ITAT Mumbai Deletes Additions On Individual Taxpayer, Rules Cash Redeposits Not “Unexplained”

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) on 25 February deleted additions made on cash deposits in the bank account of an individual taxpayer, holding that redeposits of earlier withdrawals cannot be treated as unexplained money in the absence of evidence that the cash was used elsewhere.

A Bench comprising Accountant Member Om Prakash Kant and Judicial Member Kavitha Rajagopal allowed the appeals of the taxpayer, Nitinkumar Pravinchandra Kacharia, for Assessment Years 2022-23 and 2023-24.

The Tribunal held:

“In our opinion, considering the facts and circumstances of the assessee for assessment year 2022-23 and following the decision in the case of the Co. decision, we do not find any justification in the finding of the Ld. CIT(A) for sustaining the addition of Rs. 23,99,900/- (AY 2022-23) and Rs. 14,61,391/- (AY 2023-24). Accordingly, we find no legal or factual justification for these additions. The orders of the Ld. CIT(A) on these counts are set aside, and the additions are hereby deleted.”

The taxpayer, the director of Anuj Electricals Pvt. Ltd., came under assessment following a search action in the case of Polycab India Ltd. During assessment proceedings, the Assessing Officer noted cash deposits of Rs. 31.33 lakh for AY 2022-23 and Rs. 15.59 lakh for AY 2023-24 and treated them as unexplained under the Income Tax Act.

The taxpayer explained that the deposits were made out of past withdrawals, family savings, and gifts, including cash withdrawn during the COVID-19 pandemic to meet possible medical emergencies. However, the Assessing Officer rejected the explanation and made additions treating the deposits as unexplained.

The Tribunal observed that the assessee had substantial disclosed income in earlier years and had withdrawn cash from known banking sources. It held that once withdrawals from bank accounts are established, the burden shifts to the tax department to prove that the funds were used elsewhere.

The Bench noted that the Revenue failed to bring any evidence showing that the withdrawn cash had been spent or diverted for other purposes. The Tribunal thus set aside additions of Rs. 23.99 lakh and Rs. 14.69 lakh that had been sustained by the Commissioner of Income Tax (Appeals). It was further observed that keeping cash during the pandemic to meet medical contingencies was a 'plausible' explanation.

Accordingly, the Tribunal deleted the additions, holding that they were based merely on presumption, and allowed the appeals.