GANAPATHY PANNEERSELVAM,CHENNAI vs. THE INCOME TAX OFFICER, NON CORP. WARD 19(4), CHENNAI, CHENNAI

During the demonetization period, the assessee deposited cash amounting to Rs.15,10,500/- in his bank account maintained with M/s. Karur Vysya Bank, Velachery Branch, Chennai. During the course of the assessment proceedings, the Assessing Officer issued a show-cause notice requiring the assessee to explain the source of these cash deposits. In response, the assessee submitted that the deposits were made from cash previously withdrawn from his bank account. It was explained that the withdrawals were intended to meet expenses related to his son’s marriage and other personal needs. However, the unutilized amount of Rs.15,10,500/- was subsequently re-deposited into the same bank account during the demonetization period. The assessee's submission before the Assessing Officer was as under:

The assessee made further submission before the Assessing Officer as under: “In continuation to my discussion with you on 14/06/2019, I submit the following for your kind perusal:

The assessee, therefore, explained before the AO that the cash deposits made during the demonetization period represented the re-deposit of unutilized cash previously withdrawn from the same bank account. In support of this explanation, the assessee submitted bank statements reflecting the cash withdrawals, along with bills and supporting documents for the expenses incurred for the stated purpose. However, the AO was not satisfied with the explanation provided and proceeded to conclude the assessment by treating the cash deposits of Rs.15,10,500/- as unexplained. Consequently, an addition u/s.69 of the Act was made, and an order was passed u/s.143(3) of the Act on 28.06.2019, with the following findings:

Aggrieved by the order of the AO, the assessee preferred an appeal before the ld. CIT(A), NFAC.

During the course of appellate proceedings, the assessee furnished a detailed cash flow statement, daily cash balances, and corresponding extracts from the cash book, thereby demonstrating the consistent availability of sufficient cash in hand prior to each deposit made into the bank account. It was explained that the cash deposits during the demonetization period were sourced from earlier cash withdrawals aggregating to Rs.47,58,000/- made from the same bank account over the financial years 2014-15 to 2016-17. In support of this claim, the assessee submitted the relevant bank statements corroborated by the cash flow statement. It was further explained that the withdrawals were primarily intended to meet various family obligations and events, including the marriage of the assessee’s daughter in June 2014 and the proposed (but later cancelled) marriage of the assessee’s son in early 2016. To substantiate the actual application of funds, the assessee furnished documentary evidence including bills for jewellery, furniture, medical expenses, LIC premium payments, and household expenses, amounting to Rs.32,19,812/-. After

On perusal of the submission and various judicial precedents relied by the assessee, the ld. CIT(A) passed an order dated 22.01.2025 by sustaining the addition of Rs.15,10,500/- made by the Assessing Officer u/s.69 of the Act, by holding as under:

Aggrieved by the order of the ld. CIT(A), the assessee preferred an appeal before us.

The ld. AR of the assessee, Shri R. Venkata Raman, Chartered Accountant, submitted that it is an undisputed fact that the assessee had made cash withdrawals from his bank account. Referring to the orders of the lower authorities, the ld. AR contended that the only ground for making the addition was the time gap between the cash withdrawals and their subsequent re-deposit. The ld. AR submitted that the assessee, being a senior citizen and not well-versed in online banking or digital transactions, relied on cash withdrawals to manage his expenses. The ld. AR further submitted that, apart from routine monthly maintenance needs, the assessee had also withdrawn cash to meet anticipated marriage expenses. To verify the purpose of these withdrawals, the Assessing Officer had called for supporting bills and documents, which the assessee duly submitted during the assessment proceedings.

The ld. AR, referring to the assessee’s bank account statement held with Karur Vysya Bank, Velachery Branch, Chennai (Account No. 1265175000000145), placed at pages 1 to 3 of the Paper Book, submitted that the assessee had deposited cash amounting to Rs.15,10,500/- during the period from 11.11.2016 to 20.12.2016. Drawing our attention to the cash flow statement for the period from 01.04.2015 to 31.12.2016, available at pages 4 to 6 of the Paper Book, the ld.AR submitted that the cash withdrawals from the said bank account constituted inflows which were utilized to meet various personal and household expenses. The unspent portion of these withdrawals was subsequently re-deposited during the demonetization period.

