Cash flow reconciliation of withdrawals and deposits can defeat an unexplained income addition for opening cash balance.

Cash deposits were reconciled with corresponding bank withdrawals through the cash flow statement, which also separately accounted for household /expenses and showed availability of cash in hand over time. On those facts, the opening cash balance could not be treated as unexplained income or undisclosed income for the year under consideration. The addition was therefore deleted in favour of the assessee.

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Issues: Whether the opening cash balance of Rs. 3,50,000 could be treated as unexplained income when the cash deposits were explained through cash withdrawals reflected in the cash flow statement.

Analysis: The cash flow statement for the relevant period showed substantial cash withdrawals from bank accounts, cash deposits out of those withdrawals, and household expenses separately accounted for. On this reconciliation, the cash deposits were found to be sourced from withdrawals, supporting the assessee's explanation that cash was available in hand and utilized over time. In that factual backdrop, the opening cash balance could not be brought to tax as undisclosed income for the year under consideration.

Conclusion: The addition treating the opening cash balance as unexplained income was deleted, and the issue was decided in favour of the assessee.

Ratio Decidendi: Where cash deposits are satisfactorily reconciled with cash withdrawals and the cash flow statement explains the availability of cash in hand, the opening cash balance cannot be assessed as unexplained income.

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