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Facts
The assessee, a private limited company, made cash deposits of Rs. 37,88,000 during the demonetization period. The Assessing Officer added this amount as unexplained income, which was upheld by the CIT(A). The assessee claimed the deposits were out of prior cash withdrawals.
Held
The Tribunal held that the assessee had demonstrated the source of cash deposits from prior withdrawals, and the AO had not doubted these withdrawals. The provisions of Section 68 were not applicable as the source was accepted. For the addition related to interest on refund, it was found that the issue was not properly examined and required factual verification.
Key Issues
Whether cash deposits made during demonetization, explained as prior withdrawals, can be treated as unexplained income under Section 68? Whether interest on refund was correctly added without proper examination and opportunity to the assessee?
Sections Cited
68, 115BBE, 143(3), 244A
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Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI PRABHASH SHANKAR
आदेश / O R D E R PER PRABHASH SHANKAR [A.M.] :- The present appeal arising from the appellate order dated 29.10.2024 is preferred by the assessee against the order passed by the Learned Commissioner of Income-tax (Appeals)/Addl/JCIT(A)[hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s. 143(3) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated28.12.2019for the Assessment Year [A.Y.] 2017-18.
On the facts and circumstances of the case, learned ADDI/JCIT(A) erred in confirming the addition u/s.68 of the Act in respect of cash deposit of Rs.37,88,000 during the demonetisation period though the deposits were out of known source and levied the tax u/s. 115BBE of the Act.
On the facts and circumstances of the case, learned ADDI/JCIT(A) erred in wrongly confirming the addition without any cogent reason and without considering detailed submission filed during the assessment proceedings.
On the facts and circumstances of the case, learned ADDI/JCIT(A) erred in not considering the fact that the amounts were deposited out of withdrawals and the proof by way of bank statements were filed during the assessment proceedings. This facts ought to have been considered by the learned ADDI/JCIT(A). 4. On the facts and circumstances of the case, learned ADDI/JCIT(A) erred in confirming the addition of Rs. 14,60,993 on account of Interest on Income Tax Refund though the amounts were declared in the Return of Income. 5. On the facts and circumstances of the case, learned ADDI/JCIT(A) erred in confirming the interest on refund of Rs. 14,60,993 though it has accepted that the appellant had declared interest income of Rs.14,60,993 in the Return of Income. The addition made is without any cogent reason and or on surmise and conjecture. The addition is required to be deleted.
3 Brief facts of the case are that the assessee is a private limited company engaged in a business of Printing of PAN Cards, School Text Books and Magazines etc. Its case was taken up for scrutiny to verify cash deposits made in the bank accounts during demonetization period. According to the Assessing Officer, during demonetization period the assessee made cash deposit amounting to Rs.37,88,000/-in its bank accounts just after the announcement of demonetization in the month of November 2016.Itwas noted from a comparative analysis of the figures of cash deposits and withdrawals made during the corresponding periods A.Y. 2017-18 Printography Systems(India)Pvt. Ltd. from FY 2015-16,2016-17 and 2017-18 that both deposits and cash withdrawals were abnormal during the year. Before him, the assessee submitted that the said cash deposits were in fact, cash withdrawals made in the month of October,2016 just before the announcement of demonetisation. The withdrawals were made so as to pay bonus to employees during Diwali as done in the earlier years. However, the proposed bonus could not be disbursed due to certain difference with the staff and was subsequently re-deposited in the bank accounts. It was further stated that during the demonetization period every assessee who had a cash balance deposited cash in the bank. The act of deposit was triggered by the announcement of demonetization. Therefore, a depositing balance amount lying in the books of account was not an event which was not abnormal. The assessee further submitted that the cash amounting to Rs.36,50,000/- was withdrawn between 19/10/2016 and 25/10/2016 in the month of October, 2016 only and were lying in balance with the assessee. The company had also cash sales of waste amounting to Rs.2,07,059/- in the month of October and up to the date of demonetization. The AO however, rejected the explanation of the assessee based on the comparative analysis of cash deposits and withdrawals in the previous and subsequent years and treated the cash deposit as unexplained
In the subsequent appeal, the ld.CIT(A) after discussing and reproducing the assessment order, upheld the addition though in the subsequent paras of the order, he referred to the non compliance on part of the assessee during the appeal proceedings being the reason for not furnishing explanation of cash before him leading to dismissal of appeal.
