Deeming Provision of S. 69A applies only when ‘Money Found’ with Taxpayer and Not Explained: ITAT [Read Order]

The deeming provision under Section 69A of the Income Tax Act, 1961 applies only when “money” is found with the assessee and the assessee fails to explain its nature and source, ruled the Income Tax Appellate Tribunal, Indore bench.

Pradeep Patni, an individual engaged in fabrication work and also having income from a partnership firm filed the appeal before the tribunal. According to him, the department treated his deposits in his SBI savings account of ₹1,03,00,000 as unexplained money under Section 69A.

The assessee filed its return declaring the income of ₹6.50 lakh only. This led the department to the confusion and treated the above amount as unexplained.

The department alleges that the assessee failed to produce credible evidence and did not submit a cash flow statement. The AO assessed total income at ₹1.09 crore and also initiated penalty proceedings.

During the appellate proceedings, the assessee explained that the department was from the cash withdrawals from his own bank account with SBBJ. He produced the bank statements showing the withdrawal of ₹1.90 crore on 07.04.2015 and 08.04.2015.

Also, out of the amount, ₹94 lakh was re-deposited within 1-2 days, and further withdrawals of ₹8.40 lakh on 09.02.2016 were used (along with savings/other withdrawals) for the later deposits of ₹9 lakh in March 2016, submitted the assessee.

As per the appellant’s representative, S.L. Poddar , the original source of the withdrawals was explained. He said that he had received ₹1.90 crore from his partnership firm “M/s Hindustan Sales Industrial Corporation”.

The CIT(A), however, upheld the addition mainly on the reasoning that there was no proper linkage and that the assessee failed to provide a cash flow statement.

The second appellate tribunal, found that the withdrawals and deposits were direct, proximate, and supported by bank statements. The Revenue did not dispute the existence of the withdrawals.

AO’s observation that “no lump sum withdrawal has been seen” was contrary to the record, since the withdrawals were clearly reflected in the bank statement, said the bench.

It was held that the assessee had sufficiently explained both the nature (cash re-deposit) and source (previous withdrawals from own bank accounts) and hence the deeming fiction of Section 69A could not be applied.

According to the bench of Paresh M. Joshi (Judicial member) and B.M. Biyani (Accountant member), if the Revenue disbelieves the explanation of redeposit, it must show that the earlier withdrawn cash was not available with the assessee on the date of deposit.

Therefore, the ITAT deleted the entire addition of ₹1.03 crore. It allowed the assessee’s appeal, and held that the lower authorities were unjustified in treating the bank deposits as unexplained money.

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