Mere time gap between withdrawals and deposits can’t be the reason for alleging undisclosed income

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In Smt. Krishna Agarwal v. The ITO, Ward-1, Pali [ITA. No. 53/JODH/2021 A.Y. 2017-2018 dated September 07, 2021], Smt. Krishna Agarwal (“the Appellant”) filed an appeal against Order of Ld. CIT (A), NFAC, Delhi dated July 31, 2021 pertaining to Assessment Year (“AY”) 2017-18.

In the case, the Appellant contended that she derived income from renting of property and other income under “income from other sources” and had filed her due return. Appellant’s case was selected for limited scrutiny to verify the “Cash deposits during the year” and accordingly a Notice under Section 143(2) & 142(1) of the Income Tax Act, 1962 (“the IT Act”) was issued by the Assessing Officer (“AO”).

During the assessment proceedings, the Appellant had submitted that she has deposited the cash amounting to ₹68, 95,000/- in her saving bank account and further contended, that those deposits were made out of cash in hand lying with her as on April 01, 2016 which can be duly verifiable from bank statements, cash flow statement and other documentary evidence placed on record.

The AO only on the basis of assumption & presumption and making wrong allegation without bringing on record any material or evidence to justify such allegation had treated the cash deposits of ₹68, 95,000/- as undisclosed income and passed the assessment order under Section 143(3) of the IT Act assessing the total income of ₹73, 92,980/- by making addition of ₹68, 95,000/- as unexplained cash deposits in bank account under Section 69A of the IT Act.

Furthermore, the Appellant contended her only source of income is rental income and was duly disclosed by her in her return. Nevertheless, due to Appellant’s husband’s sudden demise on January 04, 2014 she inherited his property as per the will of her husband. Subsequently, the Appellant had sold the very property with view to purchase another one for her son and the remainder amount was allotted for continuing livelihood.  Affixing to all this, the Appellant provided the bank statements and contended that the Appellant had received a sales consideration for the sale of the said property and she had withdrawn cash for the sake of buying property for her son but the transaction never came into fruition therefore, the Appellant had to re-deposit the said amount to the bank. The Appellant contended that the claims of the AO were grossly parallel to the material evidence provided by her.

After taking perusal of all the facts and evidences on records, the Honorable Income Tax Appellate Tribunal (“ITAT”), Jodhpur Bench held that mere time gap between withdrawals and deposits cannot be a sole basis for rejecting the explanation of the Appellant as there was no material that amount so withdrawn had been utilized somewhere else. The Court believed that the explanation by the Appellant was reasonable and therefore, directed that the addition so made must be deleted.

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