Provisions of section 69A not invocable as source of cash deposits duly maintained: ITAT Ahmedabad

Dipak Balubhai Patel (HUF) Vs ITO (ITAT Ahmedabad)
ITAT Ahmedabad held that invocation of provisions of section 69A of the Income Tax Act unjustified as cash deposits during demonetization period duly recorded in books of account and source of cash deposits duly maintained.
Facts- The assessee is a Karta of HUF. During scrutiny assessment, AO found that the assessee in his Account with Bank of Baroda deposited a sum of Rs.10,75,000/- during demonetization period. AO rejected the Books of Accounts by stating on the verification of the Return of Income filed for the A.Y. 2016-17, assessee has shown Closing Cash on hand Zero and in the Cash Book of A.Y. 2017-18, assessee has shown Opening Balance to the tune of Rs.10,09,933/- which is not justifiable and therefore made addition as unexplained money u/s. 69A of the Act and tax the same u/s. 115BBE of the Act.
CIT(A) confirmed the addition. Being aggrieved, the present appeal is filed.
Conclusion- Held that in the present case, the assessee has recorded the above cash deposits in his books of accounts and source of cash deposits during demonetization period were also been maintained by the assessee. Therefore in our considered view, the A.O. is not correct invoking provisions of Section 69A of the Act and charging tax u/s. 115BBE of the Act. Thus the addition made by the Assessing Officer is liable to be deleted.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Assessee as against the appellate order dated 31.10.2023 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2017-18.
2. The brief facts of the case is that the assessee is a Karta of HUF who derived income from House Property and Income from Other Sources. The assessee filed his Return of Income for the Asst. Year 2017-18 on 11-08-2017 declaring total income of Rs.5,73,170/-. The return was taken up for scrutiny assessment, the Assessing Officer found that the assessee in his Account with Bank of Baroda deposited a sum of Rs.10,75,000/- during demonetization period and issued show cause notice to explain the above source of cash deposit.
2.1. The assessee replied the source of cash deposit in Bank of Baroda is withdrawal from four other banks namely Corporation Bank, State Bank of India and two other Bank of Baroda Accounts. The above cash deposits is duly reflected in the Return of Income filed in ITR-2 at Page No. 4 Serial No. 14. Further the assessee was not having any business income but rental income and other sources income only, therefore he has not filed the Profit and Loss and Balance Sheet along with Return of Income. However filed the same before the Assessing Officer along with cash book, wherein cash on hand as on 01-04-2016 as opening balance is Rs.10,75,000/-, which was deposited in Bank of Baroda during demonetization period, therefore requested not to make any addition. However Assessing Officer rejected the Books of Accounts by stating on the verification of the Return of Income filed for the A.Y. 2016-17, assessee has shown Closing Cash on hand Zero and in the Cash Book of F.Y. 2016-17 i.e. A.Y. 2017-18, assessee has shown Opening Balance to the tune of Rs.10,09,933/- which is not justifiable and therefore made addition as unexplained money u/s. 69A of the Act and tax the same u/s. 115BBE of the Act.
3. Aggrieved against the addition, the assessee filed an appeal before Ld. CIT(A) who confirmed the additions by observing as follows:
“….All grounds are against addition of Rs.10,75,000 u/s 69A and invoking provisions of section 115BBE. The assessing officer raised specific query regarding source of cash deposit of Rs. 10,75,000. The appellant submitted that it is accumulated drawings from banks during previous 3 years which was kept unutilized with him and deposited in bank during demonetization. The appellant submitted the following table to show accumulation of cash in hand which was re-deposited.

