MADEGONDA NAGARATHNA,BANGALORE vs. INCOME TAX OFFICER, WARD-1(2)(7), BANGALORE

PER WASEEM AHMED, ACCOUNTANT MEMBER: This appeal is filed by the Assessee against the order of Ld. NFAC vide DIN: ITBA/NFAC/S/250/2025-26/1081588368(1) dated 09-Oct-2025 for the Assessment Year 2017-182.

3.1 However, the AO did not accept the assessee's explanation. The AO noted that the assessee had sold an immovable property less than a week before the cash deposit. Accordingly, the AO was of the view that the cash deposited should be in the nature of sums received over and above the disclosed consideration of the property. Hence, the AO treated the sum of Rs. 25 lacs as unexplained money under section 69 of the Act and added the same to the total income of the assessee.

6.2 I have given careful consideration to the comments made by AO in the order and also the submission made by the appellant. The appellant is a salaried employee and earns a salary income of around 7 lakh per annum. Appellant has not provided any details of income earned by her spouse. In such scenario, appellant and her spouse holding an opening cash in hand of Rs. 12,80,000/- as on 31-03-2016 does not appear to be a believable explanation. Moreover, cash deposits out of withdrawals made during the year also has been dealt with in details by the Assessing Officer and I find no fault in AO's detailed reasoning. 6.3 The appellant has also questioned the action of AO in not referring the sale of property to the Valuation Officer. However, it is pertinent to note that the AO has not made any addition on account of value of property and has only questioned the timing of the cash deposit and sale of property. On the principle of preponderance of probability, the AO appears to be justified as property has been sold on 23-06-2016 and cash has been deposited on 29-06-2016. 6.4 Appellant has also relied on the decision of Hon'ble ITAT, Banglore in the case of Sandeep Patil v. ITO, which is clearly distinguishable on facts as in that decision the question was on valuation of property and not a case where source of cash deposit has been questioned.

6.5 Thus, I am satisfied that the AO has made a detailed and reasoned order and appellant has not been able to explain the source of cash deposit and hence addition on this account is confirmed. Thus, the ground is dismissed.

6.1 The learned AR also placed reliance on the judgment of the Hon’ble jurisdictional High Court of Karnataka in the case of Smt. P Padmavathi vs ITO (ITA No. 414 of 2009), where cash deposited out of earlier withdrawal from the bank was accepted as genuine.

8.1 In our considered opinion, the addition cannot be sustained merely on the basis of suspicion and probabilities. The provisions of section 69 of the Act require the Revenue to establish that the money found in the possession of the assessee is unexplained. In the present case, except for drawing an inference from the proximity between the date of sale of the property and the date of cash deposit, the AO has not brought any material on record showing that the assessee had actually received any amount over and above the consideration mentioned in the registered sale deed. There is no statement of the purchaser, no seized material, no evidence of any on-money transaction and no other corroborative material to support such an allegation. A presumption, however strong, cannot take the place of evidence.

8.2 We further find that before us the assessee has furnished copies of the bank statements of both the assessee and her husband along with a detailed cash flow statement showing that substantial cash had been withdrawn by them over a period of nearly two years. The working placed on record shows aggregate cash withdrawals of about Rs. 13.17 lakh by the assessee and Rs. 11.95 lakh by her husband. The explanation offered is that both of them intended to purchase a residential property and, therefore, had been gradually withdrawing and retaining cash for that purpose. The Revenue has not pointed out any material to show that these withdrawals had been utilised elsewhere or that the cash so withdrawn was not available with the assessee on the date of deposit.

8.3 It is a settled principle that when the source of a cash deposit is explained with reference to identifiable withdrawals from disclosed bank accounts, the explanation cannot be rejected merely because there is a time gap between the withdrawals and the subsequent deposit. The Revenue should bring some positive evidence to establish that the withdrawn cash was spent or otherwise not available with the assessee. In the absence of any such evidence, the explanation cannot be discarded on mere conjectures.

8.4 We also find merit in the contention of the assessee that the AO proceeded on the assumption that the cash represented undisclosed sale consideration without making any enquiry from the purchaser or bringing any evidence to establish that the property had actually been sold for a higher value. Such an addition is based only on suspicion and not on any legally admissible evidence. Suspicion, however strong, cannot substitute proof.

