Cash deposits linked to earlier withdrawals and disclosed cash in hand support deletion of unexplained-money additions under Section 69A

Cash deposits treated as unexplained money under Section 69A of the Income-tax Act, 1961 may be explained through evidence of earlier cash withdrawals and disclosed cash in hand. The material discussed included withdrawal records from earlier financial years, the closing cash balance as at 31 March 2016, and a wealth-tax return reflecting that balance. A proximate nexus between the earlier withdrawals and subsequent deposits, including deposits during the demonetisation period, was regarded as sufficient evidence of source. On the analysis presented, deletion of the Section 69A addition was considered justified because the deposits were satisfactorily linked to documented withdrawals and disclosed cash holdings.

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Issues: Whether deletion of the addition under Section 69A of the Income-tax Act, 1961 in respect of cash deposits was justified on the ground that the deposits were sourced from earlier cash withdrawals and disclosed cash in hand.

Analysis: The dispute concerned cash deposits of Rs. 78 lakhs, including deposits during the demonetisation period, which were treated by the Assessing Officer as unexplained money under Section 69A of the Income-tax Act, 1961. The material considered included details of cash withdrawals made in earlier financial years, the closing cash in hand as on 31.03.2016, and the wealth-tax return for the earlier assessment year reflecting the same cash balance. On appraisal of these records, a proximate nexus was found between the earlier withdrawals and the subsequent deposits, and the evidentiary record was considered sufficient to explain the source of the deposits.

Conclusion: The deletion of the addition under Section 69A of the Income-tax Act, 1961 was upheld, as the cash deposits were satisfactorily linked to earlier withdrawals and disclosed cash in hand; the issue was decided in favour of the assessee and against the Revenue.

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