FINANCIAL YEAR

OPENING CASH

CASH
WITHDRAWINGS FROM BANK

CASH SPENDING PAYMENTS

CLOSING CASH ON HAND

GROSS INCOME

TAXPAID

ENCLOSED PAGE NO

31/09/2015

4,18,827/-

4,44,500/-

89,616/-

7,74,711/-

7,38,609/-

34,534/-

ITR AND CASH BOOK

31/09/2016

7,74,711/-

7,29,722/-

4,94,500/-

10,09,933/-

5,91,236/-

15,120/-

ITR AND CASH BOOK

1/4/16  to 13/11/2016

10,09,933/-

4,19,000/-

10,75,000/-

1,73,933/-

8,58,323/-

40,823/-

ITR  ANDCASH BOOK

Documents submitted by appellant were verified along with cash book. It is seen that cash was withdrawn in small amounts from bank accounts. During the previous 3 years, except 2 or 3 instances, all withdrawals were less than Rs. 10,000. The appellant claims that he has preserved the numerous withdrawals during last 3 years in his hand so as to deposit cash in the year under consideration. This argument of the appellant does not resemble normal human behavior. The law is well settled that the assessee can show earlier cash withdrawals from bank account as source of subsequent cash deposits unless the revenue is able to show that the cash so withdrawn is used for some other purposes. In this case 95% of the withdrawals are amounts less than Rs. 10,000. Common sense dictates that these cash withdrawals are for day to day expenses. Even though the appellant claims that day to day expenses are met from business income, there is no reason to believe that an individual who frequents bank, preserve all these drawings with himself for 3 years. If the appellant had so much of cash with him then what was the need of frequent withdrawals of Rs.5000 and Rs. 10,000. Nobody can prove the appellant’s intentions other than himself but this is a clear instance where the decisions in the cases of CIT v. Durga Prasad More (1971) 82 ITR 540 and Sumati Dayal v. CIT (1995) 214 ITR 801 can be applied where the Supreme Court has laid down Human Probability test as one of the important test in order to check genuineness of the transactions entered into the books of account of the assesses. The Apex court stated that, taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. Hence it is held that the appellant failed to satisfactorily explain the source of Rs.10,75,000 cash deposited in the bank account and the assessing officer is correct in treating this amount as unexplained cash under section 69A. As a result the appeal is dismissed.”

Three Year’s Summery

Cash Particulars
Financial Year

2014/15
2015/16
01/04/2016 to 13/11/2016

Opening Balance
0
589884
1372106

Cash Withdrawn from Bank
613500
656722
656722

Cash Deposited to Bank
0
(86000)
(1075000)

Other Cash Outflows
(48616)
(103500)
0

Net Cash Inflow
564884
1057106
953828

Cash Withdrawn and Kept for Personal Purpose
25000
315000
160000

Overall Cash Balance
589884
1372106
1113828

4. Aggrieved against the appellate order, the assessee is in appeal before us raising the following Grounds of Appeal:
1. The Ld. CIT(A) erred in law and on facts in confirming the AO’s addition of Rs.10,75,000/- being the amount of cash deposited to bank considering the same as unexplained money under section 69A of the Income Tax Act, 1961, such addition is requested to be deleted.
2. The Ld. CIT(A) erred in law and on facts in confirming the AO’s action of applying section 115BE of the Income Tax Act, 1961, such application of section 115BE is requested to be quashed
5. Ld. Counsel Shri Pritesh Shah appearing for the assessee clarified the assessee (HUF) in his Return of Income filed in ITR-2 in Schedule AL Asset and Liability at the end of the year (Applicable in a case where total income exceeds Rs.50 lakh) which was kept as blank by the assessee. Since assessee’s income does not exceeds Rs. 50 lakh, this was wrongly construed by the A.O. as zero balance and thereby rejected the books of accounts by the Assessing Officer which is not correct in law. Further the Assessing Officer erred in invoking Section 69A which is not applicable to the present case wherein the cash withdrawals and deposits are clearly recorded in the cash book, profit and loss account and balance sheet of the assessee. Thus the Assessing Officer erred in making addition u/s. 69A and also taxed u/s. 115BBE of the Act.
4.1. In this connection Ld. Counsel relied upon following case laws:

1
Gujarat High Court
Rakeshkumar Babulal Agarwal v. Principal Commissioner of Income-tax –
[2022] 136 taxmann.com 329 ; 286 Taxman 617 ; 448 ITR 133.

