By TIOL News Service

AHEMDABAD, NOV 17, 2016: THE ISSUE IS - Whether addition u/s 69 can be made on cash withdrawals from OD A/c, merely because assessee was already having cash balance and there is no need for him to withdraw from the OD account. NO IS THE VERDICT.

Facts of the case:

The assessee is an Individual. AO made the addition of all credit entries in the books of accounts amounting to Rs.41,60,117/-. On appeal, the CIT(A) called for a remand report. He, however, on estimated basis, retained the addition of Rs.15,00,000/-. Firstly, it is contended by Assessee that addition has been made on assumption that when the assessee was having cash in books, there was no necessity to withdraw the amount from Over-Draft (OD) Account. It was also contended that the assessee has properly discharged primary onus in respect of all the inter-bank deposits in respective accounts; therefore, no addition u/s 69 was called for. On addition u/s 2(22)(e), it was contended that the assessee was an employee director, having a running Current Account with the company M/s. Atiresh Trading Co. The assessee used to give advance amounts to company which was returned by company & vice versa as and when necessary. Thus, there was no element of loan or deposit in these transactions. They being purely need based current account transactions, there is no justification in deeming it to be deemed dividend and adding u/s 2(22)(e).

On appeal, the ITAT held:

++ Adverting to first ground, the addition of Rs.15,00,000/- consists of three parts. As far as the third part, i.e., cash withdrawals from Over Draft Account are concerned, the assessee has been able to demonstrate the nexus between the withdrawals and deposits. This evidence in the form of bank accounts cannot be rejected only on presumption that the assessee had already had cash balance and there is no need for him to withdraw from the OD account. Such presumption cannot override the written evidence in the form of bank statements and explanation of reasonable nexus. Consequently, the addition in respect of Intra Bank A/c of IDBI Bank and the Catholic Syrian Bank Ltd is deleted. But for remaining two items, the assessee could not demonstrate the sources of alleged availability of opening balance. Similarly, in respect of cash loans, the assessee could not establish the creditworthiness of the depositors. In view thereof, it is held that in respect of opening cash and small loans as mentioned above, the assessee failed to discharge its onus; consequently, the additions in respect of the same are upheld, whereas the addition in respect of Intra-Bank Deposit is deleted;

++ the nature of transactions reflected from the assessee's account and company account demonstrates that it was a running current account and the transactions therein are not in the nature of loans and advances so as to be termed as deemed dividend. Therefore, following the judgment of HC in the case of CIT v. Schutz Dishman Bio-Tech (P) Ltd, where it was held that if the transactions are in the nature of deposits and the same are between two corporate, it is nothing but Inter Corporate Deposits (ICD) which in any case would be outside the purview of sec 2(22)(e),   the addition made u/s 2(22)(e) is deleted.

(See 2016-TIOL-1967-ITAT-AHM)