RAJANI CHANDRAKALA PONNA,HYDERABAD vs. INCOME TAX OFFICER, WARD-16(4),, HYDERABAD

Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT (A). Before the Ld. CIT (A), the assessee reiterated her arguments taken before the A.O and argued that out of the total cash deposits of Rs.34.00 lakhs, only Rs.10.00 lakhs is during the demonetization period and the balance amount of cash deposited is beyond the period of demonetization period. The assessee has explained the cash deposits out of cash withdrawn from the bank by filing relevant cash flow statement along with bank statements and submitted that the A.O erred in making addition towards cash deposits under section 69A of the Act. The Ld. CIT (A) after considering the relevant submissions of the assessee observed that the assessee has filed a cash flow statement only during the scrutiny assessment proceedings without furnishing any evidence that the said cash flow statement has been furnished along with the return of income. This clearly indicates that the explanation of the assessee was an afterthought. Further, the withdrawals relied upon was pertaining to the dates ranging from August 2015 to June 2016, whereas the deposits were made only during November 2016 mostly after a gap of one year. The A.O has rightly observed that it is not possible to keep such huge sums particularly for a long period without any use. The assessee has failed to produce any contemporaneous evidence to demonstrate Page 5 of 10 that the cash withdrawn during the financial year 2015-16 remained intact till demonetization. Therefore, rejected the explanation of the assessee. However, considering the income declared by the assessee and the general practice followed by an assessee including any other person observed that it is common practice that some amount of cash in hand is kept to meet unforeseen circumstances such as medical emergencies, social obligations and household contingencies. This human probability and natural tendency cannot be ignored while appreciating the facts of the present case. Therefore, considering the amount of cash deposits and the income declared by the assessee, the Ld. CIT (A) has allowed a sum of Rs.10 lakhs as cash in hand available with the assessee out of cash withdrawn from the bank which is the source for cash deposits during the demonetization period. In so far as the balance amount of Rs.21,92,500/-, since the assessee has not explained the source, the Ld. CIT (A) has sustained the addition to the extent of Rs.21,92,500/- and granted partial relief of Rs.10 lakhs towards cash deposits into her bank account.

Aggrieved by the order of the Ld. CIT (A), the assessee is now in appeal before the Tribunal.

The Ld. Counsel for the assessee referring to the cash flow statement filed by the assessee submitted that, an amount of Rs.31,73,400/- was available with the assessee as on 1/4/2016 which is further supported by the relevant cash withdrawals from Page 6 of 10 HDFC Bank right from August 2015 to July 2016. The assessee has also withdrawn Rs.3,50,000/- prior to the deposit. In total, the assessee has a cash balance of Rs.34,76,900/-, whereas made cash deposits of Rs.34.00 lakhs on various dates including cash deposits during the demonetization period. Although the assessee has explained the source by filing relevant bank statements and cash flow statements, but the A.O has made addition only on the ground that the assessee has not explained the purpose of withdrawal of cash from the bank account and redeposited the said cash during the demonetization period. Although the Ld. CIT (A) has accepted the explanation of assessee in the light of theory of human probability, but restricted the explanation to the extent of Rs.10 lakhs without there being any basis. Since the assessee has proved the availability of cash in hand to explain the source of cash deposits in her bank, the Ld. CIT (A) has ought to have deleted the entire additions made by the A.O. Thus, he submitted that the entire additions made by the A.O should be deleted.

The Ld. Sr. AR for the Revenue, on the other hand, supporting the orders of the revenue submitted that there is a long gap between the cash withdrawals from the bank account and cash deposits into the bank during the demonetization period. The assessee has not explained the purpose of withdrawals from bank account and keeping the cash in hand. Furthermore, filing the cash flow statement for one year, the assessee could not demonstrate the availability of the sufficient cash balance to redeposits into the bank account. The A.O after considering the Page 7 of 10 relevant facts has rightly made addition of Rs.31,92,500/- under section 69A of the Act. The Ld. CIT (A) after considering the theory of human probability and other evidence submitted by the assessee has rightly allowed relief of Rs.10.00 lakhs and sustained addition of Rs.21,92,500/-. Therefore, he submitted that the order of the Ld. CIT (A) should upheld.

We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. There is no dispute with regard to the amount of cash deposited into the bank account and explanation of the assessee with regard to the source for cash deposits. In fact, the assessee has made cash deposits of Rs.34.00 lakhs into HDFC Bank on various dates right from 2.11.2016 20 15.11.2016. The assessee has explained the source of cash deposits out of previous cash withdrawals from the very same bank account from August 2015 to July 2016 and from the details furnished by the assessee we find that, the assessee has withdrawn an amount of Rs.38,29,500/- on different dates. If we go by the amount of cash deposits of Rs.34.00 lakhs and the explanation of the assessee out of cash withdrawal of Rs.38,29,500/-, then there is no dispute that the assessee was having sufficient cash in hand out of withdrawals from bank to explain the amount of cash deposits into bank account during the financial year under consideration. However, the A.O rejected the explanation of the assessee only on the ground that the assessee could not explain the purpose of the cash withdrawal from the bank account and keeping the cash at Page 8 of 10 home without any purpose for such a long period. Except this observation, the A.O has not made out a case that the cash withdrawn by the assessee from the bank account in the earlier financial year is not made available to the assessee to explain the cash deposits during the financial year under consideration. In our considered view, unless the A.O makes out a case that the cash withdrawn from the bank account in earlier financial year has been spent for any other purpose or invested for acquiring any asset, then the availability of cash in hand out of the said cash withdrawals should be accepted. In the present case, although the Ld. CIT (A) has accepted the explanation of the assessee in light of the theory of human probability but allowed receipt of Rs.10 lakhs without any reasons, even though the assessee has filed sufficient evidence to prove the availability of cash in hand to the tune of Rs.34,76,900/-. Since the cash in hand available with the assessee out of previous cash withdrawals is in excess of the cash deposited into the bank account, in our considered view the A.O ought not to have made addition of Rs.31,92,500/- under section 69A of the Act towards cash deposited into bank account. The Ld. CIT (A) without appreciating the relevant facts, simply allowed partial relief to the assessee. Thus, we are inclined to uphold the findings of the Ld. CIT (A) to the extent the Ld. CIT (A) allowed relief to the assessee and further direct the A.O to delete the addition towards cash deposits of Rs.31,92,500/- made under section 69A of the Act.