8.5 The assessee has also placed reliance on the judgment of the Hon'ble Karnataka High Court in the case of Smt. P. Padmavathi v. ITO, in Income Tax Appeal No. 414 of 2009 order dated 6th October 2010 wherein the explanation of cash deposits out of earlier bank withdrawals was accepted. The ratio of the said judgment supports the case of the assessee, as the Revenue has failed to establish that the earlier withdrawals were not available for redeposit. The relevant observation of Hon’ble High Court is extracted as under:

“11. Question 3: In so far as the cash deposit in two loan accounts as set out above is concerned, the material on record discloses that the assessee had Rs. 7,00,000/- in cash on 20.8.2003 having withdrawn the same from his bank account. The said Rs.7,00,000/- has suffered tax. No doubt the deposit in the two loan accounts was made on 29.9.2003 and on 25.11.2003. The authorities have disbelieved the ease of the assessee on the ground that there is a gap of 40 days or more between the withdrawal of the amount from the bank account and re-deposit of the same in the loan account. Secondly, on the ground that, it is risky to keep large amount of cash on hand. Thirdly, they are of the view that the explanation offered such as having borrowed a gold loan, yet another loan of Rs.2,00,000/- and sale of paddy, are not established by proper evidence. It is in this context, it is useful to refer to a judgment of this Court in the case of ‘S.R.Venkataratnam Vs. Commissioner of Income Tax, Karnataka-1 and another’ reported in ITR (127) 1981 Page 807, where a learned Single Judge held as under: "Once the petitioner-assessee disclosed the source as having come from the withdrawal made on a given date from a given bank, it was not for the respondents no.1 and 2, to concern themselves with what the assessee did with the money, i.e., whether he had kept the same in his house or utilised the services of a bank by depositing the same. The ITO has only two choices before him. One was to reject the explanation as not believable for the reason that on his investigation no such pigmy deposit was ever made into the bank. In the alternative, he ought to have called upon the assessee- petitioner to substantiate his claim by documentary evidence. Having exercised neither of the choices, it was not open to the ITO to merely surmise that it would not be probable for the assessee to keep Rs.15,000/- unutilised for a period of two years. The ITO should have given an opportunity to the assessee to substantiate his assertion as to the source of the capital outlay." 12. In this case, it is not in dispute that the assessee withdrew a sum of Rs.5,00,000/- on 18.8.2003 and Rs.2,00,000/- on 20.8.2003 from her savings account. She is an agriculturist and she had agricultural income. Once she demonstrated that she was in possession of Rs.7,00,000/- cash plus agricultural income on her hands, if after 40 days, a cash deposit is made to the extent of about Rs.5,20,000/- towards loan account, it cannot be said that the source of the said deposit is not properly explained. Merely because there is a delay of 40 days from the date of withdrawal of the money from the bank account to the date of deposit in the loan account. Once money is shown to be in the account and withdrawn, what the assessee did with that money till it was actually deposited, is not the concern of the Department. As long as the source is explained and established and when the money is withdrawn from a savings bank account and paid to discharge loan by deposit into a loan account, it is not possible to hold that the source is not explained. In that interregnum period, if the very same money is utilized for other purpose and thereafter, it is appropriated towards discharge of a loan, that cannot be held against the assessee. In that view of the view, the finding recorded by the Tribunal is erroneous and requires to be set aside. Therefore, the said substantial question of law is also held against the revenue and in favour of the assessee.” 8.6 Considering the totality of the facts and circumstances, we are of the view that the assessee has satisfactorily explained the source of the cash deposit of Rs. 25,00,000.00 only. The authorities below were not justified in rejecting the explanation merely on the basis of presumptions arising from the timing of the property sale. Accordingly, the addition of Rs. 25,00,000 made u/s 69 of the Act is directed to be deleted. The grounds raised by the assessee are allowed.

Order pronounced in the open court on 3rd August, 2026

Sd/- Sd/- KESHAV DUBEY WASEEM AHMED JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore Dated: 3rd August, 2026 Vms

Copy to: MADEGONDA NAGARATHNA, 514, 10TH MAIN ROAD, M C LAYOUT, 1 VIJAYANAGAR, BANGALORE-560040, KARNATAKA INCOME TAX OFFICER, WARD-1(2)(7), BMTC BUILDING, 80 FEET ROAD, 6TH 2 BLOCK, KORAMANGALA, BANGALORE-560095, KARNATAKA 3 THE PCIT / CIT, 4 THE D.R., ITAT, BANGALORE BENCH 5 GUARD FILE By Order ASSISTANT REGISTRAR/ I.T.A.T., BANGALORE