ADEPT AGENCIES,MUMBAI vs. ITO WD 14(1)(4), MUMBAI

The only issue in this appeal of the assessee is against the order of the CIT(A) confirming the action of the AO in making addition of cash balance maintained in cash book at Rs.45,41,661/- as on 31.03.2009.

Briefly stated facts of the case are that the assessee is engaged in the business of general merchandise and commission agent. During the course of assessment proceedings, the AO noticed from the balance sheet of the assessee that it is having cash in hand amounting to Rs.45,41,661/- as on 31.03.2009. The assessee was asked to explain such huge cash balance at the end of the financial year. The assessee explained before the AO that this huge cash is the result of the withdrawals made from bank account where assessee has maintained current account. The assessee further explained that from September 2008 to February 2009, it had made 24 withdrawals from the current bank account and this cash balance maintained in the balance sheet is the result of such withdrawals. The assessee also explained that these withdrawals were made based on the rumour that the Madhavpura Co-operative Bank Ltd, Abad Co-operative bank Ltd., are not doing well and finally they were closed down and liquidated. Similarly, Peoples’Co- operative Bank had closed in the year 2008-09 at Valsad. Looking into the entire episode, the assessee withdrew the said cash of Rs.45,41,661/- from its current account maintained with Saraswat Co-operative Bank, Mumbai. Furthermore, the assessee explained that it did not get any interest on current account balances. The AO was not satisfied with the explanation of the assessee and he made addition of cash in hand as unexplained transaction u/s. 69 of the Act by observing as under:

We have heard the rival contentions and have gone through the facts and circumstances of the case. We find that the assessee has explained the reasons for the withdrawal of cash from assessee’s current bank account for the reason of fear of closure of the bank and also that it did not receive any interest on current account balance. Admittedly, the assessee has made withdrawals from the bank account during September 2008 and February 2009 as per the bank statement amounting to Rs.45,41,661/- and the same was kept as cash in hand and the entry was made in the cash book accordingly. In view of these facts and circumstances, we are of the view that these cash withdrawals from the bank which were entered into cash book as cash in hand were explained cash. It is assessee’s own action by which he has kept cash in hand after withdrawing the same from bank account and it is not the case of the revenue that it has been invested in some income earning instrument from where it has earned more income. Accordingly, we cannot estimate any income on the same and also cannot treat cash in hand as unexplained. In terms of the above, we allow the appeal of the assessee.

In the result, assessee’s appeal is allowed.