Before us, the ld. Departmental Representative has relied on the assessment order and the appellate order. Per contra the ld.Authorised Representative repeated the same contentions as made before the ld.AO. A copy of the cash book and various bank statement were also submitted before us. It is submitted that the assessee had filed Cash Book and Bank Book Statements during the assessment proceedings which were also produced before the ld.AO. The extract of withdrawals and deposits in particular for the period from 15/10/2016 to 31/12/2016 as submitted by him are as under.
Extract of Cash Book Cash withdrawals and Cash Sales and utilisation in depositing in the Bank from 15/10/2016 to 31/12/2016 Date Particulars Amount(Rs) CASH WITHDRAWALS 19-Oct-16 Canara Bank - ODBD A/c 0108256810538 10,00,000.00 21-Oct-16 Canara Bank - ODBD A/c 0108256810538 10,00,000.00 A.Y. 2017-18 Printography Systems(India)Pvt. Ltd. 25-Oct-16 Canara Bank - C.A.0129261002600 (Ghatkopar) 1,50,000.00 25-Oct-16 Canara Bank - ODBD A/c 0108256810538 15,00,000.00 (A) 36,50,000.00 Total Cash withdrawals CASH SALES (WASTE) 24-Oct-16 Wastage Sales (Jai Ambe Traders) AKLPM2756N 1,07,326.00 28-Oct-16 Wastage Sales (Jai Ambe Traders) AKLPM2756N 65,381.00 03-Nov-16 Visual Ventures Dadar 9,132.00 08-Nov-16 Soham Manpower Services Pvt. Ltd. (Dr.) 25,220.00 Cash Sales (B) 2,07,059.00 CASH AVAILABLE(C) = (A+B)38,57,059.00 LESS: CASH DEPOSIT IN BANK 23-Nov-16 Canara Bank - ODBD A/c 0108256810538 31,00,000.00 29-Dec-16 Canara Bank - ODBD A/c 0108256810538 6,88,000.00 (D) 37,88,000.00 Total (C)-(D)69,059.00
5.1 It is further pleaded that the assessee had withdrawn the cash just before the announcement of demonetisation. The AO has not doubted these cash withdrawals. The Cash Book has been accepted by the AO. No defect was found in the books of account of the assessee. The books of accounts were audited and the AO has not rejected the books. The Bank statements were produced during the assessment proceedings. Cash Sales have been accepted by the Assessing Officer and cash sales are part of total sales credited in Profit & Loss Account. The AO has accepted profit as declared by it. This is not a case of the AO that the amounts withdrawn from the bank were utilized for other purpose anywhere else. The cash book shows sufficient availability cash balance to deposit the amount in the bank. The A.Y. 2017-18 Printography Systems(India)Pvt. Ltd. AO having accepted the cash withdrawals and cash sales, the provisions of section 68 of the Act are not applicable as the source of funds has been accepted.
5.2 The ld.AR has further placed reliance on certain case laws in support of the contentions. It is submitted that in the case of Mohammed Faraaz Dosani Vs. ITO, assessee had withdrawn cash in the month of October, 2016 and same was deposited in the bank in the month of November, 2016. The assessee has demonstrated from the bank statements and cash book the source of Cash Deposits in bank. The ITAT has accepted the contention of the appellant. Likewise, in the case of ACIT Vs. Hirapanna Jewellers, the assessee submitted that the AO having accepted the books of accounts and sales and he cannot make addition u/s68 of the Act. The accounts were audited. The assessee has specifically relied on para 7.1 of the order which is quoted as under:
7.1. In the case of CIT v. Associated Transport (P.) Ltd. [1996] 84 Taxman 146 (Cal.) the Tribunal found that the assessee had sufficient cash in hand in the books of account of the assessee, therefore, held that there was no reason to treat this amount as income from undisclosed sources and it was not a fit case for treating the said amount as concealed income of the assessee. The revenue moved to Calcutta High Court against the order of the tribunal and the Hon'ble High Court has confirmed the order of the Tribunal while deleting the penalty, Hon'ble Calcutta high court held as under: “8. The Tribunal was of the view that the assessee had sufficient cash in hand. In the books of account of the assessee, cash balance was usually more than Rs. 81,000. There is no reason to treat this amount as income from undisclosed sources. It is not a fit case for treating the amount of Rs. 81,000 as concealed income of the assessee and consequently imposition of penalty was also not justified in this case.”
