No Addition If Delay in Depositing Cash withdrawn was explained by way of Oral Evidence: Delhi High Court [Read Judgment]

Notice - Delhi High Court - Taxscan

The Delhi High Court annulling the decisions of Income Tax Appellate Tribunal (ITAT) and Commissioner of Income Tax (Appeals) held that if there is a delay in depositing withdrawn cash to the assessee’s bank account and the assessee has offered sufficient oral evidence to justify the delay, the same cannot be added as unexplained income under Section 68 of the Income Tax Act.

The issue in the matter in hand was that whether the ITAT was right in confirming the addition under Section 68 of the Income Tax Act for deposit of cash by the assessee out of cash withdrawn by her from the same bank account for the purchase of immovable property. This addition of cash in the assessee’s bank account who declared a loss for the same assessment year was questioned by the Assessing Officer.

It was contended on behalf of the assessee that she withdrew cash from her bank account as on May 2nd, 1997 to buy property for which earnest money in cash was to be paid. Further, this withdrawn amount was re-deposited in the bank on January 13th, 1998 since the deal could not be concluded.

The Assessing Officer rejected this explanation on the only ground of unjustifiable duration between the date of withdrawal and deposit which was more than 7 months. He hence treated the amount as unexplained cash credit adding the same under Section 68.

On appeal, the ITAT upheld the decision of CIT (A) reasoned that no prudent man would keep such a huge amount at the residence to negotiate a property deal.

While allowing the appeal filed by the assessee, the High Court relying upon the ‘Prudent Man’s Behavior Test’ and ‘Principle of Preponderance of Probability’ held that an oral evidence cannot be disregarded being the only evidence relied upon by a party. The Court while referring to Murray’s English Dictionary went on further to explain the meaning of ‘Probability’ as, “likelihood of anything to be true. Probability refers to the appearance of truth or likelihood of being realized which any statement or event bears in light of the present evidence.”

The Court ruling in favor of the assessee directed that the addition made under Section 68 should be deleted.

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