Taxpayer wins appeal against Rs. 1 lakh addition under section 69A after proving cash deposits from bank withdrawals

ITAT Pune allowed the appeal and deleted the addition of Rs. 1,00,000/- made under section 69A. The appellant successfully explained that cash deposits were from previously withdrawn bank funds, and the total income of Rs. 1,00,000/- was below the taxable limit of Rs. 2,50,000/-. The AO erred in making the addition and imposing 60% tax under section 115BBE, as the source of cash deposits was adequately explained and no taxable income existed during the relevant period.

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Issues:
Assessment of unexplained cash deposits during demonetization period, validity of assessment order, adequacy of opportunity of hearing before the appellate authority, determination of taxable income based on cash deposits and payments made.

Analysis:
The case involved an appeal against an assessment order passed by the Ld Addl./JCIT(A)-2, Vadodara for the assessment year 2017-18. The appellant contested the addition of Rs. 1,00,000 made under section 69 of the Income Tax Act on account of cash deposited in the bank account during the demonetization period. The appellant argued that the Assessing Officer wrongly treated the cash deposits as unexplained, despite the explanation provided regarding the source of funds. The appellant also highlighted that the total income determined by the Assessing Officer was below the taxable limit, making the addition unwarranted. The appellant further challenged the adequacy of the opportunity of hearing provided by the appellate authority, emphasizing the procedural irregularities in issuing hearing notices.

The facts revealed that the assessee had deposited Rs. 12,00,000 in the bank account during the demonetization period, but later clarified that only Rs. 6,00,000 was deposited, sourced from a withdrawal of Rs. 6,69,000 from the same bank account. The source of these cash deposits was explained by the assessee, including details of a fixed deposit maturity amount. The Assessing Officer raised concerns about payments made to third parties after the demonetization period, specifically Rs. 1,00,000 transferred to an individual, which was treated as unexplained income. However, it was established that this payment was a repayment of an advance received in a previous financial year, not related to the demonetization period under consideration. The Tribunal found that the Assessing Officer erred in making the addition of Rs. 1,00,000 as taxable income, especially since the total income was below the taxable limit and the source of cash deposits was adequately explained. The Tribunal set aside the assessment order and deleted the addition of Rs. 1,00,000, allowing the grounds of appeal raised by the assessee.

In conclusion, the Tribunal overturned the assessment order, emphasizing that the Assessing Officer's decision to treat the cash deposits as unexplained and impose tax was erroneous. The Tribunal held that the appellant had successfully explained the source of funds and that the addition of Rs. 1,00,000 as taxable income was unjustified. The Tribunal also noted the procedural lapses in the opportunity of hearing provided by the appellate authority, further supporting the decision to allow the appeal and delete the addition made by the Assessing Officer.

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