Cash Deposits in Bank Account & Income Tax Notice

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Cash Deposits in Bank Account & Income Tax Notice

Cash Deposits in Bank Account & Income Tax Notice

 

Cash Deposits  in Bank Account is inviting lot of notices in the recent months, more particularly post demonstration

 

One of the explanations offered by taxpayer is that Cash was deposited out of cash withdrawals in the past which is not accepted by AO and AO outrightly  rejects it.

 

AO in most of the cases simply rejects the Explanations on the ground that there is sufficient time gape between Cash Withdrawls and Cash Deposits.

 

Accordingly cash deposited in the Bank Account could not be held from the cash withdrawals done in the past and additions were made treating Cash Deposits as unexplained either under section 68,69 or 69A.

 

Now the issue arises is

 

” Whether AO can reject explanation of Assessee without establishing the fact that Cash withdrawls in the past  are utilised by Assessee for some other purpose and not hold by Assessee?”

 

It may be noted that presently  ttere is no law in the Country which prohibits an Assessee for withdrawls of Cash and holding the same for any period of time. There is no ceiling on maximum holding as well.

As a result, cash withdrawals can be hold for some time and later on same can be redeposited in the Bank Account.

 

In short, There is neither any restriction regarding withdrawl of cash and redepositing the same after some time gap.

 

When Assessee is able to establish that withdrawal of Cash and redeposit of the same after some time gap in the Casg Flow Statement such explanation of Assessee can not be rejected by AO without establishing the fact that Cash withdrwal was utilised was used by Assessee for orher purpose and was not hold by Assessee which was redeopsited after some gape of time.

The same view was upheld by Tribunal in favour of Assessee in following Judgments.

 

 

  1. ACIT vs.Baldev Raj Chalra.

 

  1. R.K.Dave vs. ITO

 

  1. Hemant Prabhakar vs. DCIT.

 

  1. ITO vs. Mrs.Deepali Sehgal.

Conclusions: 

Explanation of Assessee that Cash deposits in Bank Account was from cash withdrawals made in the past can not be rejected by AO simply without establishing the fact that Cash Withdrawn was utilised by Assesee for other purpose and not hold by Assessee.

Thus,  addition of Cash Deposits in Bank A/c as unexplanied income either  under section 68,69 or 69A is not valid.

 

 

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