SRI SAMPATHRAJ RAKESH KUMAR ,BANGALORE vs. THE INCOME TAX OFFICER WARD-5(2)(2), BANGALORE

The only issue that arises for consideration in this appeal is with regard to the correctness of addition of Rs.25 lakhs made by the AO to the total income of assessee as unexplained cash deposits in the bank account u/s. 69 of the Income-Tax Act, 1961 [“the Act”] which was confirmed by the CIT(Appeals).

The assessee is an individual. His source of income is commission from acting as insurance agent. For the AY 2014-15, the assessee filed return of income declaring total income of Rs.3,95,620. The case of the assessee was selected for scrutiny for the reason that as per AIR report obtained, there were cash deposits in SB Account. The assessee did not participate in the assessment proceedings and therefore assessment was completed by the AO to the best of his judgment. As per AIR report, the following were the cash deposits in the bank account:-

As far as cash deposits of Rs.25,05,050 is concerned, the plea of the assessee was withdrawals from the bank account of assessee and also loan of Rs.5 lakhs which was availed by the assessee from LIC of India which was subsequently withdrawn in cash by the assessee.

Before the CIT(Appeals), the assessee filed statement showing withdrawals from April, 2009 till May 2013 as a source for lumpsum deposit of Rs.20 lakhs and Rs.5 lakhs on 25.5.2013 and 30.5.2013. This was rejected by the CIT(A) for the reason that having regard to the human probability and the normal course of human conduct, it cannot be believed that the past withdrawals i.e., withdrawals of two years earlier to the date of deposit would have been kept in cash by the assessee. For the above reason, the CIT(Appeals) rejected the plea of assessee.

Aggrieved by the order of CIT(Appeals), the assessee has preferred the present appeal before the Tribunal.

The ld. Counsel for the assessee reiterated the plea as was put forth before the CIT(A) and further relied on the decision of Hon’ble Karnataka High Court in the case of Smt P. Padmavathi v. ITO, of 2009, order dated 6.10.2010. In the aforesaid decision, the source of return of loan was explained by the assessee as out of past withdrawals from the bank account. The explanation of assessee was rejected by the revenue authorities as well as by the Tribunal. On further appeal by assessee to the Hon’ble Karnataka High Court, on the question of law, viz., whether the finding of authorities that the source of cash deposits in the loan account is not properly explained, the Hon’ble High Court found that the Hon’ble Karnataka High Court in the case of 'S.R.VENKATARAMAN v. COMMISSIONER OF INCOME-TAX, KARNATAKA-1 AND ANOTHER reported in ITR (127) 1981 Page 807, held as under:

Following the aforesaid view, the Hon’ble High Court held that it was not in dispute that the assessee withdrew a sum of Rs.5,00,000/- on 18.8.2003 and Rs.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 Rs.7,00,000/- cash plus agricultural income on her hands, if after 40 days, a cash deposit is made to the extent of about Rs.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 untilised for other purpose and thereafter, it is appropriated towards discharge of a loan that cannot be held against the assessee.

The ld. DR relied on the order of CIT(Appeals).

I have given a careful consideration to the rival submissions. The assessee maintains bank account with Corporation Bank and it is from this bank that cash was withdrawn and deposited by the assessee. The assessee has to explain the source of Rs.20 lakhs deposit in cash on 25.5.2013 and Rs.5 lakhs in cash on 30.5.2013. The assessee has availed a loan of Rs.5 lakhs from LIC of India and the same was received by the assessee by way of credit in his bank account on 14.02.2013. The following are the withdrawals by the assessee from the aforesaid bank account from April, 2011 till May, 2013:-

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.

In the result, the assessee’s appeal is allowed.