CHARLES FATIMA PINTO,MUMBAI vs. ITO WARD 24(1)(1) , MUMBAI

On the facts and in the circumstances of the case, the learned Assessing Officer (hereafter called AO) has erred in adding back the amount of Rs. 11,82,300/- being part of the total cash deposited by the 2 Charles Fatima Pinto Appellant in his Bank Account during the demonetization period as unexplained money and treated the same as income in the hands of the Appellant u/s 69A r w s 115BBE of the Income Tax Act. a. Deposit was out of earlier cash withdrawn from bank account of the Appellant b. Arbitrarily rejecting details of cash deposits even though each and every detail was submitted about the source and nature of receipt.

In the facts of the case and in Law, the learned CIT (A) erred in confirming the addition by rejecting all the grounds of appeal without considering detailed facts and case laws submitted by the Appellant.

The assessee has also prayed in the relief clause for deletion of interest charged under sections 234A, 234B and 234C of the Act. The controversy in the substantive grounds concerns the addition of Rs.11,82,300/- in respect of cash deposited in bank accounts during the demonetisation period.

Brief facts of the case are such that the assessee filed the return of income on 24.07.2017 declaring total income of Rs.1,76,230/-. The case was selected for limited scrutiny concerning cash deposits during the demonetisation period. On obtaining information from the banks, the Assessing Officer referred to deposits in four bank accounts aggregating, according to the account-wise figures reproduced in the assessment order, to Rs.31,55,500/-. The assessee explained that the Central Bank of India account in which Rs.14,66,500/- had been deposited did not belong to the assessee. The Assessing Officer verified and accepted that explanation in paragraph 9 of the assessment order. The deposits remaining for consideration were Rs.8,32,000/- in another Central Bank of India account, Rs.4,56,000/- in an ICICI Bank account and Rs.4,01,000/- in a State Bank of India account, aggregating to Rs.16,89,000/-.

In replies dated 28.10.2019 and 11.11.2019, the assessee explained that the deposits had been made from cash earlier withdrawn from bank accounts for personal use, which had 3 Charles Fatima Pinto remained unutilised. The Assessing Officer rejected this explanation for the reasons set out in paragraph 12 of the assessment order. In paragraph 13, however, he considered 30% of the deposits under consideration as sourced from cash withdrawals and added the remaining 70%, amounting to Rs.11,82,300/-, as unexplained money under section 69A of the Act. In paragraph 14, he stated, without prejudice, that the amount could alternatively be treated under section 68 if the assessee were subsequently to contend that the bank credits were recorded in books of account. The assessed income was determined at Rs.13,58,530/-.

Before the learned CIT(A), the assessee reiterated that the deposits represented cash withdrawn earlier from the banks. The assessee also disputed the Assessing Officer’s alternative reference to section 68 and cited judicial decisions concerning bank passbooks and redeposit of withdrawn cash. The learned CIT(A) observed that, apart from case law, no specific evidence had been produced to substantiate the explanation. By the impugned order, the learned CIT(A) confirmed the addition, describing it as an unexplained cash credit under section 68. 7. Aggrieved by the order of CIT(A), the assessee is in appeal before us.

Before us, the learned Authorised Representative (AR) submitted that the cash deposited in November 2016 came from earlier bank withdrawals. He invited our attention to the cash summary at page 89 of the paper book and to the submissions made before the learned CIT(A). According to the summary, an opening cash balance of Rs.4,90,000/- as on 01.04.2016, together with subsequent cash withdrawals of Rs.11,99,200/- between April and October 2016, made up cash availability of Rs.16,89,200/-.

The learned Departmental Representative invited our attention to paragraphs 12 and 13 of the assessment order. He submitted that the Assessing Officer had considered the assessee’s explanation and had already treated 30% of the deposits as sourced from bank withdrawals. He accordingly supported the addition confirmed by the learned CIT(A).

We have considered the rival submissions and examined the orders of the authorities below and the material placed before us. There is no dispute that the bank account carrying deposits of Rs.14,66,500/- was wrongly attributed to the assessee; the Assessing Officer himself excluded it. The question before us is whether the explanation for the remaining deposits of Rs.16,89,000/- could be rejected to the extent of Rs.11,82,300/- on the reasons recorded in the assessment order.

The cash summary at page 89 distinguishes between an opening balance of Rs.4,90,000/- and withdrawals during the year of Rs.11,99,200/-. These figures must not be described together as withdrawals during the year. The withdrawals shown in the summary precede the three deposits made on 10.11.2016, 11.11.2016 and 16.11.2016. The summary describes the withdrawals as arising from fixed deposits that had matured and identifies the respective banks. The Assessing Officer had obtained information from the banks and referred to the cash withdrawal

The opening balance is a figure stated in the assessee’s summary; the material supplied to us does not independently establish its origin. That limitation does not, however, support the particular addition made by the Assessing Officer. He accepted Rs.5,06,700/-, being 30% of the deposits of Rs.16,89,000/-, as sourced from earlier cash withdrawals, without identifying any transaction-specific defect in the balance. The disputed addition of Rs.11,82,300/- is itself less than the Rs.11,99,200/- shown as withdrawn from the banks during April to October 2016. These comparisons do not prove the identity of particular currency notes. They show that the rejection of a fixed 70% of the deposits has no discernible basis in the cash flow considered by the Assessing Officer.

We turn specifically to the reasons in paragraph 12 of the assessment order. The Assessing Officer first considered it improbable that a person declaring income from other sources would accumulate cash of Rs.16,89,000/- or retain cash while operating bank accounts. The source of income disclosed in the return does not determine how much of an earlier bank withdrawal a person may retain. Equally, the existence of a bank account does not establish that cash withdrawn from it was spent. These circumstances could justify an inquiry into the cash flow, but they do not establish a contrary use of the cash.

