Cash Deposits in the bank & Applicability of Section 68.

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Cash Deposits in the bank & Applicability of Section 68.

Lot many notices are issued by the Income Tax Department towards cash deposited in the bank accounts. One need to understand its implications. One such interesting issue arose before the Delhi High Court in the case of Rajiv Jain v ITO [2019] 101 taxmann.com 92 (Delhi). The assessee is required to explain cash deposits in his bank. The assessee is found to have deposited an amount of Rs. 1017650/- in his bank and in his explanation he claimed that at least an amount of deposit of Rs. 492900/- were representing unutilized amount of cash out of previous withdrawals aggregating to Rs. 510550/- in cash.

The Commissioner of Income tax (Appeals) held the following adverse observations:

“8.8.3 The appellant is claiming that the amount of cash of Rs.5,10,550/- withdrawn on the aforesaid dates have been redeposited in the bank account . Firstly, it is not understood why the appellant ,would require to withdraw the money to again redeposit the same in the bank account .it is also not the case of the appellant that one or two days before the deposit of cash , he has withdrawn the amount of cash. The appellant has not shown as to how the amount if withdrawn for some purpose could not be utilized and, therefore, the same was redeposited. As such, there is no basis in the claim of the appellant.”

The Tribunal in their further order yet again passed the following adverse observations:

“11.After hearing both the sides ,I do not find any infirmity in the order of the learned Commissioner of Income-tax (Appeals).The learned Commissioner of Income-tax (Appeals) has already given the finding that it is not understood as to why the assessee required to withdraw money to again redeposit it in the same bank account .The assessee has also not explained with evidence to show as to how the amount ,if withdrawn for some purpose, could not be utilized for which the same was redeposited. The assessee has also not submitted any documentary evidence to support the claim that he had some personal effects of unique ancestral description. The explanation of the assessee that he was keeping cash of Rs.4,10,000/- is also without any basis and contradictory to his submission before the Commissioner of Income-tax (Appeals). In these circumstances, I do not find any infirmity in the order of the Commissioner of Income-tax (Appeals).Accordingly the same is upheld and the ground raised by the assessee is dismissed.”

The Delhi High Court however remanded the matter to the Tribunal to find out reasons for withdrawals from the assessee and recorded the following observations:

“The Primary reason to reject explanation of the appellant-asseesee that the cash deposit of Rs. 4,92,900 was form the withdrawals of Rs.5,10,550 in cash made between June 12,2009 and October 16,2009 in the first appellate order was failure of the appellant-assessee to elucidate and explain the reason why the said cash withdrawals were made .Referring to the said reasoning, the counsel for the appellant-assessee has submitted that the Assessing Officer had not raised any such specific query. This was not the ground and reason given in the assessment order. On the other hand, the appellant-assessee had furnished evidence regarding cash withdrawals of Rs.5,10,550 which was undisputed. The Commissioner of Income-tax (Appeals) had proceeded to given a different and new reasoning, which was not confronted for explanation before the first appellate order was passed .The appellant-assessee was taken by surprise. Reasoning in the form of additional ground, it is submitted, should not have been made the basis without asking and raising a specific query. It is also highlighted, with some merit that the additions made include two small deposits of Rs.,3,250 and Rs.14,400 made on August 17,2009 and October 27,2009. In the alternative, it was submitted that the addition should be partial.

Keeping in view the aforesaid position, we find that the Tribunal in the impugned order has failed and not taken note of the aforesaid contentions raised in respect of the deposit of Rs.4,92,900.The said issue has not been examined in the light of the pleas and aspects that arise for consideration. Accordingly, we feel that matter should be re-examined by the Tribunal. Liberty is also given to the appellant-assessee to file an application for additional evidence to justify and explain the reason for substantial cash withdrawals made between June 12, 2009 to October 16,2009.We clarify that we have only remanded the matter for fresh consideration and have not finally determined or decided the aspect and issue on merits.”

This matter pertains to A Y 2010-11 ( previous year 2009-10) and therefore in this scenario the assessee is being made to give reason or purpose for withdrawals after a period of 10 long years. It would too much of an expectation from an assessee to remember the purpose of withdrawals in cash when he was not posed this very question in back proceedings at any stage.

The fact remains, as per the rule of accounting all cash withdrawn goes into cash account or cash book and if it is unspent it would bear the character of cash in hand so that if any amount is deposited into the bank it would undoubtedly correspond to the available cash in hand.

The orders of the Delhi High Court somehow go against this statement of fact of cash accounting. The High Court further called upon the assessee to submit additional evidence in this regard which cannot be anything other than his affidavit or statement stating reasons or purpose when he was not asked this question earlier at any stage and to further believe it to be true or false after a long period of 10 years would be a trivial affair for the Tribunal. Income tax law nowhere contain any provision to maintain record of reason or purpose of each withdrawal in cash from bank & so assessee should be given a benefit of doubt to relate the deposits in cash out of previous withdrawals from the banks.

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