2025 (11) TMI 1399 - AT - Income Tax

Cash deposits treated explained as recorded withdrawals, ITAT deletes entire addition based on unrejected cash book

ITAT Agra allowed the assessee's appeal, deleting the addition made on account of cash deposits in the bank account. The Tribunal held that the assessee ... Addition on account of cash deposits made in the bank account - HELD THAT:- We are convinced that assessee had properly explained the entire source for cash deposits made on each and every day. No part of the said cash deposit remain unexplained. Books of the cash book submitted by the assessee has not been rejected by the lower authorities. Further, the cash withdrawals made by the assessee from the bank account during the year certainly remains as a cash source for explaining the cash deposits made at a later date within the year. It is not the case of the revenue that the cash withdrawals made by the assessee from the bank account on earlier dates of the year had been utilized for some other purpose by the assessee. Unless the same is proved, the said cash withdrawals shall remain as a cash source with the assessee for explaining the cash deposits made at a later date within the year. Reliance in this regard has been rightly placed in the case of S R Venkata Ratnam [1980 (8) TMI 73 - KARNATAKA HIGH COURT] - Hence, no hesitation to delete the addition made on account of cash deposits and hold that the entire cash deposits had been duly explained by the assessee in the facts and circumstances of the incident case. Accordingly, the grounds raised by the assessee on merits are allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the appellate authority was justified in confirming an addition of Rs. 11,00,000 on account of unexplained cash deposits in the assessee's bank account. 2. Whether the assessee's explanation via cash book entries, bank withdrawal evidence (including a Rs. 6,00,000 withdrawal), and claimed speculative receipts suffice to explain cash deposits under Section 68 of the Income-tax Act, 1961. 3. Whether ledger entries from a broker without PAN or third-party confirmation have evidentiary value to discharge the onus of proof for cash receipts claimed as explained. 4. Whether prior cash withdrawals (including cheque withdrawals subsequently asserted as cash by bank certificate) can be treated as a valid cash source to explain later cash deposits absent proof of diversion of such withdrawals to other purposes. 5. Whether it is necessary to decide the validity of reassessment under Section 147 once relief on merits is granted. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Justification for confirming addition of Rs. 11,00,000 Legal framework: Addition under dispute arises from treatment of bank deposits as unexplained cash credits under Section 68 read with assessment/reopening provisions (s.143(3) r.w.s.147) where the assessee must satisfactorily explain the nature and source of such credits. Precedent treatment: The Tribunal applied established principles that ledger entries or internal records lacking corroboration have limited evidentiary value; conversely, contemporaneous cash books and bank certificates can constitute satisfactory explanation if they show consistent cash flows. Interpretation and reasoning: The Tribunal examined the bank statement, the cash book for the financial year, a bank certificate regarding a Rs. 6,00,000 withdrawal, and documentary evidence for a Rs. 2,00,000 sale receipt. It found the cash book covered daily cash transactions without any negative cash balance and that cash withdrawals recorded earlier in the year provided a plausible source for subsequent deposits. The Tribunal disbelieved unsupported ledger entries from the broker (no PAN, no confirmation; unlikely to have been in cash for commodity trading), but accepted the cash book and bank certificate as adequate corroboration. Ratio vs. Obiter: Ratio - Where an assessee produces a coherent cash book showing no negative cash balance for the year and bank evidence of withdrawals, such records can satisfactorily explain bank cash deposits and negate treatment as unexplained credits under Section 68. Obiter - Observations on the unlikelihood of commodity trading transactions being carried out in cash reinforce the weight required for third-party confirmation but are not essential to the core holding. Conclusion: The Tribunal held the addition of Rs. 11,00,000 to be unjustified and deleted it, concluding that the entire Rs. 13,00,000 of deposits was satisfactorily explained (with only Rs. 2,00,000 separately directly evidenced from sale proceeds and the remainder explained by cash book and withdrawals). Issue 2 - Sufficiency of cash book, bank withdrawal evidence, and speculative receipts to explain deposits Legal framework: Onus under Section 68 is on the assessee to satisfactorily explain unexplained credits; documentary evidence demonstrating source and continuity of funds is a recognized means to discharge that onus. Precedent treatment: The Tribunal relied on the principle that contemporaneous cash books, bank certificates, and consistency between withdrawals and deposits are admissible and persuasive evidence; cited authority (S R Venkata Ratnam) supports