Time Gap between Cash Withdrawal and Deposit Insufficient to treat amount as Undisclosed Income u/s  69: ITAT [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT )ruled that the time gap between cash withdrawals and deposits was insufficient to treat the amount as undisclosed income under Section 69 of Income Tax Act,1961.

Mahendrakumar Prahladbhai Vaghela, appellant-assessee, was flagged by the Income Tax Department under the ‘Operation Clean Money’ initiative for depositing large sums of cash during demonetization (November 9, 2016, to December 30, 2016) without filing income tax returns for the 2017-18 assessment year.

The Assessing Officer (AO) found that the appellant deposited Rs. 15,15,000 in cash, using old Rs. 500 and Rs. 1000 notes. The deposits were Rs. 1,015,000 on November 18, 2016, and Rs. 500,000 on November 21, 2016, both at Canara Bank.

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The AO also noted that Rs. 18,74,511 was credited to the bank accounts, including the Rs. 15,15,000 in cash deposits and Rs. 3,59,264 from transfers. Since the assessee could not explain the credits, the AO treated the unexplained amount of Rs. 18,74,511 as undisclosed income and added it to his total income.

The assessee appealed before the Commissioner of Income Tax (Appeals) [CIT(A)], claiming that the Rs. 15,15,000 cash deposits during demonetization were withdrawals from previous years used to repay a home loan. Additional evidence was submitted, but the AO found inconsistencies in the claim and the declarations from relatives.

The  CIT(A) agreed with the AO, stating that the relatives' declarations were not credible. It was noted that if the money had remained unused, it should have been deposited into their bank accounts and then transferred to the assessee's account. The large gap between the withdrawals and deposits was unexplained, and no valid reason was given for making the cash repayment during demonetization.

The assessee appealed before the tribunal aggrieved by the decision of the CIT(A).

The two member bench comprising Siddhartha Nautiyal (Judicial Member) and Dr.BRR Kumar (Vice President) after reviewing the case, noted that the assessee submitted additional evidence during the appeal. The assessee explained that the cash deposited in the bank account was repayment for loans given to relatives, which were returned during the demonetization period. A detailed chart of relatives from whom the cash was received was also provided.

The assessee explained that the relatives repaid the loans using specified bank notes (SBN) and that accepting the cash was necessary to avoid future disputes. Notarized declarations from some relatives were also submitted. The assessee also provided their Permanent Account Number (PAN) numbers.

The appellate tribunal observed that the Department had not conducted any inquiry to verify the facts or pointed out any issues with the evidence. The CIT(A) had confirmed the addition based on the belief that cash withdrawn in previous years couldn’t have been kept unused for so long.

The bench referred to similar cases, such as Sudhirbhai Pravinkant Thaker, Ajit Bapu Satam, Jaspal Singh Sehgal, and Smt. Krishna Agarwal, where the courts ruled that if the assessee could prove that the withdrawn cash was not used elsewhere, it could not be treated as unexplained income under Section 69A of the Act.

In short,the appeal  filed by the assessee was allowed.

To Read the full text of the Order CLICK HERE

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