Cash from previous savings can be claimed against a deposit in a bank account

Facts and issues of the cases

This is an appeal filed by the assessee against order dated 24.09.2021 of National Faceless Appeal Centre (NFAC), Delhi, relating to Assessment Year 2017-18.The assessee is an individual. His source of income is pension from Vijaya Bank where the assessee worked prior to retirement, interest income on bank deposits. He filed return of income for Assessment Year 2017-18 declaring total income of Rs.4,40,450/-. The return of income was taken up for scrutiny because the assessee had deposited cash of Rs.28,28,000/- in two bank accounts in his name with Bank of Baroda. The deposit was made during the demonetization period.

The assessee explained the source of funds as earlier cash withdrawals from the very same bank accounts, withdrawals from FD and pension account. The AO therefore after giving credit for Rs. 5 lakhs added a sum of Rs.23,28,000/- as unexplained money deposited in bank account under section 69A of the Income Tax Act, 1961 (Act).On appeal by the assessee, the CIT(A) confirmed the order of the AO. On the plea of the assessee that earlier cash withdrawals from the two bank accounts are the source of funds for the cash deposit made in the bank account during the previous year, the assessee had relied on withdrawals from 13.09.2013 and 06.04.2015 but the CIT(A) considered withdrawals from only 06.04.2015 and 21.05.2015 respectively.

The limited prayer of the learned Counsel for the assessee before the Tribunal was that there were substantial withdrawals prior to 06.04.2015 and 21.05.2015 respectively from the two bank accounts and the CIT(A) erred in not giving credit to these withdrawals on the ground that these withdrawals were at a time which was more than 2 years from the date of deposit. The learned Counsel for the assessee in this regard placed reliance on a decision of the Hon’ble Karnataka High Court in the case of Smt. P. Padmavathi Vs. The ITO ITA No.414 of 2009 judgment dated 06.10.2010 wherein the question before the Hon’ble Court relating to Assessment Year 2004-05 was whether the findings of the authorities that the source of cash deposited in the loan account is not properly explained in sustainable. The Court held that earlier withdrawal from the same account shall be held to be proper explanation of the source.

Observation by the Court

The learned Counsel for the assessee also prayed that availability of reasonable quantum of cash in the form of past savings should also be accepted especially when withdrawals to the tune of Rs.24 lakhs are accepted by the AO in para 6 of his order.

The learned DR submitted that withdrawals from 2013 cannot be considered as available to assessee in Financial Year 2016-17. According to him, subsequent withdrawals when cash is already available with the assessee has not been explained. The assessee has also not explained as to why and for what purpose cash withdrawn was kept with the assessee. His argument was that the plea of the assessee is contrary to hum probability. He relied on order dated 07.04.2021 of ITAT, Bengaluru SMC Bench in the case of Shri. Mohammed Sharaq Vs. ITO ITA No.1818/Bang/2019 wherein this Tribunal held that availability of earlier withdrawal of cash for the subsequent deposit must be established by the assessee and in the absence of such evidence, the benefit of earlier withdrawal cannot be given to an assessee. He also relied on similar decision rendered by ITAT, Delhi, in the case of Leela Devi Vs. ITO in ITA No.1423/Del/2020 order dated 01.02.2021.

Assessee carefully considered the rival submission. The Hon’ble Karnataka High Court in the case of Smt. P. Padmavathy (supra) clearly laid down that earlier withdrawals of cash from Bank account have to be accepted as available to an assessee to explain a later deposit as source. The Hon’ble Court held that it was not open to the Revenue to contend that the assessee has to explain as to how the cash withdrawn earlier was utilized by an assessee and was still available with the assessee. The decisions cited by the learned DR are contrary to the law laid down by the Hon’ble Karnataka High Court and therefore not binding.

Assessee therefore, hold the past withdrawals as claimed by the assessee from 2013 should be considered as being available to the assessee to explain the source of deposit. Court was also of the view that a reasonable quantum of cash available out of past savings should also be considered as being available to the assessee to explain the source of cash deposited in the bank account.Therefore, set aside the order of the CIT(A) and remand the case to the AO to consider the issue denovo in the light of the observations as made above.