PALANISAMY PARI,SALEM vs. DCIT, SALEM

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ITA 2334/CHNY/2026Status: DisposedITAT Chennai08 September 2026AY 2017-188 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the CIT(A) erred in making an ad-hoc addition of Rs. 10,00,000/- when the sources of cash, such as debtor collections, were accepted and the books of account were not rejected. The Tribunal directed the deletion of the disallowance.

What were the facts?

The assessee, a distributor of FMCG products, deposited Rs. 35,29,340/- in cash into their bank account. The Assessing Officer treated Rs. 31,11,500/- as unexplained money as the assessee could not provide a party-wise breakup of collections from debtors.

What were the issues?

Whether cash deposits made during the demonetization period, sourced from business debtors, can be treated as unexplained income without rejecting the assessee's books of account.

Which sections of the Income-tax Act were involved?

Section 69A,Section 115BBE

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI

Before: MS. PADMAVATHY.S & SHRI MANU KUMAR GIRI

For Respondent: Ms. P.Sunanda, Sr. DR

आदेश / O R D E R

PER PADMAVATHY.S, A.M:

This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, (in short "CIT(A)") passed u/s. 250 of the Income Tax Act, 1961 (in short "the Act") dated 17.02.2026 for Assessment Year (AY) 2017-18.

2.

The assessee is an individual and distributor for FMCG products. the assessee filed the return of income for AY 2017-18 on 27.03.2018 declaring total income of Rs.13,02,370/-. The case was selected for scrutiny and the

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statutory notices were duly served on the assessee. The AO noticed that the assessee has made cash deposit of Rs. 35,29,340/- into the bank account an called on the assessee to furnish the details pertaining to the same. The assessee submitted before the AO that the collections from debtors are deposited in the bank account and that the opening balance as on 08.11.2016 was at Rs. 4,17,382/-. The AO however held that the assessee could not produce party-wise breakup of collections from debtors and also the comparative details of earlier years. Accordingly, the AO treated the amounting or Rs. 31,11,500/- as unexplained money in the hands of the assessee. On further appeal, the CIT(A) gave partial relief to the assessee by holding that: “6. Decision and Findings I have carefully and independently examined the assessment order, statement of facts, grounds of appeal, written submissions, books of account, bank statements, and other materials placed on record. The issue involved relates to addition of Rs.31,11,500/- made u/s 69A on account of cash deposits during the demonetization period and consequential taxation u/s 115BBE. 6.1 Scope of Appellate Consideration 6.1.1 The addition has been made on the out of total SBN deposits of Rs.35,29,340/-, only Rs.4,17,382/- was available as per FMCG cash book as on 08.11.2016 and therefore the differential amount of Rs.31,11,500/- represented unexplained money. 6.1.2 The appellant contends that the AO erred in considering only FMCG business cash and failed to consider: • Cash generated from lorry operations assessed under section 44AE, • Cash collections from business debtors, • Personal cash accumulation, and • Ongoing cash business model of the assessee. 6.1.3 Therefore, the central question is whether the entire difference amount can be treated as unexplained money within the meaning of section 69A.

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6.2 Legal Position under Section 69A

6.2.1 Section 69A provides that where an assessee is found to be the owner of money not recorded in the books of account and offers no satisfactory explanation about the nature and source thereof, such money may be deemed to be income.

6.2.2 The essential conditions are:

The money must not be recorded in the books, and The explanation offered must be unsatisfactory.

6.2.3 In the present case, the assessee is maintaining regular books of account for FMCG business and income from lorry operations is declared under section 44AE. The AO has not rejected the books u/s 145(3). The turnover and profit disclosed have been accepted.

6.2.4 Thus, the deposits are not prima facie from an undisclosed activity. They are from disclosed businesses and disclosed bank accounts.

6.3 Examination of Facts and Evidence

6.3.1 It is noticed that the assessee is engaged in FMCG distribution, which inherently involves substantial cash dealings and debtor collections.

6.3.2 The assessee is also operating lorries under presumptive taxation. Freight collections in such line of business are predominantly cash based.

6.3.3 The AO has not disputed the existence of these businesses nor has he found that the sales or turnover declared are inflated or fictitious

6.3.4 The sole basis for addition is that the FMCG cash book reflected cash balance of Rs.4,17,382/- as on 08.11.2016 and therefore balance deposit must be unexplained.

6.3.5 However, it is evident from record that: • Multiple sources of cash generation existed. • No finding has been recorded that debtor realizations were bogus.