A.Y. 2017-18 Printography Systems(India)Pvt. Ltd. In the case of Lalchand Bhagat Ambica Ram v. CIT (1959) 37 ITR 288 (SC), the Hon'ble Apex Court decided the matter in favour ofassessee of the ground that it was clear on the record that the assessee maintained the books of accounts according to the mercantile system and there was sufficient cash balance in its cash books and the books of account of the assessee were not challenged by the Assessing officer. If the entries in the books of accounts are genuine and the balance in cash is matching with the books, it can be said that the assessee has explained the nature and source of such deposit. In the case of Lakshmi Rice Mills v. CIT [1974] 97 ITR 258 (Pat.) Hon'ble Patna High court held as under: “It is, in my view, a fundamental principle governing the taxation of any undisclosed income or secreted profits that the income or the profits as such must find sufficient explanation at the hands of the assessee. If the balance at hand on the relevant date is sufficient to cover the value of the high denomination notes subsequently demonetised and even more, in the absence of any finding that the books of account of the assessee were not genuine, the source of income is well disclosed and it cannot amount to any secreted profits within the meaning of the law.” All the decisions cited supra suggest that once, the assessing officer accepts the books of accounts and the entries in the books of accounts are matched, there is no case for making the addition as unexplained. Hon'ble Delhi High court considered the issue of taxing the opening stocks in the case of Principal Commissioner of Income Tax, 20, Delhi. v. Akshit Kumar, [2021] 124 taxmann.com 123 (Delhi), and upheld the order of the IТАТ in deleting the addition related to sales. The Hon'ble High Court has extracted the relevant part of the order of the ITAT which reads as under: “17. Thus, in our opinion the sale made by the assessee out of his opening stock cannot be treated as unexplained income to be taxed as ‘income from other sources’; firstly, the stock was available with the assessee in his books of account and trading in such stock including purchase, sale, opening and closing stock (quantity wise and value wise) has been accepted by the department year after year and in some years under scrutiny proceedings, therefore, non-existence of stock or business cannot be upheld; secondly, the sale of stock in the earlier years and the sale of balance left out stock in subsequent years has been accepted or has not been disturbed, then to hold that no stock was sold in this year and remained with the assessee will be difficult proposition; thirdly, inquiry and inspection by the 40 done much after the closure of business may not be persuasive for the past events especially in wake of facts as discussed above; and lastly, once neither any item in the trading account, nor gross profit has been rejected, then one part of credit side of the trading account, that is, sales cannot be discarded completely so as to hold that it is unexplained money.”
5.3 It is contented that in the above decisions, the hon’ble Tribunals have held that the source of cash deposits being established, the provisions of section 68 of the Act are not applicable. Considering the above facts and
We have carefully considered all the relevant facts of the case, rival contentions and also perused the records including the contents of the Paper Book submitted and relied upon by the ld.AR. It is noticed that the ld.CIT(A) has narrated the contents of the assessment order and only on the basis of the observation that the assessee failed to establish the source of the cash deposited by it during the demonetization period despite given adequate opportunity of hearing allowed to it, upheld the addition. It was concluded by him that the responsibility to elucidate the source of the cash deposits rested with the appellant, however, it failed to meet this obligation and furnish any acceptable explanation for the cash deposits.
