ITAT Accepts Cash Withdrawal Explanation, Deletes Unexplained Money Addition

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has held that cash deposits made during the demonetisation period cannot be treated as unexplained money under Section 69A where the assessee successfully demonstrates that the deposits originated from earlier withdrawals from his own bank account and the Revenue fails to bring any contrary evidence on record.

The case involved Late Shri Gopal Krishna Rao, represented by his legal heir, who had deposited cash during the demonetisation period. The Assessing Officer selected the return for scrutiny and questioned the cash deposits of Rs 13.35 lakh. The assessee explained that he and his wife had earlier received sale proceeds through cheques from the Debt Recovery Tribunal (DRT) following the distress sale of their property. The amounts were deposited in their HDFC Bank account and subsequently withdrawn and retained in cash. According to the assessee, the same cash was later redeposited during demonetisation.

The Assessing Officer rejected the explanation and treated the deposits as unexplained money under Section 69A. Subsequently, through a rectification order under Section 154, the tax rate applicable to the addition was increased from 30% to 60% under Section 115BBE. The CIT(A) affirmed both the addition and the rectification order.

Before the Tribunal, the legal heir sought condonation of a 90-day delay in filing the appeals, explaining that her husband’s death and her own age-related health issues prevented timely filing. Accepting the explanation and medical records, the Tribunal condoned the delay and proceeded to decide the matter on the merits.

On examining the facts, the Tribunal observed that the assessee had clearly established the source of the cash deposits. The record showed that the property had been auctioned because of financial difficulties and that the sale proceeds were received through DRT-issued cheques. The Tribunal noted that after depositing the cheque amounts in the bank, the assessee had withdrawn cash, which was later redeposited during demonetisation.

The Bench found it significant that the assessee had no other source of income capable of generating such cash and that the Revenue had failed to bring any evidence contradicting the explanation offered. It was observed that if the assessee had possessed sufficient funds from other sources, he could have cleared the bank liabilities and avoided the auction of his property altogether.

Distinguishing the decisions relied upon by the Revenue, the Tribunal held that those cases involved different factual situations and therefore could not govern the present dispute. Since the source of the cash deposits stood satisfactorily explained, the addition of Rs.13.35 lakh under Section 69A was deleted.

As regards the separate appeal concerning the enhanced tax rate under Section 115BBE, the Tribunal held that once the underlying addition itself had been deleted, the question of taxing the amount either at 30% or 60% no longer survived. The Tribunal also noted that the issue was otherwise covered in favour of the assessee by the decision of S.M.I.L.E. Microfinance Ltd. v. ACIT. Accordingly, the rectification order and the consequential higher tax levy were also set aside.

The Tribunal ultimately allowed both appeals filed by the assessee.

To Read Full Order, Download PDF Given Below.