The Kolkata bench of the Income Tax Appellate Tribunal ( ITAT ) deleted an addition under Section 68 of the Income Tax Act, 1961 concluding that the source of funds was prima facie sufficiently explained.
The assessee Sunil Khaitan filed its return of income declaring total income of Rs. 40, 48,000/- for the A.Y. 2017- 18. The case of the assessee was selected for scrutiny under CASS for verification of cash deposit during the year and cash deposit made during demonetization period followed by notices issued under Section 143(2) and 142(1) of the Income Tax Act.
In compliance to notices, assessee furnished his written reply containing various documents in relation to a query made by the AO. After considering the submission of the assessee, the ld. AO noticed that the assessee has deposited cash of Rs. 34, 18,000/- in Specified Bank Notes (SBNs) during the demonetization period.
The source of cash deposits was made out of cash withdrawals from the banks and the source of the bank account of the assessee was unsecured loan from different parties and salary income of the assessee. However, the AO did not convince with the contention made by the assessee and he viewed that alleged cash deposit made during demonetization period aggregating to Rs. 34,18,000/- was added to the income of the assessee generated out of undisclosed source of income by assessing the income of the assessee at Rs. 74,66,000/-.
The assessee was in appeal before the tribunal raised multiple grounds of appeal. However, the main grievance of the assessee is against the impugned order passed by CIT(A) sustaining the order of AO making an addition of Rs. 34,18,000/- under Section 68 of the Income Tax Act.
The bench found that the cash deposit made by the assessee in the bank account was preceded by withdrawal from the very same bank account. The cash flow statement filed by the assessee also explaining availability of cash on various dates of the deposit of cash in the bank account has not been disbelieved by the revenue authorities. They have proceeded on the basis of time lag between the dates of withdrawal of cash from the bank account and the dates of deposits, the availability of cash cannot be believed
However, the legal position in this regard is that if the deposit of money in the bank account was preceded by withdrawal of money from the very same bank account then the source of funds was prima facie demonstrated or explained by the assessee.
Further the two member bench of the tribunal comprising Girish Agrawal (Accountant member) and Sonjoy Sarma (Judicial member) concluded that the assessee has satisfactorily explained the source of funds out of which deposit of cash was made in the bank account. ITAT therefore, delete the addition made in this regard. Accordingly, the appeal of the assessee was allowed
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