6.1 We find that the assessee in the course of assessment proceedings, has brought all the necessary evidences on record to explain the queries made by the AO in the above matter. We further find sufficient merits in its contentions of the ld.AR that the said deposits representing business receipts were not doubted by the AO as also the entries recorded in the books of account which was duly audited. Neither any deficiency in the books of account was pointed out nor the books of account were rejected by the AO. The assessee has duly demonstrated the sources of these deposits from withdrawals made in cash a month earlier than the A.Y. 2017-18 Printography Systems(India)Pvt. Ltd. demonetisation announcement. Moreover, its contentions regarding the purposes of cash withdrawal for the Bonus to employees has not been controverted by the AO with any cogent evidence or investigation but merely brushed aside on surmises and assumptions only. The cash book and bank statement were duly produced before him. But no discrepancies were pointed out either. Nothing has also been brought on record to prove that the impugned cash withdrawals were used up for some other purposes and were not available with the assessee at the time of subsequent deposit in the banks.
6.2 It is noticed from the appellate order of the ld.CIT(A) that the entire assessment order containing issues involved, observations and findings of the AO and also the submissions made by the assessee have been reproduced from paras 5 to 6 running into as many as 11(eleven pages) in the order. However, the ld.CIT(A) instead of evaluating such replies and the evidences duly discussed in the body of the assessment order, has made a cryptic comment that the assessee failed to explain the matter on the sole observations that the assessee did not attend appellate proceedings before him. We fail to understand what more of explanation is needed to adjudicate in the matter as the AO has brought on record all relevant facts of the matter as also the detailed explanation submitted
6.3 We also find that the assessee has relied on a few case laws in support of its contentions wherein similar issue relating to cash deposit in banks explained from cash withdrawals have been decided in favour of the assessee. We find that the quoted decisions squarely apply to the facts of the present case as well. Besides, we notice that similar issue has been considered and decided in favour of other assesses in a catena of decisions by the co-ordinate Benches of ITAT across the country, a few of which are being refereed herein. Following observation were made in the case of Sri Girigowda Dasegowda, Bengaluru in ITA No.360/Bang/2022:
“I have carefully considered the rival submission. The Hon'ble Karnataka High Court in the case of Smt. P. Padmavathy (supra) clearly laid down that earlier withdrawals of cash from Bank account have to be accepted as available to an assessee to explain a later deposit as source. The Hon'ble Court held that it was not open to the Revenue to contend that the assessee has to explain as to how the cash withdrawn earlier was utilized by an assessee and was still available with the assessee. Hon'ble Karnataka High Court in the case of Smt. P. Padmavathi Vs. The ITO of 2009 judgment dated 06.10.2010 wherein the question before the Hon'ble Court relating to Assessment Year 2004-05 was whether the findings of the authorities that the source of cash deposited in the loan account is not properly explained in sustainable. The Court held that earlier withdrawal from the same account shall be held to be proper explanation of the source. The following were the relevant observations of the Court: "11. Question 3: In so far as the cash deposit in two loan accounts as set out above is concerned, the material on record discloses that the assessee had Rs.7,00,000/- in cash on 20.8.2003 having withdrawn the same from his bank account. The said Rs.7,00,000/- has suffered tax. No doubt the deposit in the two loan accounts was made on 29.9.2003 and on 25.11.2003. The authorities have d is be li ev ed t he ea se of t he asse s see on th e g rou n d th a t there is a gap of 40 A.Y. 2017-18 Printography Systems(India)Pvt. Ltd. days or more between the withdrawal of the amount from the bank account and re-deposit of the same in the loan account. Secondly, on the ground that, it is risky to keep large amount of cash on hand. Thirdly, they are of the view that the explanation offered such as having borrowed a gold loan, yet another loan of Rs.2,00,000/- and sale of paddy, are not established by proper evidence. It is in this context, it is useful to refer to a judgment of this Court in the case of 'S.R.Venkataratnam