KAMAL KOTHARI ,CHANNAPATNA vs. INCOME TAX OFFICER, WARD-1, , RAMNAGAR

This appeal at the instance of the assessee is directed against CIT(A)’s order dated 06.09.2023, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2017-18.

2. Without prejudice, The learned CIT(A) has erred in confirming the addition made by the Assessing officer amounting to Rs. 21,00,000/- being cash deposited into bank account during demonetisation period as unexplained money u/s 69A of the Act. On proper appreciation of facts and law applicable, the provisions of section 69A of the Act are not applicable to the fact of the case and in any case the entire cash deposits in bank being duly sourced and explained and there being no unexplained money at all, the addition as confirmed being erroneous is to be deleted.

3. The authorities below have erred in not appreciating the fact that the cash deposited into bank are duly reflected in cash book and the source of such cash deposits are duly explained. The addition as made/confirmed is without basis and based on surmises and conjectures are to be deleted.

7. In view of the above and other grounds to be adduced at the time of hearing, it is requested that the impugned orders of the lower authorities be quashed or atleast the additions as made/confirmed be deleted and interest levied be deleted and it be held that the provisions of Section 115BBE of the I.T. Act, are not applicable to the case of the appellant and the interest as levied be also deleted.

Assessee, an individual, filed his return of income for Assessment year 2017- 18 on 14.06.2017 declaring total income of Rs.7,05,670/-. The return was selected for scrutiny on the issue of cash deposit made during the demonetization period. During the course of assessment proceedings, AO noticed that assessee had made deposit of a sum of Rs.21 lakhs in old currency in SBI, Channapatna Branch on 23.11.2016. The AO directed the assessee to explain the source of cash deposits. Assessee, in his reply, submitted that the cash has been withdrawn by him from his bank account amounting to Rs.32 lakhs between 17.06.2016 to 28.07.2016. It was stated that out of the total withdrawals of Rs.32 lakhs, Rs.10 lakhs was redeposited on 27.11.2016 and remaining amount was kept by the assessee for purchase of agricultural land. It was further stated that since no deal had materialized, the cash lying with him was deposited on 23.11.2016. The AO was not convinced with the explanation of the assessee and added the entire cash deposit under section 69A of the Act. The AO also applied special rate of taxation as per provisions of section 115BBE of the Act. The relevant finding of the AO reads as follows:

“a) The core reason given by the assessee is that he was intending to purchase a property and hence, he withdrew the cash. In this regard, it is to state that no prudent man would withdraw such huge amount of cash towards making payment unless the transaction is materialized. As mentioned by the assessee if the deal did not come through, there was no need for the assessee to withdraw cash of such volume four times within a span of 40 days. No sensible man would keep withdrawing money from bank and retain it with him for more than 04 months losing interest and also risking the perils of holding cash. It would be very natural for any person to deposit the amount back into the bank if the purpose of withdrawal was not served immediately. No such proof provided by the assessee which require him to hold back the cash. The assessee further has not given any such proof also to show that he had family issues for which he withdrew money. No proof of what so ever was provided to show that he was holding the cash with him except to say that it was with him. b) Moreover, the assessee being literate and also an income-tax assessee, would clearly be knowing that no person would accept cash, especially of this magnitude. There is no need to educate him about section 269SS of the Income-tax Act, which is amended with effect from 01.06.2015 to provide that no person shall accept from any person any loan or deposit or any sum of money, whether as advance or otherwise, in relation to transfer of an immovable property otherwise than by an account payee cheque or account payee bank draft or by electronic clearing system through a bank account, if the amount of such loan or deposit or such specified sum is twenty thousand rupees or more. Accordingly, if the cash withdrawn is for the purpose for which it has been stated, when there is a law which prohibits acceptance of. cash by the seller in any kind of advance, question of drawing cash and keeping with him does not arise as no one would accept cash in contravention of the Income tax rules. This goes on to prove that the assessee had other intention of withdrawing the cash. The assessee failed to give any valid reasons for retaining cash with him for a period of more than 04 months in spite of transaction of purchase of property not being materialized. Since, the assessee could not provide any satisfactory explanation for keeping cash in hand. It is highly unlikely that he had held the cash in hand for almost 05 months but would have used the same for some other purpose, which was not disclosed by him. c) The assessee withdrew cash of Rs.15,00,000/- on 17.6.16, which as per him was held as cash. No justification is provided by the assessee for withdrawing further cash of Rs.7,00,000/- on 23.6.16 & Rs.8,00,000/- on 11.7.16 and retaining it with him when he already had cash of Rs.15,00,000/- on hand. There is absolutely no logic as to why there was need to hold cash of Rs.32,00,000/- in hand, especially when the bank was in the vicinity of the assessee and he could have transferred the money through banking channels in case the deal had come through. Even if he wanted to withdraw cash, he could have done so after finalization of the deal, as and when there was requirement of cash. Further also, going by the transactions made by the assessee, it can be seen that the assessee is not averse to banking transactions and was aware of the laws prevailing in the country. The gift Rs.20,00,000/- and Rs.10,00,000/- to Deepika & Thrisala through cheques goes on to prove that the assessee is well aware to the laws. In this background, there is absolutely no justification for the assessee to withdraw cash in order to pay towards a transaction which did not even become concrete. Further, it is illogical and imprudent to retain such huge amount of cash with him. Taking all the above into consideration, it is clear that the cash was withdrawn in installments by the assessee to cater to some other requirement or obligation of the assessee, which has not been disclosed. The withdrawals in intervals go on to show that the assessee had utilised the cash earlier withdrawn, and as he was in need of more money, he further withdrew the cash from bank Even with respect to withdrawal of Rs.2,00,000/- on 28.07.2016, the explanation given by him is that the money he withdrew earlier was kept with his father and as his father was not in station, he withdrew further cash. First of all, the assessee has given no proof to show that his father was not in station. Secondly, no proof is produced to show that the money was given and kept with his father, because of which he had to further withdrawn Rs.2,00,000/-. The sequence clearly establishes the fact that the assessee is only telling an implausible story to cover up his transactions which could be shady. Hence, the explanation given by the assessee is baseless and beyond reality. d) If he had kept the cash with his father who was not in station, how was he able to deposit cash of Rs.10.00.000/- into his bank account on 26.07.2016. When he can deposit Rs.10,00,000/- cash. if he had remaining cash on hand, he could have also deposited the same also along with Rs.10,00,000/. Further, he even deposits Rs.20,000/- on 01.08.2016. If he had cash in his hand of Rs. 21,00,000/, what was the necessity to deposit only Rs.20,000/-. On perusal of the bank account and the balance. one can see that there was no need to deposit Rs.20,000/-. This goes on to establish the fact that even when the assessee had cash in hand as meager as Rs. 20,000. he deposited the same in bank_ This proves that the assessee was not having any such cash on hand as on 1.8.16 and even the meager cash that was available with him of Rs.20,000/- was also deposited by him on 1.8.16. This again goes on to prove that the assessee had not held any such cash on hand for making deposit on 23.11.16. e) It is further seen that the assessee received credit by way of bank transfer of Rs.20,00,000/- on 5.8.16 from one Mr. Babulal Kothari which was transferred the very next day to others vide cheque no.23260 on 6.8.16. It shows that the assessee was in need of money and got a credit through bank transfer. If he had cash on hand of Rs.21,00,000/- on that day he would have also deposited the cash he had of Rs.21,00,000/- instead of a bank transfer, as he had done by depositing cash of Rs.20,000/-. This again goes on to prove that the assessee had no such cash on hand. f) Lastly, If the assessee had cash on hand on the day of demonetization day le.. 8.11.2016 and from 9.11.2016. one would have exchanged the old notes only through bank deposits at the earliest, than to deposit the said amount of Rs.21,00,000/- only on 23.11.2016. It is human nature that when we have such huge amount of cash on hand of old notes, we would first go and deposit the same in bank in order to get relieved of such risky circumstance. However, the assessee deposits the same only on 23.11.2016. It shows that the assessee had no such cash as on 8.11.2016 or before 23.11.2016 and that this cash was received by him only around the time of deposit from sources not explained.

7. In view of the above and going by the transactions made by the assessee in his bank accounts, there is absolutely no logic for the assessee to hold the cash in his hand, which was withdrawn only to be re-deposited on 23.11.2016 much after the date of commencement of demonetisation date. Since, as explained above, the assessee could not satisfactorily explain the sources for the cash deposit made by him on 23.11.2016. the cash deposited by him is treated as unexplained cash credits/money in hank u/s. 69A of the I T Act and liable for taxation at higher rate as per Sec.115BBE of the income tax act, 1961.”