Further, referring to the cash book extracts for the period 11.11.2016 to 20.12.2016, placed at pages 7 to 13 of the Paper Book, the ld.AR submitted that the assessee had sufficient cash balance on hand prior to each deposit. It was therefore contended that the cash deposits were not unexplained or without adequate source, but rather constituted re-deposits of earlier cash withdrawals. In light of this, the ld. AR argued that the assessee had satisfactorily demonstrated the source of the cash deposits amounting to Rs.15,10,500/- and, accordingly, the addition made by the Assessing Officer u/s. 69 of the Act and sustained by the learned CIT(A) is unjustified and liable to be deleted.

Referring to the income tax returns filed by the assessee for the AYs 2015-16 to 2017-18, placed at pages 14 to 24 of the Paper Book, the ld. AR submitted that the assessee had declared total income of Rs.9,64,490/- for AY 2015-16, Rs.10,89,430/- for AY 2016-17, and Rs.9,94,670/- for AY 2017-18. The ld. AR pointed out that the aggregate income declared over these three years amounted to Rs.30,48,590/-, comprising solely of interest income, which had been duly credited to the assessee’s bank account. It was further submitted that the cash withdrawn by the assessee from the bank account represented this interest income, which had already been subjected to tax. Therefore, the ld. AR contended that the re-deposit of such funds during the demonetization period cannot be treated as unexplained income. According to the ld. AR, the Assessing Officer’s action in taxing the re-deposited amount effectively results in double taxation of income that has already been assessed, which is unjustified and contrary to law.

The ld. AR, referring to page 22 of the order passed by the ld. CIT(A), submitted that the ld. CIT(A) had observed that the assessee was withdrawing and depositing cash on the same day. In response, the ld. AR clarified that the withdrawals referred to by the ld. CIT(A) were only small amounts in new currency, made during the demonetization period. Therefore, the ld. AR contended that such an observation is misplaced and has no relevance to the core issue. It was argued that these minor withdrawals do not justify the addition made by the Assessing Officer, and the reliance placed on them by the ld. CIT(A) in sustaining the addition is unwarranted.

The ld. AR, placing reliance on the judgments of the Hon’ble Karnataka High Court in S.R. Venkata Ratnam v. CIT [1981] 127 ITR 807 (Kar) and in :-10-: ITA. No:609/Chny/2025 Smt.P.Padmavathi v. ITO (ITA No. 414/2009, dated 06.10.2020), submitted that once the assessee has satisfactorily established the source of the cash deposit as being from prior withdrawals from a disclosed bank account, such explanation cannot be disregarded in the absence of any material evidence to the contrary. The ld. AR argued that it is not within the purview of the Department to question how the assessee dealt with the withdrawn funds in the intervening period before redeposit, unless there is a clear finding that the explanation offered is implausible or contradicted by facts on record.

The ld. AR, further relying on the judgment of the Hon’ble Kerala High Court in CIT v. K. Sreedharan [1993] 201 ITR 1010 (Ker), submitted that the Hon’ble High Court had held that even a time gap of four years between the source and its subsequent deposit does not, by itself, negate the presumption of continued availability of the funds. In the present case, the ld. AR pointed out that the time gap between the assessee’s cash withdrawals and subsequent re-deposits ranges only from 6 to 18 months, which is well within the four-year period accepted by the Hon’ble High Court. Therefore, it was argued that the time gap alone cannot form a valid basis to reject the assessee’s explanation regarding the source of cash deposits.

The ld. AR, relying on the judgment of the Hon’ble Delhi High Court in Jaya Aggarwal v. ITO [2018] 92 taxmann.com 108 (Del), submitted that the assessee’s explanation regarding the re-deposit of previously withdrawn cash ought to be accepted in the absence of any contrary evidence or adverse findings brought on record by the Department.

Based on the foregoing submissions, the ld. AR prayed for the deletion of the addition of Rs.15,10,500/- made by the AO u/s. 69 of the Act, by setting aside the order passed by the ld. CIT(A) and allowing the appeal of the assessee.

Per contra, the ld. DR placed reliance on the orders of the Assessing Officer and the ld. CIT(A), and submitted that no prudent individual would retain substantial cash in hand over an extended period, thereby foregoing potential interest income. Accordingly, the ld. DR urged that the order of the ld. CIT(A) be upheld and the addition sustained.