Vs. Commissioner of Income Tax, Karnataka-1 and another' reported in ITR (127) 1981 Page 807, where a learned Single Judge held as under: "Once the petitioner-assessee disclosed the source as having come from the withdrawal made on a given date from a given bank, it was not for the respondents no.1 and 2, to concern themselves with what the assessee did with the money, i.e., whether he had kept the same in his house or utilised the services of a bank by depositing the same. The ITO has only two choices before him. One was to reject the explanation as not believable for the reason that on his investigation no such pigmy deposit was ever made into the bank. In the alternative, he ought to have called upon the assessee- petitioner to substantiate his claim by documentary evidence. Having exercised neither of the choices, it was not open to the ITO to merely surmise that it would not be probable for the assessee to keep Rs.15,000/- unutilised for a period of two years. The ITO should have given an opportunity to the assessee to substantiate his assertion as to the source of the capital outlay.” 6.4 In another case of Sanjay Godha, Jaipur vs Acit, Circle-1, Jaipur, on 29 August, 2024in it was inter alia observed as below:
Thus, once the assessee explained that source of cash deposit in the bank account is out of the earlier withdrawals made from the same bank account, the burden of proof is on the department to establish that cash has been utilized elsewhere if the explanation of assessee is not to be accepted. We get support of this view from the decision of Kulwant Rai 291 ITR 0036 (2007) (Delhi HC) wherein the high court held that; The relevant Para 16 is reproduced as under: "16. This cash flow statement furnished by the assessee was rejected by the AO which is on the basis of suspicion that the assessee must have spent the amount for some other purposes. The orders of AO as well as CIT(A) 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 assessee has withdrawn from bank a sum of Rs. 2 lacs on 4th Dec., 2000 and there was no material with the A.Y. 2017-18 Printography Systems(India)Pvt. Ltd. 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 AO or CIT(A) 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 lacs is legally not sustainable under s. 158BC of the Act and the same was rightly ordered to be deleted." 6.5 In another case of Dcit 26(1), Mumbai vs Anuya Jayant Mhaiskar, Mumbai on 21 July, 2022 in ITA /1517/Mum/2021,it was observed as under:
9. Considered the rival submissions and material placed on record, we observe that Assessing Officer noticed that assessee has redeposited cash of ₹.1.012 crores in the bank account during demonetization period. In order to verify the sources for such deposit, he asked the assessee to prove the sources for the same. Assessee submitted the detailed submissions with the cash book, which disclosed the availability of sufficient cash in hand. The Assessing Officer did not accept the details of cash withdrawals declared by the assessee during the year. We observe from the submissions that the assessee has disclosed the sufficient funds available with him to deposit the same. There is no evidence with the Assessing Officer to dispute with the availability of funds with the assessee. We observe that assessee had sufficient funds more than the amount deposited in the bank. Merely because assessee did not explain the reasons for withdrawal and why not deposited full cash available in the cash book is not the proper reasons for the Assessing Officer to make addition. It is for the Assessing Officer to bring on record any contrary evidence that assessee has misused the funds available on the record. What is relevant is the source for the funds deposited in the bank account and assessee has proved that it has sufficient unutilised funds in the books. The availability of funds in the cash book supports the cash deposits in the bank. Therefore, Assessing Officer cannot go beyond the mandate unless he has contrary evidence. Therefore, we do not like to alter the findings of the Ld.CIT(A) and it is not proper for Assessing Officer to apply preponderance of probity in this case. Therefore, the grounds raised
by the revenue are dismissed. 6.6 In another case of Parsvnath Developers Ltd., Delhi on 16. October, 2023 in ITA/950/Del/2021,it was decided as below:
“6. We have considered rival submissions and perused the material available on record.
A.Y. 2017-18 Printography Systems(India)Pvt. Ltd.
7. Undisputedly, assessee is a real estate developer and builder. It is also a fact that the assessee has undertaken real estate development activities at multiple locations spread across the country.
