Taxpayers are generally weary when it comes to depositing cash in their own bank accounts as it may have repercussions when it comes to tax assessments.

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In this week's case, the taxpayer's main source of income was interest and remuneration from her partnership firm. Her case was picked up for detailed scrutiny. After examination of details of income from various sources, copies of bank statements and details of investments made during the assessment proceedings, the tax officer gathered that during the previous year, the taxpayer had deposited cash in different amounts in bank accounts on various dates totaling to Rs 1.35 crore.

The tax officer was of the view that as cash was deposited by the taxpayer in her accounts, the onus lies upon the taxpayer to prove the source of the same. The taxpayer filed a detailed cash flow statement showing the source of cash for each of her deposits. She claimed that she had frequently withdrawn huge amounts of cash from her bank accounts and simultaneously cash amounts were deposited in her account. The tax officer observed that the statement shows a very peculiar picture where the taxpayer makes cash withdrawals from her bank account when she already has sufficient cash balance in hand, from previous withdrawals. Part of the cash so generated is retained and the balance amount is deposited to the bank account only to be withdrawn again in quick succession. Based on this, the tax officer was of the view that the statements showing quick withdrawal and deposit in her bank account is suspicious and it cannot be relied upon as evidence. The tax officer found it difficult to comprehend that when the taxpayer had sufficient cash with her, what was the need to frequently withdraw large amounts of cash. The tax officer was not averse to the idea that the taxpayer might have utilised the cash withdrawn towards construction of a house property, while the cash was deposited from undisclosed sources of money. Considering the facts of the case and surrounding circumstances and conduct of the taxpayer, the tax officer treated the cash deposit of Rs 1.35 crore from unaccounted sources of money and hence, added it to the income of the taxpayer as income from other sources.

The taxpayer filed an appeal against the said order before the first appellate authority. The taxpayer argued that as details of deposits/withdrawals and copies of bank statements, along with the cash flow statement for the said year was submitted before the tax officer, the tax officer has not doubted the availability of cash with her, as he had relied upon these same documents. Further, the taxpayer submitted that the tax officer has also neither brought out any material on record to show that the cash that was withdrawn was spent on some other purpose, nor that the cash deposited was from undisclosed sources. While the tax officer has accepted availability of own funds in hands of the taxpayer, he has only doubted the behavioral pattern of the taxpayer. The appellate authority observed that mere doubt and suspicion on any transaction cannot be a valid basis to treat genuine transactions as non-genuine and accordingly deleted the addition made by the tax officer.

Before the second appellate authority, the tax officer placed reliance on the peculiar pattern of the taxpayer's behavior as the basis for the addition made. Based on facts of the case, the tribunal observed that there is no law in the country which prevents citizens from frequently withdraw and deposit their own money. As the entire transaction of withdrawals and deposits are duly reflected in the bank account of the taxpayer and are verifiable from relevant records, the tribunal also deleted the addition made by the tax officer.       

The writer is a Sebi-registered investment advisor