2023 (11) TMI 246 - AT - Income Tax

Section 69A addition sustained for demonetization cash deposits lacking proper source documentation and cash flow evidence

Nanakchand Agrawal L/h of Kalawati Agrawal Versus The Income Tax Officer Ward Dhamtari (C.G.)

ITAT Raipur upheld addition under Section 69A regarding cash deposits during demonetization. Assessee deposited Rs. 23 lacs in old notes on 01.12.2016, ... Addition u/s 69A - cash deposits in Bank out of earlier cash withdrawal from Bank - assessee had during the demonetization period, i.e., on 01.12.2016, deposited an amount of Rs. 23 lac in old notes of Rs. 500/- and Rs. 1000/- in her bank A/c. - CIT(A) disbelieving the availability of cash in hand merely because the same is kept as cash in hand for nearly 32 months, because the assessee was having bank account - HELD THAT:- It is not a case that the A.O had declined to accept the explanation of the assessee that the cash deposits of Rs. 23 lacs made on 01.12.2016 in her bank account were sourced out of the cash withdrawals that she had made way back in A.Y.2016-17 for the reason that a substantial period had lapsed, but the said explanation was rejected for the reason that now when the assessee had herself claimed that the cash withdrawals of Rs. 21.60 lacs (supra) was thereafter, utilized by her for giving short term interest bearing advances to third parties, then in the backdrop of the aforesaid factual position the availability of the said funds as cash in hand with her during the year for making cash deposit in her bank account did not merit acceptance. It is incomprehensible that the amount of Rs. 21.60 lacs (supra) withdrawn by the assessee in the period relevant to A.Y.2015-16 would have been exploited by giving the same as short-term interest-bearing advances to third parties and, at the same time, be available with her for sourcing the cash deposits in her bank account. Assessee had neither in the course of the assessment proceedings nor before the CIT(Appeals) or in the course of proceedings before me, placed on record the cash flow statement a/w. documentary evidence, which would establish that the short-term interest-bearing advances that she had given in the preceding year to third parties out of her cash withdrawals of Rs. 21.60 lac (supra) made from her bank account in the year 2014 were received back and lying available with her to, inter alia, source the cash deposit of Rs. 23 lac (supra) on 01.12.2016 in her bank account during the year under consideration. The legal heir of the assessee had failed to discharge the primary onus that was cast upon him to substantiate the “nature” and “source” of the cash deposit AND their explanation that the same was sourced out of the cash withdrawals made from her bank account on the year 2014 is nothing short of an unsubstantiated claim; thus, the same does not merit acceptance. However, in all fairness availability of cash in the hand with the assessee considering the fact that she had regularly been assessed to tax for the last many years can safely be taken at an amount of Rs. 2,50,000/- (on estimated basis). Accordingly, addition made by the A.O is sustained to the extent of Rs. 20,50,000/- [Rs. 23,00,000/- (-) Rs. 2,50,000/-]. Thus, the Grounds of appeal raised by the assessee are partly allowed Issues Involved:1. Justification of addition under Section 69A for cash deposits.2. Acceptance of cash deposits sourced from earlier cash withdrawals.3. Disbelief in the availability of cash in hand for 32 months.4. Reflection of cash in hand in tax returns.5. Classification of interest income as business income or income from other sources.6. Consideration of judicial precedents cited by the appellant.Summary of Judgment:1. Justification of Addition under Section 69A:The assessee's appeal challenged the order of the CIT(A) sustaining the addition of Rs. 23,00,000/- under Section 69A for cash deposits during the demonetization period. The CIT(A) upheld the A.O's decision, stating that the appellant failed to provide a satisfactory explanation for the cash deposit.2. Acceptance of Cash Deposits Sourced from Earlier Cash Withdrawals:The assessee claimed that the cash deposits were sourced from cash withdrawals made in F.Y. 2014-15. However, the A.O. and CIT(A) rejected this explanation, noting that the assessee failed to justify the purpose of withdrawing such a substantial amount and keeping it as cash in hand for nearly 32 months.3. Disbelief in the Availability of Cash in Hand for 32 Months:The A.O. disbelieved the availability of cash in hand for 32 months, especially when the assessee had a bank account. The CIT(A) agreed, stating that the appellant did not provide any evidence that the cash was shown as cash on hand as of 31.03.2015 in the return for A.Y. 2015-16.4. Reflection of Cash in Hand in Tax Returns:The assessee argued that the cash in hand was disclosed in the balance sheet filed during assessment proceedings. However, the A.O. observed inconsistencies in the returns filed for different assessment years, particularly the return for A.Y. 2016-17, which was filed during the demonetization period.5. Classification of Interest Income:The A.O. and CIT(A) noted inconsistencies in the classification of interest income. The assessee showed part of the interest income as business income and another part as income from other sources. The CIT(A) found the A.O's findings reasonable and observed a contradiction in the appellant's submissions regarding interest income.6. Consideration of Judicial Precedents:The CIT(A) did not consider the judicial precedents cited by the appellant, as the facts of those cases were distinguishable from the present case. The tribunal also found that the appellant failed to substantiate the availability of cash in hand with supporting material.Conclusion:The tribunal partly allowed the appeal, reducing the addition to Rs. 20,50,000/- by estimating the availability of cash in hand at Rs. 2,50,000/-. The tribunal emphasized that the appellant failed to discharge the primary onus to substantiate the nature and source of the cash deposit. The order was pronounced in open court on 01st November 2023.