Cash Deposits from earlier withdrawals cannot be Totally Disbelieved: ITAT allows Deduction on Cash Deposit[Read Order]

The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) held that the cash deposits from earlier withdrawals cannot be totally disbelieved, thus, the bench allowed deduction on the cash deposits.

The Assessee, Hemavathi Ramesh was deriving income from the house property and other sources. The return of income was filed declaring a total income of Rs.4,80,110/-. The assessment was selected for scrutiny and notice under section 143(2) of the Income Tax Act was issued on 13.08.2018 and duly served on the assessee.

During the course of proceedings, the assessee was asked to show cause as to why cash deposited amounting to Rs.12,40,000/- during the demonetization period ought not to be brought to tax. In response to the show cause notice, the assessee filed a reply.

The Assessing Officer accepted the explanation regarding Rs.1 lakh, out of the rental income of Rs.2,41,000/- and Rs.2,74,000/- out of the past savings. Regarding the balance amount of Rs.8,66,000/-, the Assessing Officer held that the assessee’s explanation was unsatisfactory regarding the source of cash deposited and brought to tax Rs.8,66,000/- under section 69A of the Income Tax Act. The Assessing Officer also applied the rate of tax as provided under section 115BBE of the Income Tax Act.

The Authorized Representative (AR) submitted that the Assessing Officer, having accepted that the assessee was in receipt of Rs.5,50,000/- as a lease deposit on 12.04.2016, the same ought to have been accepted as a source of cash deposit.

Further, the Authorized Representative placed on record the return of income filed along with the statement of income of the assessee and contended that the assessee had disclosed income from other sources amounting to Rs.2,64,804/- comprising of bank interest of Rs.14,804/- and sundry receipts and gifts of Rs.2,50,000/- for which the assessee has duly paid the taxes.

The Assessing Officer does not dispute the fact of receipt of Rs.5,50,000/- on 12.04.2016. The reason for the Assessing Officer in not taking the same as a source of cash deposited during the demonetization period was that the amount was received six months prior and the assessee could not have held the cash for more than six months.

The High Court of Karnataka in the case of S. R. Venkataka Ratnam Vs. CIT 127 ITR 807 and in the case of Smt. P. Padmavathi and ITO in ITA No.414/2009, has held that the cash deposits out of earlier withdrawals cannot be totally disbelieved.

The Single-bench member consisting of George George K (Judicial member) stated that since the receipt of Rs.5,50,00/- has not been doubted by the Assessing Officer, the amount would be available with the assessee for making the impugned cash deposits.

Further, the assessee has placed the record on the return of income and statement of income wherein the assessee had offered to tax a sum of Rs.2,50,000/- being sundry receipts and gifts.

A further reduction of Rs.2,50,000/- was made while determining the source of the cash deposit. Therefore, a deduction of Rs.6,50,000/- (Rs.4,00,000/- + Rs.2,50,000/-) and a balanced amount of Rs.2,16,000/- alone shall be brought to tax under section 69A of the Income Tax Act. The appeal was partly allowed.

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