4. Aggrieved by the order of the assessment, assessee preferred appeal before the First Appellate Authority (FAA). The CIT(A) dismissed the appeal of the assessee. The relevant finding of the CIT(A) reads as follows:

“5……. ……….Through ground no. 2. the appellant has challenged the addition of Rs.21.00,000/- u/s 69A. During this—appeal proceeding, the appellant has reiterated his contention which was submitted before AO that the source of cash deposit of Rs. 21,00,000/- in old currency in bank on 23.11.2016 was out of cash withdrawal of Rs.32,00,000/-between 17.06.2016 to 28.07.2016. I have considered the submission of the appellant and the assessment order. The appellant has submitted computation of income, Capital account, statement of affairs, schedule of rent receipt and list of immovable properties for the current year as well as for A.Y. 2014-15, 2015-16 and 2016-17. From these documents, it is noticed that the appellant has shown income from house property and income from other sources for current year and income from house property, commission income and income from other sources for A.Y. 2014-15, 2015-16 and 2016-17. For earning such type of income there is no requirement of keeping huge cash in hand. Further from perusal of capital account, it is seen that cash in hand on last day of the financial year has never been so huge. This shows that the appellant has never maintained such huge cash balance. The appellant has also failed to explain the reason for keeping cash of Rs.22,00.000/- for four months except the concocted story of land purchase for which no evidence was produced. The appellant has cited various case laws in his support. But the facts of the cited cases are not similar to the appellant's case. In absence of any satisfactory explanation. the AO has rightly held that cash deposit of Rs.21,00,000/- is unexplained. Therefore, the ground no. 2 is dismissed.”

5. Aggrieved by the order of the CIT(A), assessee has filed the present appeal before the Tribunal. Assessee filed a Paper Book enclosing therein the bank statement maintained with the SBI for the year ending 31.03.2017, copy of the letter send to the AO, copy of the financial statement and the acknowledgment for filing the return of income, etc. The learned AR submitted that admittedly cash has been withdrawn by the assessee just before three months prior to the date of demonetization and sufficient cash balance is available for making the cash deposit. It was submitted that the fact of withdrawal of a sum of Rs.32 lakhs has not been disputed by the AO. Nor has the AO or the CIT(A) found that cash withdrawn has been utilized for some other investments. It was submitted that the reasons given by the AO and the CIT(A) for sustaining the addition under section 69A of the Act is very illogical and sought for the deletion of the addition.

6. The learned Standing Counsel supported the orders of the AO and CIT(A).

“11. The appellant is in Channapatna. a small town. The appellant was interested in buying of agricultural lands in and near Channapatna. The agricultural land are owned by agriculturist who are rural based. Moreover, in villages, banking facilities are not available. To buy lands one needs to visit the location of agricultural land and if found fit for purchase, negotiation take place with the land owner for acquisition and at price at which land could be purchased. The transaction is not instantaneous and each settlement of transactions requires quite a few visits and negotiation. Further, once the land is found fit to be purchased it becomes imparent to have a grip on transactions by paying some advance money to the land owner. With this in view a sum of Rs. 15 lakhs was drawn on 17.06.2016 and on the visit to sites it came to light that for the prevalent rates some more money may he required, Hence further sums of Rs. 7 lakhs & 8 lakhs were drawn on 23.06.2016 & 11.07.2016 respectively. Thereafter quite a few attempts were made to finalise the property but no deal materialized. Therefore, since the deed could not go through a sum of Rs. 10 lakhs were deposited in bank on 26.07.2016 retaining the balance cash for further attempt for acquisition of property.

12. However, on 08.11.2016, the demonetization was announced and therefore immediately balance cash, a sum of Rs. 21 lakhs were deposited on 23.11.2016.”

a) That immediately after demonetisation period there was heavy rush in banks, the matter was not fully clear and bankers were refusing to accept huge cash as deposits due the fact that they had to cater to general public first. b) The amount received from Sri. Rabulal Kothari was not a loan but the receipt of amount given to him earlier. The party had returned the money and the same was deposited in bank account. c) The assessee had maintained regular cash books and books of accounts has not been rejected. d) There is no bar on withdrawing cash even if there is sufficient cash balance available. e) The assessee with a view to acquire a property was trying to locate property on the village side and the villagers who would have to give a valuable asset like immoveable property would like to deal in cash. f) AO does not have any iota of an evidence to state / prove that the appellant has used the money for some other clandestine purposes. A bold allegation without any evidence / proof cannot be made in assessment order and such allegation cannot be the basis for making addition to returned income.

