Cash deposit additions cannot stand where prior withdrawals and cash balance reasonably explain the source of funds.

Cash deposits in the assessee's bank account were treated as unexplained, but the assessee supported the deposits with prior cash withdrawals and an opening cash balance shown in the cash flow statement. The lower authorities rejected the explanation mainly because of the gap in timing and the stated lack of purpose for the withdrawals, yet the explanation was not effectively disproved. As the availability of cash was not shown to be untenable on the record, the addition was deleted.

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Issues: Whether the addition made on account of cash deposits in the assessee's bank account as unexplained was sustainable.

Analysis: The assessee had explained the source of the deposits by relying on prior cash withdrawals and an opening cash balance reflected in the cash flow statement. The lower authorities rejected the explanation mainly on the ground of a long gap and lack of purpose for withdrawal, but the explanation was not found to be effectively disproved. On the record, the assessee's explanation of availability of cash was not shown to be untenable.

Conclusion: The addition treating the cash deposits as unexplained was not justified and was deleted in favour of the assessee.

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