Cash deposits during demonetization accepted as explained; s.69A r/w s.115BBE addition deleted based on prior withdrawals

ITAT Delhi deleted the addition made under s.69A r/w s.115BBE on cash deposits during the demonetization period. The assessee demonstrated that the deposits were sourced from earlier bank withdrawals in FYs 2015-16 and 2016-17, intended for house renovation. As the renovation proposal was abandoned due to lack of consensus among co-owners and failed negotiations with a builder, the cash remained unutilized and was subsequently deposited when demonetization was announced. The Revenue produced no evidence that the withdrawn cash was used elsewhere. ITAT held the explanation satisfactory, treating the prior withdrawals as a legitimate cash source, and ruled the cash deposits to be explained, deciding in favour of the assessee.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether cash deposits of Rs. 25,04,000 made during the demonetization period were unexplained money liable to be taxed as deemed income under section 69A read with section 115BBE of the Income-tax Act, 1961.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxability of cash deposits during demonetization under section 69A read with section 115BBE

Legal framework (as discussed)

2.1 The addition was made by the Assessing Officer by invoking section 69A treating the cash deposits as unexplained money, and subjected to tax as per the special rate prescribed under section 115BBE of the Act. The first appellate authority confirmed the said addition.

Interpretation and reasoning

2.2 The Tribunal noted from bank statements that the assessee had a consistent pattern of substantial cash withdrawals and deposits in earlier years, including financial years 2015-16 and 2016-17, in the same bank accounts in which the impugned cash was later deposited during demonetization.

2.3 It was found that during financial year 2015-16 the assessee had withdrawn Rs. 46,80,000 and deposited Rs. 16,50,000 in one bank account, and withdrawn Rs. 28,51,500 and deposited Rs. 65,000 in another bank account, evidencing a regular conduct of cash handling and banking.

2.4 The Statement of Affairs as on 31 March 2016 reflected a cash-in-hand balance of Rs. 54,41,148, which the Tribunal treated as corroborative evidence that the assessee was holding substantial cash prior to the demonetization period.

2.5 The assessee's explanation that larger cash withdrawals had been made for proposed renovation of her residential premises, supported by filed builder quotations, was accepted as a plausible and specific purpose for accumulation and retention of cash.

2.6 The Tribunal recorded that the renovation proposal failed due to lack of consensus among co-owners and breakdown of negotiations with the builder, and that demonetization compelled the assessee to redeposit the accumulated cash in the bank.

2.7 It was noted that the Revenue had not brought on record any material to show that the earlier withdrawn cash was spent or utilized elsewhere, or that the cash balance disclosed in the Statement of Affairs was incorrect or fictitious.

2.8 On this factual matrix, the Tribunal held that there was a direct and reasonable nexus between prior cash withdrawals (for a specific, unexecuted purpose) and the subsequent cash deposits during demonetization, and that this nexus satisfactorily explained the source of the impugned deposits.

Conclusions

2.9 The Tribunal held that the assessee had properly and satisfactorily explained the source of cash deposits of Rs. 25,04,000, and therefore the conditions for invoking section 69A were not met.

2.10 Consequently, the addition made under section 69A read with section 115BBE was deleted, and the assessee's appeal was allowed in full.

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