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Facts
The assessee, a NRI, deposited Rs. 13.43 lakhs in his NRO account during the demonetization period. He claimed these deposits were out of cash withdrawals of Rs. 19.80 lakhs made earlier from his NRE account. The Assessing Officer and CIT(A) treated these deposits as unexplained income.
Held
The Tribunal held that if cash withdrawal is undisputed and there is no finding that the money was utilized for other purposes, a time gap between withdrawal and deposit does not automatically make the deposit an undisclosed income.
Key Issues
Whether a time gap between cash withdrawal from bank and subsequent deposit in another bank account can be treated as unexplained income without any evidence of utilization of withdrawn cash for other purposes.
Sections Cited
68, 69A, 270AAC, 272A(1)(d), 142(1)
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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI MAKARAND V. MAHADEOKAR
(Assessment Year: 2017-18) Mansukhlal Ratanshi Radia, Vs. Assistant Commissioner of Kaushali, Opp: Ashish Bunglows, Income Tax, Vidyanagar Road, Karamsad, Circle International Anand-388325 Taxation, Vadodara [PAN No.CEKPR3765K] (Appellant) .. (Respondent) Appellant by : Shri Divyakant Parikh, A.R. Respondent by: Ms. Neeju Gupta, Sr. DR Date of Hearing 13.03.2025 25.03.2025 Date of Pronouncement O R D E R
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeal), (in short “Ld. CIT(A)”), Ahmedabad-13 vide order dated 14.09.2023 passed for A.Y. 2017-18.
The Assessee has taken the following grounds of appeal:-
“1. The learned CIT(Appeals) has grievously erred both in law and on facts in confirming the addition of Rs. 13,43,000/- being deposits in bank account by appellant an NRI treating the same as Unexplained credit as added by ld AO.
2. The ld CIT(Appeals) has grievously erred both in law and on facts in not appreciating the explanations and the evidences furnished to him and the lower authorities regarding the source of cash deposited in the bank account from out of earlier withdrawals from the appellants bank accounts and confirming the addition on untenable grounds about human behaviour. It be so held now and addition be deleted.
3. Both the lower authorities erred in law and on facts in making addition of Rs. 13,43,000/- without bringing any evidences on records as regards utilization of cash balance elsewhere and ignoring the correct legal position settled by Mansukhlal Ratanshi Radia vs. ACIT Asst.Year –2017-18 - 2– judgments of Jurisdictional High Court and Tribunals. It be so held now and addition be deleted.
4. The ld CIT(Appeals) further erred in la wand on facts in confirming the addition of Rs. 13,43,000/- made by the ld AO ignoring the legal position settled by the Apex Court that the appellant had no source of any income in India and addition could not be made when the source of cash deposit in the bank account was fully explained. It be so held now and addition be deleted.
5. The ld CIT(Appeals) erred in law and on facts in not properly considering the appellants grounds and in making erroneous conclusion and presumptions that cash withdrawn is presumed to be utilised fully which is clearly against the judgment of Jurisdictional Gujarat high Court. It be so held now and addition made be deleted.
