ITAT rejected cash flow statement for no household drawings made, addition u/s 68 sustained

ITAT rejected cash flow statement for no household drawings made. Addition u/s 68 sustained for estimated amount of household drawings

ABCAUS Case Law Citation:
ABCAUS 2233 (2018) (03) ITAT

The appellant assessee was aggrieved by the order of the  Commissioner of Income Tax (Appeals) sustaining the addition made by the Assessing Officer (AO) for unexplained bank deposits u/s 68 of the Income Tax Act, 1961 (the Act).

The return of the assessee was selected for scrutiny and the notice u/s 143(2) of the Act was issued. During the course of assessment proceedings the AO noticed from the information received through AIR that the assessee had deposited cash in his bank account. However, not satisfied with the explanation given by the assessee, the AO made an addition for the cash deposited in the bank u/s 68 of the Act.

Aggrieved, the assessee preferred appeal before the CIT(A) and submitted that there was sufficient cash balance in the books and furnished the cash flow statements for three years including immediately preceding two assessment years.  However, the CIT(A) was not convinced with the purpose of withdrawing the cash and immediately depositing when there was availability of cash in hand. Accordingly he held that the assessee has not adduced any cogent and unimpeachable evidence regarding the availability of cash in hand and accordingly confirmed the addition.

Before the Tribunal, the assessee, with the help of cash flow statements for the year under appeal and preceding two years explained that in view of the opening cash in hand and subsequent cash withdrawals from bank during the three years, there was sufficient cash in hand to support cash deposit in the bank.

The Tribunal observed that both the lower authorities had not disputed about the source of cash which was out of the withdrawals from bank as well as the withdrawals from the partnership firm. To the extent of source of cash, the cash flow statements were very clear.

It was observed that no negative opinion has been given by the lower authorities about the source of cash which was made out of the withdrawals from the bank accounts, however, according to the Tribunal, the question that remained unanswered on the part of the assessee was his household withdrawals.  

The Tribunal observed that as per the cash flow statements, there were regular cash household withdrawal for one of the preceding years but surprisingly there were no such cash household withdrawals during the relevant year and the immediately preceding year which raised suspicion about the actual cash in hand with the assessee.  Apart from the issue of cash household withdrawals, there was other reason to object the cash flow statements of the assessee.

The Tribunal opined that the cash withdrawals for household expenses should have been made by the assessee and to that extent, the assessee’s cash in hand needed to be reduced from the cash in hand with the assessee at its disposal for being deposited in the bank account.

Under the facts and circumstances of the case, the Tribunal taking a very pessimistic approach sustained the addition of Rs. 7,80,000/- estimated the household drawings of the assessee (i.e. @ Rs. 30000/- per month and Rs. 35000/- per month respectively).