2
Indore ITAT
Rahul Maheshwari V. ITO – ITA No.267/Ind/2023
[ 2024 ] Date of Pronouncement – 15/01/2024.

3
Mumbai ITAT
Ramchandra Kanu Mendadkar V. CIT
[2023] 151 taxmann.com 356 ; 201 ITD 492.

4
Amritsar ITAT
Balwinder Kumar V. Income Tax Officer
[2023] 151 taxmann.com 338; 102 ITR(T) 228.

5
Bangalore ITAT
Shri Subhasa Poojari V. ITO
(2022) Tax Corp (A.T.)99218.

6
Bangalore ITAT
SMT. Teena Bethala V. ITO
(20 19) Tax Corp (A.T.) 77352.

7
Lucknow ITAT
Shri Sunny Kapoor V. ITO
(2022) Tax Corp (A.T.)96724.

8
Visakhapat nam ITAT
DCIT V. Sri Sriram Manchukonda
(2021) Tax Corp (A.T.) 91806.

9
Chandigarh ITAT
Ski Himalayas Ropeways Pvt Ltd. V. ACIT
(2022) 64 CCH 0101 Chd Trib.

10
Ahmedabad ITAT
Sudhirbhai Pravinkant Thaker V. ITO
45 CCH 0388: 44 ITR 0135

11
Gujarat HC
CIT V. Shailesh Rasiklal Mehta
76 CCH 1088 ; 176Taxmann 0270.

12
Jodhpur ITAT
Krishna Agarwal V. ITO
(202 1)63 CCH 0048; 215TTJ0245;213DTR (Trib) 0074.

13
Delhi ITAT
Ravinder Tyagi V. ITO
2019TaxPub(DT)3538.

14
Delhi ITAT
ACIT V. Baldevraj Charla & Ors.
27 CCH 09 15; 18DTR 0413; 121 TTJ 0366.

15
Delhi ITAT
Gordhan V. ITO
ITA No. 811/Del/2015[ 2015 ] Prouncement Datel9/10/2015.

16
Delhi ITAT
ITO V. Mrs. Deepali Sehgal
[2014] ITA No. 5660/Del/2012.

17
Amritsar ITAT
Smt. Sanjeet Kanwar V. Income-tax Officer
[2022] 143 taxmann.com 266 ; 98 ITR(T) 12

18
Delhi High Court
Jaya Aggarwal V. Income Tax Officer
[2018] 92 taxmann.com 108; 254Taxman398 ; 302CTR241 .

19
Mumbai ITAT
ITO V. Baburao K. Pisal
2015TaxPub(DT)3203; 066 (II) ITCL 0204

20
Gujarat High Court
CIT V. Manoj Indravadan Chokshi
[2014] 50 taxmann.com 419 ; 229Taxman56.

4.2. Further ld. Counsel summarized the three years cash transactions with three bank accounts and cash flow statement as follows:

Three Year’s Summery

Cash Particulars
Financial Year

2014/15
2015/16
01/04/2016 to
13/11/2016

Opening Balance
0
589884
1372106

Cash Withdrawn from Bank
613500
656722
656722

Cash Deposited to Bank
0
(86000)
(1075000)