The Assessing Officer next questioned why the assessee made withdrawals month after month if earlier withdrawals had not been 6 Charles Fatima Pinto exhausted, and why cash was held for several months. These are matters requiring consideration against the dates and amounts of the transactions. The summary records withdrawals at different points between April and October 2016, followed by deposits in November 2016. Neither the frequency of withdrawal nor the interval before redeposit demonstrates, without supporting material, that the earlier withdrawals had ceased to be available. The Assessing Officer has not identified any intervening transaction that exhausted the cash claimed to have been retained.

The Assessing Officer also considered it suspicious that the cash was redeposited during the demonetisation period, although cash deposits had been infrequent earlier. The timing required the assessee to explain the source of the deposits, which the assessee did by referring to the earlier withdrawals and furnishing a cash summary. The timing alone does not establish that the deposits arose from a source other than the identified cash. An inference of unexplained money must rest on the inadequacy of the explanation when tested against the material, rather than on the period in which the cash was deposited.

Finally, the Assessing Officer inferred that withdrawals made over several months must have met day-to-day or incidental expenditure and concluded that the assessee had not discharged the onus of explaining the deposits. The assessee was required to offer a credible explanation of their nature and source. Once earlier withdrawals and their sequence in relation to the deposits were put forward, it was necessary to evaluate that explanation against the available bank information and any material showing other use. Paragraph 12 identifies no amount spent out of those withdrawals and no other deployment of the cash. An assumed pattern of 7 Charles Fatima Pinto personal expenditure cannot, without a supporting calculation or material, justify treating precisely 70% of the deposits as unexplained.

We have considered the judicial precedents relied upon by the assessee before the learned CIT(A). In Jaya Aggarwal v. Income Tax Officer, ITA No. 315/2005, judgment dated 13.03.2018, the Hon’ble Delhi High Court examined an explanation that a bank deposit came from cash withdrawn several months earlier. The Court observed: “One should not consider and reject an explanation as concocted and contrived by applying prudent man's behaviour test. Principle of preponderance of probability as a test is to be applied and is sufficient to discharge onus. Probability means likelihood of anything to be true. Probability refers to appearance of truth or likelihood of being realised which any statement or event bears in light of the present evidence (Murray's English Dictionary). Evidence can be oral and cannot be discarded on this ground. Assessment order and the appellate orders fall foul and have disregarded the preponderance of probability test.”

The Court applied the test of preponderance of probability and, on the facts before it, directed deletion of the addition. The decision concerns an addition under section 68 and its facts are not identical to the present case. Its reasoning on the evaluation of an explanation for retained and redeposited cash is nevertheless persuasive here.

In CIT v. Kulwant Rai [2007] 291 ITR 36 (Delhi), the Hon’ble Delhi High Court considered a cash flow based on earlier bank withdrawals. In examining the authorities’ assumption that the cash must have been spent, it recorded:

This cash flow statement furnished by the assessee was rejected by the Assessing Officer which is on the basis of suspicion that the assessee must have spent the amount for some other purposes. The orders of Assessing Officer as well as Commissioner of Income-tax are completely silent as to for what purpose the earlier withdrawals would have been spent. As per the cash book maintained by the assessee, a sum of Rs.10,000 was being spent for household expenses every month and the 8 Charles Fatima Pinto assessee has withdrawn from bank a sum of Rs. 2 lakhs on 4-12-2000 and there was no material with the Department that this money was not available with the assessee. It has been held by the Tribunal that in the instant case, the withdrawals shown by the assessee are far in excess of the cash found during the course of search proceedings. No material has been relied upon by the Assessing Officer or Commissioner of Income-tax (Appeals) to support their view that the entire cash withdrawals must have been spent by the assessee and accordingly, the Tribunal rightly held that the assessment of Rs. 2.5 lakhs is legally not sustainable under section 158BC of the Act and the same was rightly ordered to be deleted.

The present finding rests on the cash flow and the absence of any identified contrary use in this assessee’s assessment record. The cited decision supports the limited proposition that an assumption of expenditure cannot replace examination of the available material.

There is a further distinction between the provision invoked in the assessment order and the one used to describe the addition in the appellate order. The operative addition made by the Assessing Officer was under section 69A. His reference to section 68 was expressly alternative and conditional. The learned CIT(A) confirmed the addition as one under section 68, but did not identify a sum credited in books maintained by the assessee. In CIT v. Bhaichand H. Gandhi [1983] 141 ITR 67 (Bom), the juri ictional High Court held that a bank passbook “could not be regarded as a book of the assessee”. Thus, the bank entries alone do not establish the books- based condition for section 68. This does not make every bank deposit immune from examination under section 69A; it requires the explanation for the money to be examined under the provision actually invoked.

The learned CIT(A)’s observation that the assessee had relied only on case law does not address the cash withdrawal explanation, the bank information obtained during assessment, or the cash summary discussed above. On the facts of this case, the Assessing

As the addition under section 69A is deleted, no question of applying section 115BBE to that amount survives in this appeal. The Assessing Officer shall recompute the tax and consequential interest, if any, under sections 234A, 234B and 234C in accordance with law after giving effect to this order. The initiation of penalty proceedings mentioned in the assessment order is not the subject of a separate penalty appeal before us, and no finding on such proceedings is called for.

Grounds Nos. 1 and 2 are allowed. The prayer concerning interest is consequential and is disposed of in terms of paragraph 20 above.

In the result, the appeal of the assessee is allowed.