SBI 10447408042 14.08.2012 3,50,000 -- ICICI 16901006061 14.08.2012 11,00,000 -- ICICI 16901006061 08.09.2012 2,00,000 -- SBI 10447408042 10.10.2012 8,00,000 -- ICICI 16901509902 03.11.2012 -- 20,00,000 5.1 The CIT(A) accepted only a sum of Rs.10.70 lakh as available to the assessee to redeposit into the bank account and for the balance amount of Rs.10.10 lakh, he confirmed the addition. It was the plea of the assessee that the assessee has withdrawn the money for the admission of his son in a medical college, for which the assessee has also produced evidence like copies of admission letter, demand draft etc. before the CIT(A). Thus, it was explained by the assessee that the amount was withdrawn for the admission of his son in a medical college. Since the admission was not materialized, the assessee has redeposited the amount to the bank. These facts were not disputed by the department. However, according to the CIT(A), the withdrawals were made in June 2012 and the assessee has deposited the same into the bank account in November 2012. There was a longtime gap ranging from June to November, the CIT(A) has given relief only to the extent of Rs.10.70 lakh. However, the department has no material to show that the earlier withdrawals made by the assessee has been spent for any specific purposes and not the said amount available with the assessee to redeposit into the bank account. There is also no evidence that the assessee has made withdrawals on various dates for any other purposes than the admission of assessee’s son in a medical college. In such circumstances, it cannot be said that the withdrawals have not been utilized to redeposit with the bank account. Therefore, it has to be presumed that the assessee has withdrawn the cash and the same remained to be unutilized for one reason or the other, and the cash remained with the assessee. In such circumstances, due credit has to be given for such withdrawal of cash by the assessee. In my opinion, In my opinion, similar view was taken by the Cochin Bench of the Tribunal in the case of Sri.Mathew Philip v. ITO [ITA No.443/Coch/2019 – order dated 29.11.2019] wherein it was held as under:- “10. We have heard the rival submissions and perused the material on record. In the present case, the dispute is with regard to cash deposit of Rs.32.5 lakhs into the various bank accounts of the assessee. The main plea of the assessee is that the assessee had withdrawn cash of Rs.50 lakhs on 26/09/2014. The assessee had withdrawn cash on various dates at Rs.68 lakhs as narrated in para 5 of this order. 10.1 These amounts were redeposited into Bank accounts on various dates as follows: 02/04/2014 Rs. 3,00,000/- 27/08/2014 Rs. 1,50,000/- 26/09/2014 Rs.50,00,000/- 11.

The Assessing Officer has given credit of Rs.23.50 lakhs towards cash in hand for depositing it into Bank account of the assessee. The Assessing Officer treated Rs.28.5 lakhs as unexplained sources. Thus, he treated the following amounts as unexplained cash deposits of the assessee: Rs. 3 lakhs Rs. 1 lakh Rs.28.5 lakhs Total: Rs.32.5 lakhs 11.1 The assessee explained that during the assessment year 2012-13, the assessee had an ailment of cancer and he could not attend to business and financial matters and kept the cash withdrawn from Bank on 31/12/2013 for medical treatment and other expenses and deposited the amount in Bank only on 26/09/2014. In support of his claim, the assessee has produced discharge summary dated 06/11/2013 from Lourde Hospital, Ernakulam before AO. He has also produced CT Scan report dated 11/07/2013 which is not disputed by the lower authorities. The Assessing Officer has not accepted the contention of the assessee that he has kept the cash idly in his hands on the reason that he has not filed the wealth tax return showing the cash in hand. The Assessing Officer has not doubted the withdrawal of cash. However, the fact is that the assessee has withdrawn cash of Rs.50 lakhs on 31/12/2013. There is no evidence brought on record to show that these withdrawals have been used by the assessee or deposited by the assessee in any other Bank. It cannot be said that these withdrawals made from the Bank account were used for household expenses or any other investment. In such circumstances, it cannot be disputed that the withdrawals have been used for redeposit into the Bank account of the assessee. In other words, the Assessing Officer has not disputed the existence of Bank accounts and withdrawal from the same. The earlier withdrawal of Rs.50 lakhs from the Bank account on 31/12/2013 or withdrawal from various Bank accounts on different dates is not disputed. The assessee might have kept the cash withdrawals with him and redeposited into various Bank accounts on a later date. It is quite possible that the assessee might have withdrawn the cash for some purpose but the same remains to be utilized for one reason or the other and the cash continues to be remained with him. Sometimes it may also happen that the cash withdrawals from Bank accounts continues to remain as cash balance with the assessee even for many months and sometimes cash withdrawn is utilized on the same day. All these probable aspects of the matter cannot simply be ignored or brushed aside but the fact remains that the cash has been withdrawn from the Bank and that is not at all disputed. In view of this, the explanation of the assessee deserves to be accepted, unless contrary is brought on record which has not been done in this case. Considering the totality of the facts and circumstances of the case and in view of the discussions above, the cash deposits made by the assessee on various dates should be reasonably presumed that it is from earlier withdrawals made by the assessee on various dates. Accordingly, we delete the entire addition of Rs.32.5 lakhs made by the Assessing Officer.” 5.2 In view of the above, I am inclined to delete the impugned addition.”