Cash Deposit Addition Deleted as Source Proven to be Re-deposit of Earlier Cash Withdrawals

Cash Deposit Addition Deleted as Source Proven to be Re-deposit of Earlier Cash Withdrawals

Issue

Whether an addition made on account of unexplained cash deposits in a bank account is sustainable when the assessee demonstrates through bank statements that the deposits were merely re-deposits of cash withdrawals made a few days earlier.

Facts

• The assessee filed an appeal against the order of the Commissioner of Income Tax (Appeals), NFAC, for the Assessment Year 2017-18.

• The appeal was filed with a delay of 177 days. The assessee explained that the business had closed in 2014, and notices sent to the counsel’s email or the closed business email were not accessed. The Tribunal condoned the delay.

• The Assessing Officer (AO) had made two additions:

  1. Rs. 17,29,000/- on account of cash deposits in the regular bank account.

  2. Rs. 22,25,897/- on account of credit entries (estimation of business profit).

• During the hearing, the assessee’s counsel stated that they did not press the ground regarding the addition of Rs. 22,25,897/-.

• Regarding the cash deposits of Rs. 17,29,000/-, the assessee submitted bank statements demonstrating that these were re-deposits of earlier cash withdrawals.

• The assessee highlighted that there was a very short time gap of only 3 to 4 days between the withdrawals and the subsequent deposits, explaining that cash withdrawn for business needs was unused and returned to the bank.

Decision

• The Income Tax Appellate Tribunal (ITAT) partly allowed the appeal.

• The challenge to the addition of Rs. 22,25,897/- was dismissed as it was not pressed by the assessee.

• Regarding the addition of Rs. 17,29,000/-, the Tribunal found force in the assessee’s contention.

• The Tribunal noted that the Revenue (Departmental Representative) could not rebut the documentary evidence (bank statements) which clearly established a link between the withdrawals and the deposits.

• The Tribunal accepted that the cash deposits were re-deposits of earlier withdrawals and not unexplained income. Consequently, the addition of Rs. 17,29,000/- was deleted.

Key Takeaways

• Source Explanation: Demonstrating a direct link between cash withdrawals and subsequent deposits is a valid explanation for the source of cash.

• Time Gap Matters: A short duration (e.g., 3-4 days) between withdrawal and deposit strengthens the claim that the funds are the same and were re-deposited due to non-utilization.

• Burden of Rebuttal: Once the assessee provides primary evidence (like bank statements matching withdrawals and deposits), the burden shifts to the Revenue to prove that the source was different. Failure to rebut leads to deletion of the addition.

• Condonation for Closed Business: Practical difficulties, such as lack of access to emails due to business closure, can be considered sufficient cause for condoning delay in filing appeals.

THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH
BENCH “SMC” CHANDIGARH
Euro Steels,
Shop No.50 B.D. Complex,
Mandi Gobindgarh.
Vs
The JAO,
Income Tax Office,
Ward-1, Sirhind.
ITA No.453/CHD/2025
Date of Pronouncement : 07.11.2025