By TIOL News Service

KOCHI, NOV 11, 2016: THE ISSUE IS - Whether re-deposit of liquid cash by an assessee in his bank account warrants any addition to his total income, if it has been sufficiently proved that such liquid cash kept with an intention to purchase a property and to meet the pressing expenditure demands. NO IS THE VERDICT.

Facts of the case:

The assessee is an individual deriving salary and agricultural income. For the AY 2009-10, he had return his return declaring the taxable income of Rs. 2,48,033/- and agricultural income of Rs. 4 lacs. The assessment was taken up for scrutiny by issuing notice u/s 143(2). The scrutiny assessment u/s 143(3) was completed vide order dated 14.12.2011, by fixing the total income at Rs. 27,56,630/- and agricultural income at Rs 4 lacs. One of the additions made by AO was the addition u/s 69. As per the AIR information, it was noticed by AO that the assessee had made cash deposits amounting to Rs. 18,28,500/- during the period 1.4.2008 to 31.3.2009. AO asked the assessee to furnish the source of funds for making cash deposits. The assessee filed the details of source of funds. The source of cash deposits, as submitted by the assessee, was reproduced in the assessment order. Out of the cash deposits of Rs. 18,36,000/-, AO was of the view that source for Rs.14,92,000/- has not been explained properly. Further, according to AO, the source of cash deposits of Rs. 2,08,000/- in the loan account no.3580, was also remained unexplained. AO directed the assessee to show cause as to why the cash deposits of Rs. 17,03,000/- should not be treated as unexplained investment u/s 69. In response to the show cause notice issued by AO, assessee submitted a reply. AO admitted that there was sufficient cash withdraws from the Federal Bank account. However, AO held that these cash withdrawals would not be available with the assessee for making the cash deposits. AO thus rejected the assessee’s contention that cash deposits are out of withdrawals from 1.7.2008 to 23.7.2008. On appeal, CIT(A) confirmed the addition made by AO.

On appeal, the ITAT held that,

++ the assessee had produced the cash flow statement before AO. In the cash flow statement, all the inflows including the above inflow of Rs. 12,23,000/-as well as the bank withdrawals are clearly depicted. The cash flow statement submitted, according to me has tallied and there is no error. The source of cash deposits, according to the assessee, are out of cash withdrawals in the month of July 2008 from assessee’s Federal bank account no.3282, which were re-deposited on various days as per the details given in cash flow statement. The reasoning for disbelieve the source of deposits of cash is that the withdrawals in the month of July 2008 could not be available with the assessee for these cash deposits.

++ the assessee had originally intended to purchase 12.586 cents of land as per the agreement, which did not materialize even though the validity of the agreement was extended. Finally, the agreement got lapsed. Subsequently, the vendor sold 6 cents out of 12.40 cents for higher price for which a separate sale agreement was executed. The assessee with the intention to purchase the balance property was continuing to negotiate with the seller, keeping the cash in hand. However, on various occasions, to meet the pressing expenditure demands, portion of the cash in hand were re-deposited into the bank account. Thus the reasons for keeping the cash in hand and periodical deposits of cash in the said bank account, is justified and addition u/s 69 is not warranted in the facts and circumstances of the case.

(See 2016-TIOL-1910-ITAT-COCHIN)