Earlier cash withdrawal can be explained as source for subsequent bank deposit – ITAT

Earlier cash withdrawal can be explained as source for subsequent bank deposit of cash, provided there are no evidence to show that those withdrawals could not be available to as a source for subsequent deposits.

ABCAUS Case Law Citation
ABCAUS 3471 (2021) (03) ITAT

In the instant case, the appellant assessee had challenged the order passed by the CIT(A) in sustaining addition u/s 69A of the Income Tax Act, 1961 (the Act) made by the Assessing Officer (AO) as unexplained cash deposits in the bank account.

The assessee is an individual.  In the course of assessment proceedings under section 143(3) of the Act, the AO noticed the assessee had deposited large amount of cash in his two bank accounts.

The AO called upon the Assessee to explain the source of funds out of which the cash deposits were made. 

The Assessee explained that the cash deposits are from business sales, agricultural income and earlier withdrawals from banks. The assessee furnished the bank account statements, P&L Account and ledger copy. 

The AO did not accept the explanation furnished by the assessee and added the excess of cash deposits over business turnover as unexplained u/s 69A of the Act.

CIT(A) confirmed the order of the AO but give a limited relief.

Before the Tribunal, the assessee submitted the break-up  of daily cash  balance  taking into account the receipts and outflow of cash from  all sources. The Tribunal accepted the Application under Rule 29 of the ITAT Rules for additional evidence.

The assessee submitted there were withdrawals and deposits in the cash book and the source of deposits can be explained by the Assessee with supporting evidence.   It was submitted that it is an accepted rule that a withdrawal from the cash book would be a source for deposit of cash in the bank account at a later date.

Earlier cash withdrawal can be explained as source for subsequent bank deposit 

The Tribunal opined that when there are deposits and withdrawals from the cash book and the source of cash deposits in the cash account is explained, the earlier withdrawal of cash can be explained as source for the subsequent deposit of cash, provided there are no evidence or circumstances to show that the earlier withdrawals could not be available to the assessee as a source for subsequent deposit.   

The Tribunal stated that in case of non-availability of earlier cash withdrawals, one has to follow the peak credit theory and add only peak credit balance in the cash account which alone would have to be treated as unexplained. 

In view of the additional evidence not examined by the AO,  the Tribunal remanded the issue to the AO for consideration afresh after affording  assessee opportunity of being heard.

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