treating earlier bank withdrawals as a source for later deposits unless diversion is proved. Interpretation and reasoning: The Tribunal accepted the bank certificate confirming the nature of the Rs. 6,00,000 withdrawal and placed weight on the cash book showing all cash transactions and no negative balances. The Tribunal scrutinized speculative income claimed from trading: amounts shown in the cash book and offered to tax were accepted as legitimate sources insofar as they were reflected in the cash book and not disproved by Revenue. The absence of evidence that cash withdrawals were used for other purposes meant those withdrawals remained available as a source to explain later deposits. Ratio vs. Obiter: Ratio - A cash book that consistently records cash receipts and payments for the year and shows no deficit, coupled with bank evidence of withdrawals, can constitute a satisfactory explanation for subsequent bank cash deposits. Obiter - Acceptance of speculative trading receipts depends on their reflection in books and not being inherently improbable; this is contextual rather than a universal rule. Conclusion: The Tribunal found the cash book and bank certificate (for the Rs. 6,00,000 withdrawal) sufficient to explain the deposits, and therefore the deposits could not be treated as unexplained credits. Issue 3 - Evidentiary value of broker ledger without PAN/confirmation Legal framework: Documentary evidence offered to explain receipts must be credible and, where it involves third-party payments, corroboration (PAN, confirmations) strengthens evidentiary value; self-recorded ledger entries alone are of limited value. Precedent treatment: The Tribunal followed established standards requiring third-party confirmation or other corroboration for ledger claims to be acceptable, especially for cash payments in contexts where cash payments are unlikely. Interpretation and reasoning: The ledger from Adroid Securities lacked PAN and any confirmation from the entity; additionally, the Tribunal observed that commodity trading transactions are unlikely to be conducted in cash, undermining the ledger's plausibility. Consequently the ledger's evidentiary value was treated as nil for explaining the alleged cash receipts from the broker. Ratio vs. Obiter: Ratio - Uncorroborated internal ledger entries lacking PAN or third-party confirmation cannot discharge the onus under Section 68 where the nature of transactions renders cash payments improbable. Obiter - Comment that commodity trading is unlikely to be in cash is a contextual observation supporting the credibility assessment. Conclusion: The broker ledger was rejected as a reliable source to explain cash deposits; however, rejection of this ledger did not prejudice the assessee because alternative corroboration (cash book and bank certificate) was accepted. Issue 4 - Treatment of prior bank withdrawals as source for later deposits Legal framework: Funds withdrawn from a bank remain with the assessee unless the Revenue proves application of those funds to other purposes; such withdrawals can therefore be a valid source explaining later deposits into the bank within the same financial year. Precedent treatment: The Tribunal expressly relied on authority holding that earlier cash withdrawals can be treated as a cash source for later deposits unless diversion is established. Interpretation and reasoning: The Revenue did not demonstrate that the prior withdrawals (including the Rs. 6,00,000 cheque withdrawal later certified as cash) were spent for other uses. The cash book showed continuity between withdrawals and deposits and no negative cash balance, supporting the inference that withdrawn cash remained available to be redeposited. Therefore earlier withdrawals constituted a valid source for later deposits. Ratio vs. Obiter: Ratio - Absent proof of diversion, prior bank withdrawals remain a legitimate source to explain subsequent cash deposits; Tribunal applied this as a decisive basis for deleting the addition. Obiter - The requirement that Revenue must prove diversion is reiterated but not expanded into new principles. Conclusion: The Tribunal accepted prior withdrawals as a valid source and relied on that to hold the deposits explained. Issue 5 - Necessity of deciding validity of reassessment under Section 147 Legal framework: When relief is granted to the assessee on merits, ancillary legal challenges to the validity of reassessment may become academic. Precedent treatment: The Tribunal adhered to the pragmatic approach of not deciding surplus issues once the main grievance is resolved in favour of the assessee on merits. Interpretation and reasoning: Having deleted the addition on merits, the Tribunal declined to adjudicate challenges to the validity of reopening under Section 147, leaving those grounds open. Ratio vs. Obiter: Ratio - Where assessment relief is granted on merits, it is not necessary to decide associated procedural validity issues; such matters can be left open. Obiter - Leaving grounds open does not constitute approval or disapproval of reassessment validity. Conclusion: The Tribunal did not decide the validity of reassessment under Section 147 as the substantive relief obviated the need to address it.