6. The ld CIT(Appeals) ought to have allowed the appeal of the appellant in toto.
7. The appellant craves leave to add, alter, modify or delete any of the grounds at the time of hearing.”
The brief facts of the case are that the assessee had made deposits of Rs. 8 lakhs and Rs. 5.3 lakhs in his NRO account held with Indusind Bank on 06.12.2016 and 07.12.2016 during demonetization period. The Assessing Officer issued notices of hearing to the assessee asking about the source of deposits of a sum of Rs. 13.43 lakhs in his NRO account. In response to notices issued by the Assessing Officer, the assessee submitted that he had made withdrawal from his NRE account held with Indusind Bank on 05.12.2016 and 16.12.2016, for a sum of Rs. 9.90 lakhs each. Accordingly, the assessee submitted that in the month of February2016 he had made total withdrawals from his NRE account amounting to Rs. 19,80,000/- and it was from these withdrawals that the assessee had made deposits of Rs. 8,00,000/- on 06.12.2016 and 5.43 lakhs on 07.12.2016. The assessee submitted that he is a NRI UK citizen having no independent source of income except a small amount of saving bank interest. The assessee submitted that while visiting India, he had withdrawn cash from his NRE account in the month of February 2016, which were kept with him in cash and thereafter, during demonetization period out of the Mansukhlal Ratanshi Radia vs. ACIT Asst.Year –2017-18 - 3– aforesaid amount of Rs. 19.80 lakhs withdrawn in the month of February 2016 the assessee made re-deposit of a sum of Rs. 13.43 lakhs. However, the Assessing Officer did not accept the contentions of the assessee and confirmed the addition in his hands, with the following observations:
“4.4 Further, it is accepted human behaviour that if cash is withdrawn for some purpose, it is utilized for that purpose only and when no cash balance is left with the person, he or she would again makes withdrawal. However in the assessee's case it is seen that cash is being withdrawn on 05-02-2016 and 16-02-2016 of Rs.9,90,000/- each from NRE Account No. 100027021061 of Indusind Bank. Further a person withdraws from a bank for certain purposes like recurring expenses or for purchase of capital goods or assets etc. and therefore it is simple practice/custom that whatever amount of cash that was withdrawn earlier by a person is generally utilized fully and thereafter one would withdraw further money from the bank for another type of expenses. Accordingly amount of Rs.9.90 Lacs withdrawn on 05-02-2016 by the assessee from his bank account number 100027021061 must have been utilized by him or his wife first and thereafter on 16-02-2016 when the assessee needed more money he could have withdrawn further amount of Rs9.90 Lacs., As per the assessee's argument he has spend an amount of Rs. 6.37 lacs out of total amount of Rs.19.80 Lacs withdrawn from his bank account and remaining amount of Rs.13.43 lacs was kept as it is till the date on which it was deposited in his bank account on 06-12-2016 & 07-12-2016 which is against the normal human behavior. Therefore, if huge cash is withdrawn, specific purpose should have been existed (as to why huge cash was withdrawn) and for which purpose it was spent. Further the assessee's reply should have been supported by concrete documentary evidences. Nobody withdraw money from the bank just to keep it in liquid form especially when a person, is having bank accounts and is well aware of electronic modes of payment. …..
In light of the above discussion in para 4 the assessee has failed to establish the sources of cash deposits made during demonetization period in his bank account 100027021061 of Indusind Bank, therefore the said amount of cash deposit of Rs.13.43 Lacs is here by treated as unexplained credit transaction and added to the "total income of the assessee for the year under consideration. A separate notice u/s. 270AAC of the Act is hereby issued for underreporting of income for the year under consideration. A separate notice u/s.272A(1)(d) of the Act for non-compliance to notice u/s. 142(1) of the Act is hereby issued.”
In appeal, Ld. CIT(A) confirmed the additions made in the hands of the assessee. While passing the order, Ld. CIT(A) made the following observations:
Mansukhlal Ratanshi Radia vs. ACIT Asst.Year –2017-18 - 4– “6.311 If any person claims that cash withdrawn earlier were deposited subsequently, then the same cannot be allowed automatically, but said person has to explain the co-relation between the cash, withdrawals and cash deposits and one of the factor in deciding the same is the gap of time period after which the cash deposits were made from the date of cash withdrawals, through which source of such cash deposits is tried to be explained. In the case of Smt. Kavita Chandra, reported in 81 taxmann.com 317, while adjudicating similar issue of cash deposits, the Hon'ble Punjab & Haryana High Court has upheld the finding of the lower authorities wherein they had held that cash deposit after gap of two or three months of withdrawals as not probable and decided the issue in favour of Revenue. In the present case, the cash were withdrawn in the month of Feb 2016 has been tried to be explained as source of cash deposits made in the month of Dec 2016, i.e. after a gap of approximately more than 9 months and.in absence of any co-relation being submitted between said cash withdrawals and cash deposits, the explanations of the appellant in this respect is not acceptable. 6.3.12 In view of above discussions and the facts & circumstances of the case, I am of the considered opinion that no fault can be found with the action of the Ld. AO in making the impugned addition of Rs. 13,43,000/-, being the cash deposited in the bank account, source of which could not be explained by the appellant. Therefore, the impugned addition made at Rs.13,43,000/- is CONFIRMED. Accordingly, the Ground Nos. 1 to 4 raised in appeal is DISMISSED.”
5. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A), confirming the additions made in the hands of the assessee.
Before us, the Counsel for the assessee submitted that it is an undisputed fact that the assessee is a NRI and a citizen of UK having no independent source of income in India. It was submitted that it is not the allegation of Department that the assessee was having any undisclosed sources of income from which the deposit of Rs. 13.43 lakhs was made by the assessee in his NRO account. Further, it is also an undisputed fact that the assessee was having a NRE account with Indusind Bank from which the assessee had withdrawn sum of Rs. 19,80,000/- in two tranches on 05.12.2016 and 16.12.2016. The case of the assessee was that it was out of these withdrawlas earlier made by the assessee that the subsequent re- deposit of Rs. 13,43,000/- was made by the assessee in his NRO account. The above facts haven not been disputed by the Department. The only Mansukhlal Ratanshi Radia vs. ACIT Asst.Year –2017-18 - 5– reason why the addition was made in the hands of the assessee was that the Assessing Officer doubted that cash was kept with the assessee for ten months, and it was presumed that assessee should have spent the amounts somewhere. Further, the assessee had also given contradictory statements as regards to the person with whom the cash which was withdrawn in the month of February 2016, was kept within India. However, it is not in dispute that firstly, the assessee had withdrawn a sum of Rs. 19,80,000/- in the month of February 2016 and further, the Department has not given any finding as to why this amount which was earlier withdrawn by the assessee from his NRE bank account was not available with the assessee for re-deposited. The Counsel for the assessee submitted that addition which is made merely on suspicion and presumption that the cash earlier withdrawn was not available with the assessee cannot be sustained. In this regard, the Counsel for the assessee placed reliance on various judicial precedents.
7. In response Ld. D.R. placed reliance on the observation made by the Assessing Officer and Ld. CIT(A) in their respective orders.
8. We have heard the rival contentions and perused the material on record.
It would be useful to reproduce some relevant judgment on the issue in which it was held that if it is an undisputed fact that the cash was withdrawn by the assessee and merely if there is a time gap between withdrawal of cash and re-deposit of the same by the assessee in his bank account, the same cannot be the subject matter of the addition and cannot be treated as undisclosed income of the assessee, unless the Department gives some conclisive evidence that the cash which was earlier withdrawn Mansukhlal Ratanshi Radia vs. ACIT Asst.Year –2017-18 - 6– by the assessee was not available for re-deposit by such assessee (and that the amount had been spent / utilized by the assessee for some other purpose).
