Appeal allowed deleting section 69A addition on demonetization cash redeposit backed by bank withdrawals evidence

ITAT Kolkata allowed the assessee's appeal and deleted the addition made u/s 69A for unexplained cash deposits during the demonetization period. The Tribunal noted that the AO, in the remand proceedings, had already accepted the assessee's explanation that the cash deposits were sourced from withdrawals from the assessee's own bank accounts in the pre- and post-demonetization period, duly supported by cash book and bank statements. It held that CIT(A) erred in dismissing the remand report without reasons and, following precedent, granted the benefit of redeposit to the assessee.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether cash deposits in the assessee's bank accounts during the relevant year, including during the demonetization period, were liable to be treated as unexplained money under section 69A of the Act.

1.2 Whether the appellate authority was justified in confirming the section 69A addition despite additional evidences filed in appeal and a remand report of the Assessing Officer accepting the assessee's explanation of source of cash deposits from prior cash withdrawals.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Addition under section 69A for cash deposits; effect of additional evidence and remand report

Legal framework (as discussed)

2.1 The addition was made under section 69A of the Act, treating cash deposits in bank accounts as unexplained money, on account of the assessee's non-compliance during assessment and failure to respond to notices.

Interpretation and reasoning

2.2 The Tribunal noted that the assessee did not cooperate during assessment proceedings, resulting in the Assessing Officer treating the entire cash deposits, including deposits during demonetization, as unexplained under section 69A.

2.3 During appellate proceedings, the assessee furnished additional evidences, including bank statements evidencing cash withdrawals, audited financial statements, income-tax return, tax audit report, date-wise summary of cash withdrawals, and explanations showing that cash deposits were sourced from accumulated cash in hand arising from earlier withdrawals.

2.4 The appellate authority called for a remand report. In that remand report, the Assessing Officer accepted the assessee's explanation that (i) cash withdrawals of Rs. 1,30,83,000/- during pre-demonetization and Rs. 1,00,000/- during post-demonetization were available as source for cash deposits of Rs. 1,33,33,000/- and Rs. 1,50,000/-, and (ii) the deposits were explained by such withdrawals.

2.5 The appellate authority, however, rejected the remand report and confirmed the addition on the ground that the Assessing Officer had not raised any query in remand about the "purpose" of withdrawals and subsequent redeposit of cash into bank accounts.

2.6 The Tribunal held that once the Assessing Officer, upon verification of documentary evidence in remand proceedings, had accepted the assessee's explanation of source of cash deposits out of own bank withdrawals, the appellate authority could not summarily disregard that remand report without cogent reasons.

2.7 The Tribunal accepted the assessee's cash-flow explanation supported by bank statements, cash book, and summary of withdrawals and deposits showing a pattern of withdrawal and redeposit from the assessee's own accounts, and found no material to suggest that the withdrawn cash was utilized elsewhere.

2.8 Relying on coordinate bench decisions, the Tribunal reiterated that where (i) cash withdrawals from bank are evidenced and (ii) there is no adverse material to show that such cash has been spent or invested elsewhere, the assessee is entitled to the benefit of treating subsequent cash deposits as redeposit of the same cash, and section 69A cannot be invoked.

2.9 Specifically, the Tribunal referred to decisions holding that (a) cash-flow/cash-summary demonstrating inflow and outflow and sufficiency of cash balance justifies treating deposits as redeposit of earlier withdrawals, and (b) there is no legal bar on an assessee keeping cash in hand, and mere absence of explanation as to "why" cash was withdrawn or "why" it was kept in hand cannot, in the absence of contrary evidence, be a ground to reject a withdrawal-redeposit explanation.

Conclusions

2.10 The Tribunal concluded that the assessee had duly explained the source of the cash deposits in both bank accounts as arising from own cash withdrawals and cash in hand, supported by contemporaneous records.

2.11 The approach of the appellate authority in rejecting the remand report and confirming the addition, despite the Assessing Officer in remand having accepted the explanation and there being no material showing alternative utilization of the withdrawn cash, was held to be unsustainable.

2.12 The order of the appellate authority confirming the section 69A addition was set aside, and the Assessing Officer was directed to delete the entire addition on account of cash deposits.

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