Cash withdrawal from bank accounts sufficient explanation for cash found during search under section 271AAA

ITAT Bangalore held that cash of Rs 4,06,700 found during search was not unexplained cash warranting penalty under section 271AAA. The assessee had withdrawn approximately Rs 4,85,000 from bank accounts between December 2009 to May 2010, which exceeded the cash found during search on 25.10.2010. The tribunal rejected Revenue's argument that no prudent person would keep cash for extended periods, noting the department failed to prove the withdrawals were utilized elsewhere or that the cash originated from other sources. Following precedent, the time gap between withdrawal and search did not render the cash unexplained. Appeal allowed.

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Issues Involved:
The judgment involves issues related to the proceedings under section 143(3) and section 271AAA of the Income Tax Act.

Proceedings u/s 143(3):
The case involved a salaried employee whose premises were searched by the Income-tax department. The Assessing Officer (AO) found cash during the search and questioned the source. The AO added the cash amount to the returned income of the assessee due to lack of documentary evidence. The assessee appealed to the CIT(A) who dismissed the appeal citing minimal bank withdrawals as the source of cash.

Appeal before ITAT:
The assessee appealed to the ITAT arguing that sufficient cash withdrawals from the bank could explain the cash found during the search. The ITAT analyzed the bank statements and noted that the withdrawals exceeded the amount found during the search. Citing precedents, the ITAT held that the impugned cash was duly explained and no addition was permissible.

Judicial Precedents Considered:
The ITAT referred to judgments by the Karnataka High Court and previous ITAT decisions to support their conclusion that the source of the cash was adequately explained. They emphasized that the time gap between cash withdrawals and deposits, as well as the utilization of cash in the interim, did not invalidate the explanation provided by the assessee.

Decision and Outcome:
The ITAT allowed the appeal of the assessee in the proceedings under section 143(3) of the Income Tax Act. As a result, the appeal against the penalty imposed under section 271AAA was also treated as allowed. Both appeals filed by the assessee were allowed by the ITAT, and the judgment was pronounced on June 20, 2024.

Separate Judgment by Judicial Member:
The judgment was delivered by Shri Prakash Chand Yadav, Judicial Member of the Appellate Tribunal ITAT Bangalore.

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