Facts of the Case

The assessee, Pradeep Patni, an individual engaged in fabrication work and partner in M/s Hindustan Sales Industrial Corporation, filed his return of income for Assessment Year 2016-17 declaring total income of ₹6,50,600. The case was selected for scrutiny and statutory notices under Sections 143(2) and 142(1) were issued and complied with. The Assessing Officer noted cash deposits aggregating to ₹1,03,00,000 in the assessee’s SBI savings bank account on four dates during the year. The assessee explained that these deposits were made out of prior cash withdrawals from his own bank account maintained with SBBJ and from receipts credited from his partnership firm. The Assessing Officer rejected the explanation on the ground that no satisfactory linkage was established and added the entire amount as unexplained money under Section 69A. The CIT(A) upheld the addition. Aggrieved, the assessee preferred an appeal before the Tribunal.

Issues Involved

Whether cash deposits of ₹1,03,00,000 could be treated as unexplained money under Section 69A, whether the assessee had satisfactorily explained the nature and source of the deposits through prior withdrawals and partnership receipts, and whether the deeming provisions of Section 69A were rightly invoked.

Petitioner’s Arguments

The assessee contended that cash deposits of ₹94,00,000 made on 09.04.2015 and 10.04.2015 were out of cash withdrawals aggregating to ₹1,90,00,000 made on 07.04.2015 and 08.04.2015 from his SBBJ account, which in turn were immediately preceded by receipts of ₹1,90,00,000 from his partnership firm. It was further submitted that deposits of ₹9,00,000 made in March 2016 were out of cash withdrawals of ₹8,40,000 made in February 2016 along with earlier savings. Detailed bank statements, reconciliation charts and written submissions were filed before the Assessing Officer and the CIT(A). It was argued that the Assessing Officer’s observation that no lump-sum withdrawals existed was factually incorrect and contrary to record. Reliance was placed on judicial precedents holding that where cash deposits are made out of prior withdrawals and no contrary utilisation is shown, addition under Section 69A is unsustainable.

Respondent’s Arguments

The Revenue relied on the orders of the Assessing Officer and the CIT(A), contending that the assessee failed to furnish a cash flow statement conclusively linking withdrawals to deposits and that mere withdrawals do not automatically explain subsequent deposits.

Court Order / Findings

The ITAT Indore observed that the cash withdrawals claimed by the assessee were clearly reflected in the bank statements and were not disputed by the Revenue. The Tribunal noted that the withdrawals of ₹1,90,00,000 were made immediately after receipt of identical amounts from the partnership firm and that deposits of ₹94,00,000 were made within one to two days, establishing a direct and proximate nexus. Similarly, the March 2016 deposits were found to be reasonably explained by earlier withdrawals. The Tribunal held that when documentary evidence establishes the trail of money, the deeming fiction under Section 69A cannot be invoked. The observation of the Assessing Officer that no lump-sum withdrawals existed was held to be contrary to record. The Tribunal further held that the CIT(A) erred in mechanically relying on statutory provisions and judicial precedents without judiciously examining the assessee’s factual explanation.

Important Clarification

The Tribunal clarified that Section 69A applies only where the nature and source of money are not explained. Where an assessee explains cash deposits through proximate prior withdrawals supported by bank statements and no contrary utilisation is shown by the Revenue, the deeming provisions cannot be invoked merely on suspicion.

Final Outcome

The appeal filed by the assessee was allowed, and the addition of ₹1,03,00,000 made under Section 69A and upheld by the CIT(A) was deleted in full.

Link to Download Order- https://www.mytaxexpert.co.in/uploads/1769158921_PRADEEPPATNIBHOPALVS.CITADELHI.pdf

 

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