SAMAR EXPORTS,MADURAI vs. ITO, NCW-1(7), MADURAI

The brief facts of the case emanating from the records are that the assessee is a firm in the business of Granite Exports and filed its return of income on 07.12.2018 admitting a total income of Rs.47,700/- for the A.Y. 2017- 18 and the case has been selected for scrutiny to verify the cash deposit during the demonetisation period. The assessment was completed, wherein the cash deposit made with South Indian Bank in A/c.No.0475073000000381 in SBNs amounting to Rs.57,00,000/- during demonetisation period was treated as unexplained cash credit u/s.68 of the Act after reducing the cash balance as on 08.11.2016 of Rs.1,73,192/- (Net Rs.55,26,808/-) and added to the total income.

Aggrieved by the order of the AO the assessee filed an appeal before the ld.CIT(A) and submitted that the cash deposits are made out of the cash withdrawn in the initial months of the assessment year. However, the ld.CIT(A) confirmed the order of the AO for the reason that the assessee’s explanations for the source of cash deposit are inconsistent before the AO and the first appellate authority. Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us.

The ld.AR for the assessee submitted that the cash deposits of SBNs of Rs.57.00 Lakhs has been made into the bank account of the assessee during the demonetisation period out of the cash withdrawals made earlier from 02.04.2016 to 13.07.2016 to the tune of Rs.63.50 Lakhs as detailed below:

Per contra, the ld.DR for the revenue supported the orders of the Authorities and argued that the assessee had given different explanations before the AO and ld.CIT(A) and hence it is concluded that the money is :-4-: ITA. No: 2355 /Chny/2025 unexplained as the explanations are given afterthought. Therefore, the ld.DR prayed for confirming the order of the ld.CIT(A) by dismissing the appeal of the assessee.

We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities along with the documents filed by the ld.AR. The undisputed facts are that the assessee deposited Rs.57,00,000/- in SBNs during the demonetisation period and had earlier withdrawn Rs.63,50,000/- from its bank account between April and July 2016. The withdrawals are reflected in the bank statements and are not disputed by the Revenue.

The cash deposit of SBNs during the demonetisation period of Rs.55,26,808/- has been added u/s.68 of the Act as unexplained money. For invoking section 68 of the Act, the primary condition is that there must be a credit in the books of the assessee for which no satisfactory explanation regarding nature and source is offered. In the present case, the explanation of the assessee is that the deposits were out of earlier withdrawals from the same disclosed bank account.

It is a settled principle that where cash is withdrawn from a disclosed bank account and subsequently redeposited, the source stands prima facie explained, unless there is material on record to demonstrate that the cash so withdrawn was utilized elsewhere or was not available with the assessee at the time of redeposit.

In the present case the withdrawals amounting to Rs.63,50,000/- are evidenced by the bank statements. The deposits in SBNs during demonetisation amount to Rs.57,00,000/-. There is no material brought on record by the AO to show that the withdrawn cash was expended for any other purpose or invested in any other assets. The time gap between withdrawal and :-5-: ITA. No: 2355 /Chny/2025 deposit, though several months, by itself cannot be the sole ground to reject the explanation in the absence of contrary evidence. The ld. CIT(A) confirmed the addition primarily on the ground of inconsistency in explanation. However, minor variations in explanation, without disproving the documentary evidence on record, cannot justify sustaining an addition u/s.68 of the Act, especially when the primary source is traceable and supported by bank records.

It is also pertinent to note that the assessee is a business entity dealing in granite exports, and maintaining substantial cash withdrawals in the ordinary course of business cannot be said to be improbable per se. In the absence of any adverse material to establish that the cash withdrawn earlier was not available with the assessee for redeposit, we are of the considered opinion that the explanation offered by the assessee is plausible and supported by documentary evidence.

Accordingly, the addition of Rs.55,26,808/- made u/s.68 of the Act and sustained by the ld. CIT(A) is liable to be deleted.

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