ITAT Chennai Rules Cash Deposits Can Be Set Off Against Earlier Advances, Deletes ₹20 Lakh Addition

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) on 2 February deleted an addition of Rs. 20 lakh on a taxpayer out of the total Rs. 39.95 lakh made towards unexplained cash deposits and bank credits, observing that earlier bank deposits or cash advances can be set off against the said deposits.

The matter was heard by Judicial Member Manu Kumar Giri and Accountant Member S.R. Raghunatha. The Bench noted that cash deposits of Rs. 20,00,000 in UCO Bank, made by Dhanabalan Selvamuthu Kumar, the assessee, on three different dates, had been treated as unexplained solely because no separate explanation was furnished for these deposits.

Selvamuthu Kumar, a partner in the firm Erode Paints, had challenged the additions for the 2011-12 assessment year. The Assessing Officer, pursuant to earlier Tribunal directions, had examined cash deposits and credits aggregating to Rs. 65,69,350 in the assessee's bank accounts. After considering explanations and confirmations, the officer made an aggregate addition of Rs. 39,95,000 towards unexplained cash deposits and credits.

Before the Tribunal, the assessee contended that he had received cash advances aggregating to Rs. 37,00,000 on 26 June 2010 and 2 August 2010. Confirmations to the extent of Rs. 22,05,000 were furnished and accepted, while Rs. 14,95,000 was sustained for want of confirmations.

Applying the principle of telescoping, the Bench observed that once it was accepted that the assessee had received cash advances of Rs. 37,00,000 during the relevant period, “the possibility of utilisation of such cash for subsequent deposits into the bank accounts cannot be ruled out.”

The Tribunal held that the cash deposits of Rs. 20,00,000 did not represent an independent source of income and were capable of being explained out of the cash advances already received and partly accepted. It therefore directed deletion of Rs. 20,00,000 out of the total addition of Rs. 39,95,000, while sustaining the balance additions.

The appeal was accordingly partly allowed.