We have heard both the parties, perused materials available on record and gone through orders of the authorities below along with judicial precedents relied on. It is an admitted fact that the assessee is regular in filing his return of income and had filed the return of income by declaring total income of Rs.9,64,490/- for AY 2015- 16, Rs.10,89,430/- for AY 2016-17, and Rs.9,94,670/- for AY 2017-18. Further, it is undisputed fact that the assessee had withdrawn cash aggregating to Rs.42,50,000/- from his bank account from 10.05.2015 to 29.05.2016. In support of the cash deposit made, the assessee had furnished a comprehensive cash flow statement, a :-12-: ITA. No:609/Chny/2025 summary of cash inflows and outflows, bank statement and extracts from the cash book both before the AO as well as the ld.CIT(A). These documents collectively demonstrate that the cash deposits of Rs.15,10,500/- made into the assessee’s bank account during the demonetization period were sourced from earlier cash withdrawals from the same bank account. We note that it is evident that the assessee has duly discharged the initial burden of proof by establishing the source of the cash deposits as unutilized cash withdrawals. It is a settled position in law that while an assessee is required to prove a positive fact, he cannot be expected to prove a negative. In such circumstances, the onus shifts to the Assessing Officer to rebut the explanation by bringing on record any material evidence to show that the withdrawn cash was utilized or diverted for some other purpose.

In the present case, the Assessing Officer has not brought on record any such material to suggest that the cash withdrawn earlier was spent, invested, or otherwise deployed elsewhere. We note that the only basis for the AO’s rejection of the assessee’s explanation is the time gap between the withdrawal and the subsequent re-deposit of cash. However, it is to be noted that there is no statutory or judicially prescribed time limit within which cash must be re-deposited to be considered explained. The mere existence of a time gap, without any corroborative evidence of alternate use of funds, cannot be a valid ground to disbelieve the assessee’s explanation. Furthermore, there is no legal bar on an assessee retaining cash in hand for a reasonable period, particularly when the source of such cash is accounted for and traceable through bank withdrawals. The AO’s inference that no prudent person would hold cash and forego interest is speculative and not based on any evidence specific to the assessee's financial conduct or circumstances.

The Hon’ble Karnataka High Court in S.R. Venkata Ratnam v. CIT [1981] 127 ITR 807 (Kar) has held as under:

Following the above judgment, the Hon’ble Karnataka High Court in Smt. P. Padmavathi v. ITO (ITA No. 414/2009, dated 06.10.2020), has held as under: “12. In this case, it is not in dispute that the assessee withdrew a sum of ₹.5,00,000/- on 18.8.2003 and ₹.2,00,000/- on 20.8.2003 from her savings account. She is an agriculturist and she had agricultural income. Once she demonstrated that she was in possession of ₹.7,00,000/- cash plus agricultural income on her hands, if after 40 days, a cash deposit is made to the extent of about ₹.5,20,000/- towards loan account, it cannot be said that the source of the said deposit is not properly explained. Merely because there is a delay of 40 days from the date of withdrawal of the money from the bank account to the date of deposit in the loan account. Once money is shown to be in the account and withdrawn, what the assessee did with that money till it was actually deposited, is not the concern of the Department. As long as the source is explained and established and when the money is withdrawn from a savings bank account and paid to discharge loan by deposit into a loan account, it is not possible to hold that the source is not explained. In that interregnum period, if the very same money is utilised for other purpose and thereafter, it is appropriated towards discharge of a loan, that cannot be held against the assessee. In that view of the matter, the finding recorded by the Tribunal is erroneous and requires to be set aside. Therefore, the said substantial question of law is also held against the revenue and in favour of the assessee.”

The Hon’ble Delhi High Court in Jaya Aggarwal v. ITO [2018] 92 taxmann.com 108 (Del) has held as under:

Therefore, in the present facts and circumstances of the case and the ratio decidendi laid down in the aforementioned judgments is directly applicable to the facts and circumstances of the present case concerning the assessee and hence we are inclined to set aside the order of the ld.CIT(A). Accordingly, by respectfully following the binding precedent, we hold that the addition of Rs.15,10,500/- made u/s.69 of the Act in the hands of the assessee, is not justified in law. Consequently, the said addition stands deleted.

In the result, the appeal filed by the assessee is allowed.