In the case of Mahendrakumar Prahladbhai Vaghela vs. ITO (Intl. Txn.) in for A.Y. 2017-18, while passing the order the ITAT made the following observations:
“6. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals). On going through the facts of the instant case, we observe that during the proceedings before Ld. CIT(Appeals), the assessee submitted additional evidence, for which CIT(Appeals) obtained a remand report from the Assessing Officer. The assessee clarified that the amount deposited into the bank account represented the repayment of previous loans given to relatives, which were returned to the assessee during demonetization period. A detailed tabular chart giving details of relatives from whom cash was received was also furnished before Ld. CIT(Appeals), during the course of appellate proceedings (at page 25 of Ld. CIT(Appeals) order). According to the assessee, during the demonetization period, these relatives offered cash in the form of SBN (specified bank notes) to settle outstanding loans. The appellant explained that he was left with no choice but to accept the SBN as a means of settling the loans, fearing that otherwise, the debts would become uncollectible. the assessee submitted that his decision to accept the cash was prudent, given the malicious intentions of the relatives, which he believed could lead to future disputes. The assessee also furnished notarized declarations from some of the relatives, the contents of which have been reproduced by Ld. CIT(Appeals) in his order (refer page 27 of CIT(Appeals) order). The assessee's prediction of such disputes also proved correct, as these relatives eventually generated family disputes that culminated in the assessee’s divorce. Furthermore, the assessee also furnished the PAN numbers of the related parties from who the amounts were received back (refer page 25-26 of CIT(Appeals) order). Accordingly, in our considered view, the assessee has submitted substantial details/ plausible explanation in support of the source of cash deposit made during the demonetization period. Further, we observe that Department while making this addition of Rs. 15.15 lakhs has not conducted any inquiry from the lenders, to verify the facts presented by the assessee and nor has pointed of any specific defects in the details submitted by the assessee. The primary reason why Ld. CIT(Appeals) confirmed the additions was on the foundation that cash withdrawn in the previous several years could not have been kept unused for such a long period of time. In the case of Sudhirbhai Pravinkant Thaker 88 taxmann.com 382 (Ahmedabad - Trib.), the ITAT held that when assessee had demonstrated that he had withdrawn cash from bank and there was no finding by authorities below that this cash available with assessee was invested or utilized for any other purpose, it was not open to authority to make addition on basis that assessee failed to explain source of deposits. In the case of Ajit Bapu Satam 147 taxmann.com 222 (Mumbai - Trib.), the ITAT held that where Assessee contended that cash which was withdrawn by assessee from bank was deposited in very same bank account and he provided details of cash withdrawal from bank account and cash so withdrawn was lying with him and was not used anywhere else, since both cash withdrawal and deposit were duly substantiated from bank statement of very same branch of bank and there was no findings by lower authorities that cash available with assessee was invested or utilised for any other purpose, cash so deposited could not be treated as unexplained money under section 69A of the Act. In the case of Jaspal Singh Sehgal 83 taxmann.com 246 (Mumbai - Trib.), where the assessee submitted detailed cash summary showing inflow and outflow of cash for relevant year, in absence of any materials to show that cash withdrawn was utilised elsewhere by assessee, benefit of cash withdrawn by assessee from bank account against amount of cash deposit into bank should be given. In the case of Smt. Krishna Agarwal v. ITO in the ITAT held that mere time gap between withdrawals and deposits cannot be the reason for alleging undisclosed income. In the case of ITO v. Deepali Sehgal I.T.A .No.-5660/Del/2012 it was held that merely because there was a time gap between withdrawal of cash and its further deposit to the bank account, the amount can not be treated as income from undisclosed sources u/s 69 of the Act in the hands of the assessee.
Accordingly, looking into the instant facts and the explanation provided by the assessee, along-with supporting evidences/ Affivavits etc. we are of the considered view that no addition is called for the instant facts.
In the result, appeal of the assessee is allowed.”
In the case of Manoj Indravadan Chokshi the Jurisdictional High Court of Gujarat made the following observation in this regard:
8.1. Similarly in the case of Manoj Indravadan Chokshi the jurisdictional High Court of Gujarat held as follows: “… The contention of the assessee is that the amount was kept as cash in hand. The authorities have doubted about the explanation furnished by the assessee. The authorities below have doubted the source of the cash deposits, however, the contention of the Id. counsel for the assessee is that he had withdrawn the amount from his bank account and there is no finding by the authorities below that the cash withdrawn by the assessee was utilized for any other purpose. In the absence of such finding, addition is not justified. We find merit into the contention of the Id. counsel for the assessee that there is no dispute that the amount which was withdrawn by the assessee on various dates during the year 2006 was available with him for making deposits. In the absence of finding that the amount which was previously withdrawn by the assessee had been utilized for any other purpose merely on the basis of conjecture that the amount might have been utilized for any other-purpose and was not available with the assessee for making the deposits, we are unable to accept the reasoning of the authorities below. In our considered view, when the assessee has demonstrated that he had withdrawn cash from the bank and there is ho finding by the authorities below that this cash available with the assessee was invested or utilized for any other purpose, in that event, it is not open to the authority to make the addition on the basis that the assessee failed Mansukhlal Ratanshi Radia vs. ACIT Asst.Year –2017-18 - 8– to explain the source of deposits. Moreover, the authorities below have not disputed the fact that the assessee had withdrawn amount of Rs.9,10,000/- before the deposits made on various dates during the FY 2007-08. Therefore, the orders of the authorities below are set aside and the AO is directed to delete the addition. Thus, ground raised in the asseessee's appeal is allowed.