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• No evidence of accommodation entries or third-party cash introduction has been brought on record. • No investigation has been conducted to show that deposits were from unknown persons. 6.4 Shortcomings in Assessee's Explanation 6.4.1 At the same time, it is also noted that the assessee has not furnished a comprehensive and day-wise consolidated cash flow statement reconciling: • Opening balances of all businesses, • Cash receipts prior to demonetization, • Cash deposited in each bank account, • Closing cash balance after deposit. 6.4.2 The absence of such reconciliation creates an element of uncertainty regarding the entire quantum of availability claimed. 6.4.3 While explanation is plausible, it is not fully supported by meticulous documentary evidence for the whole sum of Rs.31,11,500/-; 6.5 Principle of Preponderance of Probabilities 6.5.1 In matters relating to cash deposits during demonetization, courts have consistently held that addition cannot be made merely on suspicion if the assessee has established nexus with business activities. 6.5.2 At the same time, the burden lies on the assessee to satisfactorily explain the nature and source. 6.5.3 Applying the principle of preponderance of probabilities: It is improbable that an ongoing business with accepted turnover had only Rs.4.17,382/- as total available cash. It is equally improbable that the entire differential amount is fully substantiated without reconciliation. 6.6 Finding on Quantum of Addition 6.6.1 Considering: • The accepted nature of business,

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• Non-rejection of books, • Lack of adverse material, • Absence of full reconciliation, • Overall facts and circumstances, it would be unjust to sustain the entire addition of Rs.31.11.500/- 6.6.2 At the same time, in absence of complete documentary substantiation, sustaining a reasonable portion of addition is justified to plug possible gaps in reconciliation. 6.6.3 Therefore, in the interest of justice and fair estimation, the addition is restricted to Rs. 10,00,000/- and the balance amount of Rs.21,11,500/- is deleted. 6.7 Applicability of Section 115BBE 6.7.1 Since only Rs. 10,00,000/- is sustained as unexplained money u/s 69A, section 115BBE shall apply only to the sustained portion. 6.7.2 The AO is directed to recompute tax accordingly. In result, the appeal of the appellant is partly allowed.”

3.

The Ld. Authorized Representative (AR) of the assessee submitted that the CIT(A) while partly allowing the claim of the assessee has admitted the various details submitted by the assessee explaining the source for cash. the CIT(A) however has made the adhoc addition of Rs. 10,00,000/- stating that the addition is made in the interests of justice and fair estimation which is not correct. The Ld. AR also submitted that having accepted the source and the fact that the books are not rejected, the CIT(A) has not basis for sustaining adhoc addition. The Ld. AR drew our attention to the various details submitted by the assessee before the AO to argue that the collection from the debtors and the cash deposit are consistent across the financial year 2015-16 & 2016-17. The Ld. AR accordingly argued that the lower authorities have

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made the addition without properly appreciating the factual submissions made by the assessee.

4.

The Ld. Departmental Representative (DR), on the other hand, relied on the orders of the lower authorities.

5.

We have heard the parties, and perused the material available on record. The AO during the course of hearing made an addition of Rs. 31,11,500/- without accepting the submission of the assessee that the source for the cash deposit is from cash collections from the debtors. In this regard, we notice that the assessee has submitted the following details before the AO:

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6.

From the above details, it is clear that though the assessee did not have any cash sale and the collections from debtors which deposited into the bank account are consistent across various months of FY 2016-17 & 2017-18. We also notice that there is no unusual spike during the demonetization period and therefore we see merit in the argument that the AO is not correct in making the addition merely on the grounds that the assessee is not having any cash sales. Further, from the findings of the CIT(A) as extracted hereinabove, we notice that the CIT(A) has accepted that the multiple sources for cash generation existed, and the debts realization are not bogus, no accommodation

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entries or third party cash introduction is brought on record etc. (refer para 6.3.5 from CIT(A) order). We notice that though the CIT(A) has accepted the source and the genuineness of the source, proceeded to make the adhoc disallowance stating that the assessee has not provided the reconciliation. However, from the details submitted before the AO as mentioned above, we notice that the assessee is having cash collections from debtors which is deposited into the bank account. Therefore, in our consideration view having accepted the source the genuineness, non-rejection of books, lack of adverse material etc., the CIT(A) does not have any basis for sustaining the adhoc addition to the tune of Rs. 10 Lakhs. Accordingly, we direct the AO to delete the disallowance.

7.

In the result, the appeal of the assessee is allowed. Order pronounced on 08th day of September, 2026 at Chennai.

Sd/- Sd/- (मनु कुमार िग!र) (पदमावती यस) (Manu Kumar Giri) (Padmavathy.S) �या�यक सद�य / Judicial Member लेखा सद�य /Accountant Member चे�नई/Chennai, �दनांक/Dated: 08th September, 2026. EDN, Sr. P.S Digitally signed by EJTADA DURGA EJTADA DURGA NARESH आदेश क� ��त�ल�प अ�े�षत/Copy to: NARESH Date: 2026.09.15 1. अपीलाथ�/Appellant 12:03:13 +05'30' 2. ��थ�/Respondent 3. आयकर आयु!/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF

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