Facts on record reveal that in addition to the opening cash in hand of Rs.58,30,736 available to the assessee on 01.04.2016, during the period 01.04.2016 to 08.11.2016, corresponding to the impugned assessment year, the assessee had total cash withdrawals of Rs.12,07,98,629. Major part of such withdrawals have been utilized by the assessee in its business activities leaving aside an amount of Rs.2,59,89,822. Out of which, the demonetized cash of Rs.2,20,00,000 has been deposited in the bank account. The assessee, being a real estate developer and builder, requires sufficient cash availability to meet theexpenses incurred in its business activities. This is the reason why the assessee had such huge withdrawals of more than of Rs.12,00,00,000. It is also a fact that out of such cash withdrawals, huge amount of more than Rs.8,00,00,000 has been utilized in its business activities. Thus, the explanation of the assessee that the demonetized cash of Rs.2,25,00,000 was out of earlier cash withdrawals, in our view, is a quite plausible plea, hence, deserves to be believed, in absence of any contrary evidence brought on record by the Assessing Officer to demonstrate that the assessee didn't have in its possession unutilized cash out of the earlier cash withdrawals.
9. In view of the aforesaid, we do not find any valid reason to interfere with the decision of learned First Appellate Authority. Ground taken by the Revenue is dismissed.” 6.7 In the light of the aforesaid discussion on the issue involved in the present case and after carefully deliberating on the facts and the circumstances of the case as also taking into consideration and respectfully judicial decisions quoted and relied upon (supra), we are of the considered opinion that the ld.CIT(A) was not justified in upholding the addition. The ld.AO is directed to delete the same. In the result ground nos.1,2 and 3 above are allowed.
Ground nos. 4 and 5 relate to the addition made in respect of Interest of Income Tax Refund of Rs.14,60,993/-which is stated to be already disclosed in the return by the assessee and was wrongly added.
A.Y. 2017-18 Printography Systems(India)Pvt. Ltd. 8. The AO has added Interest u/s 244A of the Act on Income Tax Refund amounting to Rs. 14,60,993/-on the ground that the same was not disclosed. The ld.CIT(A) has also affirmed the addition.
In this regard, the assessee has claimed that the AO during the assessment proceedings did not make any query in this regard and straightway added the same, though facts remain that the assessee had disclosed a sum of Rs.11,41,151/-as Interest on Income Tax refund on which was received during the year and had duly disclosed in the audited account. The said income was declared in the Profit & Loss Account by way of interest on Income Tax refund. Total Interest was declared by the appellant in Profit & Loss Account of Rs.20,13,039/- which included interest on Income Tax Refund. The said income is clearly shown in the Statement of Income under the head “Income from Other Sources”(reference made to page 1 of the paper book).Form No.26AS, shows Interest Income on Income Tax Refund of Rs. 11,02,752/-. The assessee had offered income of Rs. 11,41,151/-. Since the Income has been declared by it, there was no question of making double addition of Income already declared once again. The assessee has not received in interest on Income Tax Refund amounting to Rs. 3,58,241/- of A.Y.2015-16 as stated in the assessment order and same is also not reflected in Form No. 26AS.In view of the above, the addition has wrongly been made by the AO in respect A.Y. 2017-18 Printography Systems(India)Pvt. Ltd. of issue which was never raised during the assessment proceedings. Since, no point was raised by the AO during the assessment proceedings, the assessee had no opportunity to explain the same. Alternatively, it is submitted that this ground of appeal
may be set aside back to the AO to verify the same with an opportunity given to the appellant.
10. We have carefully considered all relevant facts of the case and find that the addition has been made on incorrect appreciation of facts on record and without affording opportunity of hearing to the assessee and without obtaining any explanation from it. The ld.CIT(A) wrongly upheld the addition. We are of the considered view that the issue needing only a factual verification of records at the level of the ld.AO, is required to be sent back to him for taking a decision accordingly. Therefore, the grounds above are remitted back to the AO for reconsideration of the facts and decide the same after offering adequate opportunity of hearing to the assessee in this regard. The grounds no.4 and 5 above are therefore allowed for statistical purposes only.
11. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 01/04/2025.