Once Cash Withdrawals are Proven, Burden Shifts to Income Tax Dept to Disprove their Use for Deposits: ITAT [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that once cash withdrawals were proven, the burden shifts to the Income Tax Department to Disprove these funds were not available for deposits.

Rajendra Gadhia, the assessee is an NRI settled in the USA and filed his income tax return for the assessment year 2017-18. During the demonetization period, the Assessing Officer ( AO ) found that the assessee deposited Rs. 12,00,000 in cash into his ICICI Bank account on December 2nd and 3rd, 2016.

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Consequently, the Income Tax Department questioned the source of these funds. The assessee responded with an explanation stating that these were cash withdrawals and converted cash. However, the AO rejected the explanation, citing a lack of documentary evidence, especially for the foreign currency ( USD ) to INR conversion.

The AO treated Rs. 12,00,000 as unexplained income under Section 69A of the Income Tax Act and added them to the assessee’s total income. On appeal, the Commissioner of Income Tax (Appeals) upheld the AO's decision citing that there were gaps in evidence, particularly regarding the USD to INR conversion.

Aggrieved, the assessee challenged the CIT(A)’s order before ITAT arguing that the cash deposits came from withdrawals made from his ICICI and SBI accounts between 2012-2015 and leftover USD brought from the USA during trips.

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The assessee’s counsel submitted bank statements from ICICI and SBI accounts, an affidavit from his brother, and a cash flow statement to support his claims.

On the contrary, the revenue argued that the assessee failed to provide documentary proof for the conversion of USD to INR. They argued that there was a large gap between the withdrawal and the deposit raising doubts about the nexus between the two events.

The two-member bench comprising Suchitra Kamble ( Judicial Member ) and Makarand V. Mahadeokar ( Accountant Member ) accepted the explanation for Rs. 8,30,000, as it was backed by documented evidence of cash withdrawals from the assessee’s ICICI and SBI accounts. Since the Department did not provide contrary evidence, these withdrawals were considered legitimate.

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The tribunal referenced the Gujarat High Court ruling in Shailesh Rasiklal Mehta (2009) case which held that once cash withdrawals are established, the burden shifts to the Department to prove that these funds were not available for deposits.

However, the tribunal found that the claim of Rs. 3,70,000 from the conversion of USD could not be substantiated due to a lack of forex receipts and other documentary evidence. Therefore, the tribunal allowed Rs. 8,30,000 as satisfactorily explained but upheld the addition of Rs. 3,70,000 under Section 69A of the Income Tax Act due to a lack of evidence on the USD conversion. The appeal of the assessee was partly allowed.

To Read the full text of the Order CLICK HERE

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