Union Bank account - HELD THAT: - The Tribunal found as an undisputed fact that during the relevant year the assessee withdrew cash totalling more than the cash deposited into the same bank account and that the Assessing Officer had accepted a number of deposits as being sourced from prior withdrawals where the gap between withdrawal and deposit was short. The Assessing Officer nonetheless treated certain deposits as unexplained solely because they were made after a gap of more than a few days and because only part of an earlier withdrawal was redeposited, without any finding or evidence that the cash withdrawn on earlier occasions had been spent or used for some other purpose. Relying on the principle that an addition under s.69 cannot be sustained merely on the existence of a time gap unless the AO demonstrates diversion/expenditure of withdrawn cash, the Tribunal held that in absence of any contrary finding the assessee's explanation that deposits were out of earlier withdrawals could not be rejected. The Tribunal therefore reversed the CIT(A)'s confirmation of the addition and directed deletion of the unexplained investment assessed u/s.69. [Paras 6, 8, 9, 10]Addition of Rs.70,27,500/- as unexplained investment under s.69 deleted and assessment directed to be revised accordingly.Final Conclusion: The appeal is allowed: the addition under s.69 in respect of cash deposits is deleted. The separate challenge to the Assessing Officer's jurisdiction was not adjudicated as it became academic in view of deletion and is dismissed as infructuous. Issues Involved:1. Jurisdiction of the Assessing Officer.2. Addition under Section 69 of the Income Tax Act, 1961, towards cash deposits into the bank account.3. Levy of interest under Section 234B of the Income Tax Act, 1961.Detailed Analysis:1. Jurisdiction of the Assessing Officer:The appellant contested the jurisdiction of the Assessing Officer (AO), arguing that as a Director of M/s. S V Global Mill Ltd, the appellant should be assessed by the Jurisdictional Officer of the said company as per the Circular issued by CBDT. The appellant claimed that the assessment order passed by the Income Tax Officer, Non-Corp Ward-1(4), Chennai, was without jurisdiction and deserved to be set aside.However, the Commissioner of Income Tax (Appeals) [CIT(A)] rejected this argument, stating that the AO exercised jurisdiction as per the notification issued by the Principal Commissioner of Income Tax. The CIT(A) noted that the case was transferred to the Income Tax Officer Non-Corp Ward-1(4), Chennai, through a notification dated 11.11.2019, and the appellant was informed about the change in incumbency via a notice under Section 129 of the Income Tax Act, 1961. Consequently, the CIT(A) dismissed the ground of appeal concerning the jurisdiction.2. Addition under Section 69 of the Income Tax Act, 1961:The appellant made cash deposits totaling Rs.1,17,38,500/- and cash withdrawals totaling Rs.2,19,59,800/- during the assessment year 2017-18. The AO accepted the withdrawals as sources for the cash deposits made within a reasonable time from the withdrawals but treated the balance cash deposits totaling Rs.70,27,500/- as unexplained investment under Section 69.The appellant contested this addition, arguing that the AO erred in making the addition merely because there was a time gap between the withdrawal of cash and cash deposits. The appellant claimed that the source for the cash deposits was out of cash withdrawals from the same bank account.The CIT(A) upheld the AO's decision, stating that the appellant did not explain the nature of the cash deposits or the purpose of the cash withdrawals and failed to link the cash withdrawn from the bank to the cash deposits. The CIT(A) cited a decision from the Hon'ble High Court of Punjab and Haryana, which held that if the appellant was unable to link cash withdrawn from the bank to cash deposits, the same would be considered unexplained income.However, upon further appeal, the Tribunal reversed the findings of the CIT(A). The Tribunal noted that the AO did not dispute the fact that cash withdrawals from the bank account exceeded the cash deposits. The Tribunal held that the AO ought not to have made additions towards cash deposits into the bank account only because there was a time gap of more than 3 to 5 days between cash withdrawals and deposits. The Tribunal emphasized that the AO did not provide any evidence to support the claim that the withdrawn cash was used for other purposes. Consequently, the Tribunal directed the AO to delete the additions made towards cash deposits into the City Union Bank account under Section 69.3. Levy of Interest under Section 234B of the Income Tax Act, 1961:The appellant also contested the levy of interest under Section 234B of the Income Tax Act, 1961, which was consequential to the addition made by the AO. However, since the Tribunal directed the deletion of the additions made towards cash deposits, the issue of levying interest under Section 234B became academic and was not adjudicated separately.Conclusion:The Tribunal allowed the appeal filed by the assessee, directing the deletion of additions made towards cash deposits into the bank account under Section 69 of the Income Tax Act, 1961. The issue of jurisdiction of the AO was dismissed as infructuous since the main issue on merits was decided in favor of the assessee. The order was pronounced in the open court on 11th May 2022.