The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) deleted the addition of Rs. 15 lakhs made under Section 69A of the Income Tax Act as the cash deposits that were made by the assessee during the demonetization period were duly explained.
In this case, the assessee has appealed against the order passed by the Commissioner of Income Tax (Appeals) [CIT(A)] for the assessment year (AY) 2017-18.
The assessee had filed his income tax return for the AY 2017-18, declaring a total income of Rs. 7,39,240. During the assessment, the AO noted that the assessee had deposited Rs. 15 lakh in his State Bank of India account on November 16, 2016, during the demonetisation period.
The assessee explained that this amount was sourced from earlier cash withdrawals of Rs. 5 lakh on 19-10-2016 and Rs. 10 lakh on 27-10-2016 from the same bank account. The assessee also provided bank statements and other documents to substantiate his claim.
The AO rejected the explanation, stating that the assessee had not revealed the purpose of transferring cash from the firm or the reason for the withdrawals. The AO applied the “test of human probability” and concluded that the cash deposits were unexplained, adding Rs. 15 lakh to the assessee’s income under Section 69A of the Act. The AO also imposed tax at the rate of 60% under Section 115BBE of the Income Tax Act.
Although the assessee appealed before the CIT(A), there were no favorable results.
The CIT(A) noted that the assessee had failed to explain why he needed to withdraw such large amounts of cash when he already had surplus funds. The assessee then approached the ITAT, challenging the addition of Rs. 15 lakh and the imposition of tax under Section 115BBE.
The assessee’s counsel contended that the AO had accepted the source of the cash deposits but rejected the explanation based on mere conjecture.
The ITAT noted that the assessee had provided a proper explanation for the source of the cash deposits, supported by bank statements and other documents. The ITAT observed that the assessee had withdrawn the cash before the demonetisation period and had naturally deposited the unused cash back into the bank when the old currency notes ceased to be legal tender.
The ITAT noted that the addition under Section 69A of the Income Tax Act cannot be made on cash deposits that are recorded in the assessee’s bank statement and which are more importantly duly explained. The ITAT deleted the addition of Rs. 15 lakhs.
The bench comprising of Waseem Ahmed (accountant member) and Keshav Dubey (Judicial member) allowed the assessee’s appeal.
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