Other Cash Outflows
(48616)
(103500)
0

Net Cash Inflow
564884
1057106
953828

Cash Withdrawn and Kept for Personal Purpose
25000
315000
160000

Overall Cash Balance
589884
1372106
1113828

4.3. Thus Ld. Counsel submitted neither the Assessing Officer nor Ld. CIT(A) has put any evidence on record that whatever cash withdrawn from the bank accounts have been utilized or invested elsewhere and unaccounted cash has been deposited in his bank account. Thus the addition made by the Assessing Officer is liable to be deleted.
5. Per contra Ld. Sr. D.R. Shri Santosh Kumar appearing for the Revenue supported the order passed by the Lower Authorities and requested to uphold the same.
6. We have heard rival submissions and perused the materials available on record. It is an undisputed fact during the demonetization period, the assessee made cash deposit of Rs.10,75,000/-. During the assessment proceedings, the Assessing Officer has rejected the explanation offered by the assessee. Since in the Return of Income, the assessee shown closing cash on hand as Nil but in the cash book shown the opening balance for A.Y. 2017-18 to the tune of Rs.10,09,933/-. The assessee before Appellate Commissioner filed copies of previous three years Form 26AS, ITR, Statement of Income, Profit and Loss account and Balance Sheet and further explained that rental income with appropriate TDS u/s. 194I of the Act which is clearly reflecting in Form 26AS records. The monthly rents were also deposited in bank accounts. Since the assessee is a Senior Citizen withdrawn and kept substantial balance in his bank accounts because of emergency medical needs. However after declaration of the demonetization period, the assessee deposited the so called withdrawal amounts from his bank account which has been offered for tax by filing regular Return of Income as well as deduction u/s. 194I of the Act. The Assessing Officer also erroneously treated as unexplained cash and also invoked Section 115BBE of the Act and charged at 60% rate which is not applicable to the present case since the above cash deposits were clearly reflected in the books of accounts maintained by the assessee. Though, Ld. Counsel has relied upon various case laws, we find relevant case laws which are cash deposits during demonetization period wherein Co-ordinate Bench of the Tribunal held in favour of the assessee.
6.1. In the case of Balwinder Kumar-Vs-ITO reported in (2023) 151 taxmann.com 338 (Amritsar-Trib.) wherein it was held as follows:
“Where assessee deposited cash sales made during demonetization period in his bank account and admitted such sales as revenue receipts, since books of account of assessee clearly reflected sufficient stock to affect such sales and same were accepted by revenue authorities, there was no basis for making additions under section 69A, treating said deposits to be bogus.”
6.2. In the case of DCIT-Vs- Sri Sriram Manchukonda reported in (2021) Tax Corp (A.T.) 91806 (ITAT-Visakhapatnam) wherein it was held as follows:
“In the instant case, the assessee explained that the entire sum representing the deposits was duly accounted in the books of accounts and the books of accounts were produced before the AO, but no defect was found by the AO. Source of the deposit of Rs.74,90,000/- duly explained by the assessee as sales and accounted in the books of accounts. AO made the addition u/s 69A. As per section 69A, it is deemed to be income of the assessee as unexplained money when the AO found money, bullion, jewellery or other valuable article and the assessee offers no explanation to the satisfaction of the AO.
In the instant case, the source of cash deposited by the assessee in the bank account was duly explained by the assessee and the same was duly accounted in the books of accounts. Thus, there is no case for making addition u/s 69A. /In the instant case there is no doubt that the assessee has recorded the sales in the books of accounts and the deposits were made out of the cash balances available in the cash book. The assessee produced the books of accounts and no defects were found by the AO. Therefore the case of Karthik constructions squarely applies to the case of the assessee and hence appeal of the revenue is dismissed.”
6.3. Respectfully following the above judicial precedents, the A.O. has made addition u/s. 69A which will be applicable only when the assessee is found to be the owner of any money, bullion, jewellery or other valuable articles and such money etc. is not recorded in the books of accounts maintained by him from any source of income and any explanation offered by the assessee is not in the opinion of the Assessing Officer is satisfactory then, the same can be added as the unexplained money in the hands of the assessee. In the present case, the assessee has recorded the above cash deposits in his books of accounts and source of cash deposits during demonetization period were also been maintained by the assessee. Therefore in our considered view, the A.O. is not correct invoking provisions of Section 69A of the Act and charging tax u/s. 115BBE of the Act. Thus the addition made by the Assessing Officer is liable to be deleted. Thus the grounds raised by the assessee is hereby allowed.
7. In the result, the appeal filed by the Assessee is allowed.
Order pronounced in the open court on 22 -08-2024