12. In the case of Sorab Aggarwal vs. ACIT in for A.Y. 2008-09, the Delhi ITAT made the following observations:
9. In our opinion Section 68 contemplates that where any sum is found credited in the books of assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the AO, satisfactory the sum so credited may be charged to income tax as the income of the assessee. The assessee has explained the nature of the sums credited in his bank account and the source that it was withdrawn on earlier date from the bank account. The ld. first appellate authority has expected that every individual to behave in a particular manner, whereas it is always a subjective situation. What was the necessity, why he has withdrawn are altogether different aspects. Once sufficient funds are available with the assessee withdrawn from the bank, then, a probability of availability of explained source of money is available in favour of the assessee. The addition cannot be made simply for the reason that there was no occasion for the assessee to withdraw the amounts from the bank. Assessee has explained the source of money and therefore no addition ought to have been made. We allow ground no. 2 and 3 of the assessee’s appeal and delete the addition of Rs.3,26,000/-.
In the case of Sampathraj Rakesh Kumarm in the Bangalore Tribunal made the following observations on similar set of facts:
12. Thus, the total cash withdrawn from the bank account by the assessee was Rs.20,91,500 + 17,71,800 which was withdrawn by his self-cheque. There was also a deposit of Rs.9 lakhs in the bank account in March, 2013. After excluding the cash deposit, net cash available with assessee from the withdrawals was a sum of Rs.29,63,000. The availability of cash as a source of deposit in the bank account was disbelieved by the AO for the only reason that it was highly improbable for a person to keep withdrawals in the bank account for a period of two years. In this regard, we find that the Hon'ble Karnataka High Court in the case of S.R. Venkataraman (supra) had taken a view that withdrawals of cash in the past as a source of deposit at a later point of time in the bank account cannot be disbelieved merely on the surmise that it was improbable for an assessee to keep cash withdrawn for two years. The Hon'ble High Court held that revenue authorities were not competent to dictate as to what the assessee should do with the money withdrawn from the bank. The court held that as long as the source is explained and established and if money is withdrawn from SB account and paid to discharge loan by deposit into a loan account, it is not possible to hold that the source is not explained. The Court also held that money might have been utilised in the interregnum period for some purpose and thereafter appropriated towards discharge of loan. But that fact cannot be held against the assessee. The aforesaid decision of the Hon'ble Karnataka High Court in the facts and circumstances of the present case supports the plea of the assessee. I accordingly hold that the revenue authorities were not justified in rejecting the explanation of assessee with regard to source of deposit of cash in the bank account. The consequent addition made is directed to be deleted and the appeal of the assessee is allowed.
Accordingly, in light of the above discussion, and the assessee’s set of facts, we observe that once it has not been disputed by the Department that assessee had withdrawn a sum of Rs. 19.80 lakhs from his NRO bank account, and there is no allegation or specific finding with regards to how this sum was spent / utilized by the assessee and why the same was not available with the assessee for re-depositing, in our considered view, it has to be presumed that the subsequent re-deposit made by the assessee was sourced out of earlier withdrawals by the assessee from his NRE bank account.
In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 25/03/2025
Sd/- Sd/- (MAKARAND V. MAHADEOKAR) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 25/03/2025 TANMAY, Sr. PS TRUE COPY आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��थ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A)- 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,