ANAND CHIRANIA,BENGALURU vs. DCIT, CENTRAL CIRCLE-7(2)(1), BANGALORE

The assessee is aggrieved and has preferred this appeal raising several grounds of appeal however the crux of the issue is that there is an addition of

Briefly stated, the assessee, an individual, filed his return of income on 2 December 2017 declaring total income of ₹ 30,41,830 from business and other sources. The return was selected for limited scrutiny to verify large cash deposits in the bank account and transactions involving the purchase or sale of immovable property during the year. Accordingly, notice under section 143(2) of the Act was issued and served on the assessee on 10 August 2018. Thereafter, notices under section 142(1) were also issued. The assessee filed various submissions and explained the source of the substantial cash balance deposited in the bank account.

The assessee primarily explained that he had withdrawn cash from his bank account and later redeposited the same amount. To support this claim, he furnished copies of the relevant bank statements. The details were set out in paragraph 5 of the assessment order, at page 2 of 5. Accordingly, the assessee contended that the cash deposited in the bank account represented amounts earlier withdrawn from the same account.

The learned Assessing Officer rejected the assessee’s explanation, holding that it was highly improbable for a person to retain such a large cash balance, particularly when the assessee did not carry on any business generating substantial cash income. He therefore considered the transactions to be non- genuine. The Assessing Officer further observed that the assessee was an educated person, familiar with financial matters, as reflected from his mutual fund trading and investment activities over the preceding years. On this basis, he held that the explanation regarding high cash-in-hand was unreasonable and unacceptable. He also stated that the burden on the Assessing Officer was not to prove undisclosed income beyond reasonable doubt, but only on the test of preponderance of probabilities. Accordingly, against cash deposits

Aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). The assessee reiterated that the disputed cash deposits represented cash balances brought forward from earlier years and that he had maintained proper books of account, which were produced before the learned Assessing Officer during the assessment proceedings but were ignored while passing the impugned order. The assessee referred to his audited balance sheets for the financial years ended 31 March 2015 and 31 March 2016, which clearly reflected the cash balances and supported the source of the cash deposits made during financial year 2016–17. He also relied on the cash-flow statement, which showed cash withdrawals from the bank of ₹ 85,31,500 for financial year 2014–15, ₹ 46,29,004 for financial year 2015–16, and ₹ 40,19,004 for financial year 2016–17. Further, the assessee stated that cash deposits in the bank account amounted to ₹ 5,77,500 for financial year 2014–15, ₹ 13,51,000 for financial year 2015–16, and ₹ 1,29,80,004 for financial year 2016–17. The cash-flow statement also reflected closing cash balances of ₹ 86,17,713 at the end of financial year 2014–15, ₹ 1,22,86,438 at the end of financial year 2015–16, and ₹ 18,87,438 at the end of financial year 2016–17. The assessee further relied on the audited accounts, bank statements, and summary of cash withdrawals to show that the cash-in-hand was duly recorded in the books. He also cited several judicial precedents and challenged the validity of the notice issued under section 143(2) of the Act on the ground that a non-jurisdictional officer issued it.

The learned CIT(A) confirmed the addition, holding that a mere accounting entry in the balance sheet was insufficient to discharge the assessee’s onus. He observed that the possibility of the withdrawn cash having been utilized

The learned authorized representative, assailing the assessment order, filed a paper book of 239 pages and relied on 30 judicial precedents in the case-law compilation. He submitted that the assessee had furnished a cash-flow statement for financial years 2014–15 to 2016–17, demonstrating sufficient cash availability. The assessee’s books of account were audited, and the relevant transactions were duly recorded therein; nevertheless, the lower authorities rejected the assessee’s explanation. He argued that there was no evidence to show that the cash deposited in the bank account had been utilized elsewhere. Referring to page 20 of the written submissions, he pointed out the cash-flow statement, and to page 18, the summary of the Axis Bank and ICICI Bank statements. He also referred to page 74 of the paper book containing the assessee’s balance sheet and highlighted the cash-in- hand as on 31 March 2015, 31 March 2016, and 31 March 2017. He submitted that the Assessing Officer rejected the explanation merely on the grounds that it was not properly explained and was not believable, without giving any cogent reason for such disbelief. He further contended that, since the annual accounts audited for earlier years showing cash-in-hand had not been disturbed and were, in fact, accepted, the same could not be disregarded in the present assessment proceedings. He also referred to the day-to-day cash book prepared by the assessee, which reflected the relevant cash balances. Relying on the case-law compilation, he submitted that once the assessee disclosed that the source of cash was withdrawals made from

The learned departmental representative vehemently supported the action of the learned assessing officer and stated that there is no infirmity in the order of the learned CIT – A in confirming the amount of cash deposit into the bank account.

We have carefully considered the rival contentions and perused the orders of the lower authorities. The relevant facts have already been set out above. The assessee deposited ₹ 1,29,55,000 in his bank account and explained that the deposits were made out of cash withdrawals in earlier periods. The learned Assessing Officer allowed credit only for withdrawals made during financial year 2016–17, amounting to ₹ 16,29,000, and treated the balance sum of ₹ 1,13,26,000 as unexplained deposits. The assessee’s grievance is that credit was not given for the cash balance available in his cash book. It is undisputed

All other grounds of appeal were either supportive or general in nature and therefore same are dismissed.

In the result appeal of the assessee is partly allowed.