By TIOL News Service

BANGALORE, DEC 14, 2018: THE issue is - Whether while explaining cash deposits if the assessee claims that the cash was withdrawn in the past and the same was deposited later, Revenue is right in rejecting the theory on the ground that it is highly improbable. NO is the answer.

Facts of the case

The assessee an individual, had filed return of income for relevant AY. As per AIR report obtained, there were cash deposits in SB Account of assessee. The assessee did not participate in the assessment proceedings and therefore assessment was completed by the AO to the best of his judgment. The AO treated the entire cash deposits as unexplained cash of assessee and added the same to the total income. On appeal, the CIT(A) accepted the contention of the assessee that the same deposit of Rs.25,05,050 of cash in the bank account had been reflected twice in the AIR obtained by the AO and therefore the amount of cash deposits in the bank account which the assessee had to explain the source was only Rs.25,05,050. According to assessee the source of cash deposits was withdrawals from the bank account of assessee and also loan of Rs. 5 lakhs which was availed by the assessee from LIC of India. But CIT(A) did not accepted the explanation of assessee as in the normal course of human conduct, it could not be believed that the past withdrawals of two years earlier to the date of deposit would have been kept in cash by the assessee. Aggrieved by the order of CIT(A), the assessee filed appeal before the Tribunal.

On appeal, Tribunal held that,

++ assessee maintains bank account with Corporation Bank and it is from this bank that cash was withdrawn and deposited by the assessee. The assessee has to explain the source of Rs.20 lakhs deposit in cash on 25.5.2013 and Rs.5 lakhs in cash on 30.5.2013. The assessee has availed a loan of Rs.5 lakhs from LIC of India and the same was received by the assessee by way of credit in his bank account on 14.02.2013. The total cash withdrawn from the bank account by the assessee was Rs.20,91,500 + 17,71,800 which was withdrawn by his self-cheque. There was also a deposit of Rs.9 lakhs in the bank account in March, 2013. After excluding the cash deposit, net cash available with assessee from the withdrawals was a sum of Rs.29,63,000. The availability of cash as a source of deposit in the bank account was disbelieved by the AO for the only reason that it was highly improbable for a person to keep withdrawals in the bank account for a period of two years;

++ in this regard, it was found that the Karnataka High Court in the case of S.R. Venkataraman had taken a view that withdrawals of cash in the past as a source of deposit at a later point of time in the bank account cannot be disbelieved merely on the surmise that it was improbable for an assessee to keep cash withdrawn for two years. The High Court held that Revenue authorities were not competent to dictate as to what the assessee should do with the money withdrawn from the bank. The court held that as long as the source is explained and established and if money is withdrawn from SB account and paid to discharge loan by deposit into a loan account, it is not possible to hold that the source is not explained. The Court also held that money might have been utilized in the interregnum period for some purpose and thereafter appropriated towards discharge of loan. But that fact cannot be held against the assessee. The decision of the Karnataka High Court in the facts and circumstances of the present case supports the plea of the assessee. The revenue authorities were not justified in rejecting the explanation of assessee with regard to source of deposit of cash in the bank account. The consequent addition made is directed to be deleted and the appeal of the assessee is allowed.

(See 2018-TIOL-2411-ITAT-BANG)