Explained bank deposits cannot justify section 69C addition merely because cash withdrawals were not traced to each payment.

Where bank receipts from the milk union through banking channels were accepted and supported by milk bills and bank statements, an addition under section 69C could not be sustained merely because the subsequent cash withdrawals were not traced to each individual disbursement. The assessment did not dispute the source of the deposits; it only questioned the utilisation of the withdrawn cash and the fact that it was withdrawn through one person. In the context of a milk co-operative society's receipt-and-distribution business model, the withdrawals were part of regular business operations, so the explanation remained acceptable and the addition was deleted.

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Issues: Whether the addition made under section 69C of the Income-tax Act, 1961 on account of cash withdrawals could be sustained where the source of deposits in the bank account was accepted and the withdrawals formed part of the assessee's regular business operations.

Analysis: The receipts credited in the assessee's bank account from the milk union through banking channels were accepted and were evidenced by milk bills and bank statements. The assessment did not dispute the source of the deposits, but proceeded only on the basis that the utilisation of the withdrawals was not satisfactorily proved and that the cash was withdrawn through one individual. Once the source of funds is accepted, an addition cannot be made merely because cash withdrawn from such explained receipts was not traced to each ultimate disbursement. The business model of a milk co-operative society, involving receipt of funds and distribution to members, also supported the explanation. The addition was therefore unsustainable.

Conclusion: The addition under section 69C was deleted and the issue was decided in favour of the assessee.

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