PREMAKUMARI,TINDIVANAM vs. ITO, CIRCLE-1, VILLUPURAM

In response, the assessee explained that the cash deposit of Rs.55,00,000/- made on 16.04.2015 represented collections/recoveries from sundry debtors. It was further explained that a sum of Rs.50,00,000/- withdrawn from the bank account on 28.08.2015 was subsequently redeposited on 30.10.2015. As regards the balance amount of Rs.2,070/-, it was submitted that the same represented a direct deposit from the account of the family firm.

The AO, however, was not satisfied with the explanation furnished by the assessee. According to the AO, the assessee had not furnished complete particulars regarding the dates and amounts of collections made from the sundry debtors and there was no clarity as to whether the amounts were collected from a single debtor or from several debtors. Insofar as the explanation regarding redeposit of the earlier cash withdrawal was concerned, the AO was of the view that no prudent person would withdraw such a substantial amount from the bank and retain the same in cash for a considerable period, thereby foregoing interest thereon.

Aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee furnished a detailed explanation with regard to the source of the impugned cash deposits. It was explained that the assessee had withdrawn a sum of Rs.50,00,000/- on 11.09.2014 and had advanced the said amount by way of cash loans to six persons during the period from 14.09.2014 to 21.09.2014. It was further explained that the assessee had withdrawn a sum of Rs.8,80,000/- on 06.04.2015 and advanced Rs.10,00,000/- to her son, Shri T.Natrajan, on 07.04.2015, which amount was returned by him on 16.04.2015. The assessee thus sought to explain the cash deposit of Rs.55,00,000/- substantially as representing recovery of the amounts earlier advanced.

The Ld.CIT(A), while considering the aforesaid explanation, noticed that during the course of assessment proceedings the AO had issued summons to the persons to whom the assessee claimed to have advanced the amounts and had recorded their statements. The ld.CIT(A) observed that none of the said persons possessed PAN or were assessed to income-tax and that their statements were substantially similar in nature. On the basis of these circumstances, the ld.CIT(A) was of the view that the explanation of the assessee regarding advancement of cash loans and subsequent recovery thereof was not acceptable and characterized the same as a “cooked-up story”. Consequently, the explanation of the assessee that the impugned cash deposit represented recovery from the debtors was rejected.

In the light of the aforesaid observations, the Ld.CIT(A), vide appellate order dated 31.10.2025, upheld the addition of Rs.1,05,00,000/- made by the AO and dismissed the appeal of the assessee.

Aggrieved by the order of the Ld.CIT(A), the assessee is in further appeal before the Tribunal.

We have heard the rival submissions perused the materials available on record and gone through the orders of the authorities along with the paper book filed by the ld.AR and written submissions filed by the ld.DR. The dispute before us relates to the addition of Rs.1,05,00,000/- representing cash deposits made by the assessee in her bank account, which, according to the assessee, comprised amounts recovered from persons to whom monies had earlier been advanced and redeposit of cash withdrawn from the very same bank account.

Insofar as the cash deposits stated to represent recoveries from debtors are concerned, we find that the assessee has furnished party-wise details in support of her explanation. The particulars furnished by the assessee contain, inter alia, the names of the respective debtors, dates on which the amounts were advanced, amounts so advanced, dates of recovery and the interest income earned from such advances. Thus, the explanation of the assessee is supported by specific particulars identifying the persons from whom the amounts are stated to have been recovered.

The crucial question to be examined is whether the impugned cash deposits could reasonably be correlated with the amounts earlier advanced by the assessee and subsequently recovered from the respective debtors. The dates and amounts of advances, the source thereof, the dates and amounts of recoveries, the statements of the concerned parties already recorded by the AO and the interest income, if any, offered by the assessee are relevant factors which require proper verification before arriving at a conclusion regarding the nature and source of the cash deposits.

Considering the facts and circumstances of the case and in the interest of substantial justice, we deem it appropriate to set aside the findings of the Ld.CIT(A) on this issue and restore the matter to the file of the AO for fresh examination in respect of receipts from debtors to the tune of Rs.55,00,000/-. The AO shall verify the party-wise details furnished by the assessee, including the dates and amounts of advances, dates and amounts of recoveries, interest income earned thereon and such other supporting evidence as may be produced by the assessee. The AO shall thereafter decide the issue afresh in accordance with law after affording reasonable opportunity of being heard to the assessee. We make it clear that we have not expressed any opinion on the :-6-: ITA. No:4043/Chny/2025. merits of this part of the addition and all contentions of the assessee are left open.

Coming to the cash deposit of Rs.50,00,000/- made on 30.10.2015, the specific explanation of the assessee is that the said amount represented redeposit of cash withdrawn earlier from the bank account. On perusal of the bank statement placed before us, we find that the assessee had, in fact, withdrawn a sum of Rs.50,00,000/- on 28.08.2015 and the identical amount of Rs.50,00,000/- was subsequently deposited into the bank account on 30.10.2015. 18. The lower authorities have rejected the explanation essentially on the ground that the assessee had not established the purpose for which such a substantial amount was withdrawn and that it was improbable for a prudent person to retain such a large amount in cash for a considerable period. We are unable to sustain the addition merely on such reasoning.

Once the withdrawal of Rs.50,00,000/- on 28.08.2015 is evidenced by the assessee's bank account and the subsequent cash deposit of the identical amount on 30.10.2015 is also reflected therein, the availability of the earlier withdrawal constitutes a material explanation for the source of the subsequent deposit. There is nothing brought on record by the Revenue to demonstrate that the amount withdrawn on 28.08.2015 had been spent, invested or otherwise utilized by the assessee prior to its redeposit on 30.10.2015. In the absence of any material establishing utilization of the cash withdrawn for some other purpose, the explanation of the assessee cannot be rejected merely on the basis of suspicion, probability or on the ground that retention of cash for the intervening period was commercially imprudent.

It is well settled that an addition cannot be sustained merely because the Revenue considers the conduct of the assessee in retaining cash to be unusual or imprudent when the availability of cash from an identified and established

In the present case, there is a clear withdrawal of Rs.50,00,000/- on 28.08.2015 followed by redeposit of the identical sum on 30.10.2015. The time gap between the withdrawal and redeposit, by itself, cannot lead to an inference that the cash deposited represented unexplained money, particularly when no contrary material has been brought on record by the Revenue. We, therefore, accept the explanation of the assessee that the cash deposit of Rs.50,00,000/- on 30.10.2015 was made out of the cash withdrawn on 28.08.2015. Accordingly, the addition to the extent of Rs.50,00,000/- is directed to be deleted.

In the result, the issue relating to cash deposits to the tune of Rs.55,00,000/- claimed to have been made out of recoveries from debtors is restored to the file of the AO for fresh adjudication in accordance with law, whereas the addition of Rs.50,00,000/- representing redeposit out of earlier cash withdrawal is deleted. The grounds raised by the assessee are, accordingly, partly allowed for statistical purposes.

In the result, the appeal of the assessee is partly allowed for statistical purposes.