CHENARAM CHOUDHARY,BENGALURU vs. THE ITO, WARD (2)(2)7 BANGALORE NOW ITO WARD (2)(2)(3) BANGALORE, KORAMANGALA, BENGALURU

PER SHRI WASEEM AHMED, ACCOUNTANT MEMBER:

The present appeal filed at the instance of the assessee pertaining to A.Y. 2017- 18 is directed against the order of the learned Commissioner of Income Tax Appeal (hereafter the ld. CIT(A)) passed under section 250 of the Income Tax Act, 1961 (hereafter the Act).

4.1 The assessee has tried to telescope the cash deposit made out of opening cash balance of Rs. 10,05,793/- and sales made in cash during the year. The assessee has not submitted any documentary evidence which could collaborate the assessee’s claim of opening cash in hand of Rs. 10,05,793/- as on 01.04.2016. Further it is noticed that cash book for the F.Y. 2015-16 has also been submitted wherein opening cash balance as on 01.04.2015 has been taken at Rs. 4,72,415/-. It is also noticed that in the cash book for the F.Y. 2015-16& 2016-17, the withdrawals towards drawings are of meagre amount whereas if on an average Rs. 2,00,000/- is taken as personal expenses during F.Y. 2015-16 and similarly for the F.Y. 2016-17 the assessee’s earning in cash sales during the year will get telescoped towards the same and except for opening balance , the assessee will not be having any source to explain the sources of cash deposits made during the demonetisation period. Further no documentary evidences or fund flow has been submitted which could substantiate the opening balance of cash in hand of Rs. 4,72,415/- as on 01.04.2015 which eventually lead to closing cash balance of Rs. 10,05,793/- as on 31.03.2016 and which has been claimed as a source for deposit made during the demonetisation period. Hence, the sources of deposits made during the demonetisation period amounting to Rs. 14,96,500/- remains unsubstantiated. The assessee is found to be the owner of money/cash deposited into his bank account. The assessee did not furnish any books of accounts maintained for his business and has also failed to prove that the cash deposited in his bank account during the demonetisation period are out of his normal business or otherwise, and failed again and again to explain the sources of cash deposits in his bank account during the demonetisation period. Further he has also failed to furnish any books of accounts to substantiate whether the cash deposited into his bank account is part of his books or not as no books of accounts were submitted by the assessee during the course of scrutiny proceedings. In this case , the provisions of section 69A is applicable. 5. The aggrieved assessee preferred an appeal before the learned CIT(A).

6.1 The assessee further submitted that the opening cash balance of Rs. 10,05,793/- was not an unexplained figure. It had arisen from the cash balance brought forward from the earlier year and rental receipts received over a period of time. The assessee had also furnished the cash book for the preceding year to explain the continuity of the cash balance. Therefore, the source of the deposit was supported by the books and the financial records, and the assessee had discharged the initial burden placed upon him.

6.2 It was also contended that the AO proceeded on an incorrect assumption that the assessee was carrying on a business and that the cash deposit was claimed to have been made out of cash sales. The assessee had never made any such claim and had not stated that he was carrying on any business during the relevant year. The source explained by the assessee was opening cash, rental income and rental advances. Therefore, the rejection of the explanation on the basis of alleged cash sales or inadequate business drawings was based on facts which were never stated by the assessee.

6.3 The assessee argued that the provisions of section 69A of the Act could be invoked only where the money was not recorded in the books and the assessee failed to offer a satisfactory explanation regarding its nature and source. In the present case, the cash receipts, cash balance and bank deposits were duly recorded in the books. The supporting documents furnished by the assessee also established the availability of cash. Therefore, the basic conditions for making an addition u/s 69A of the Act were not satisfied.

6.4 The assessee further submitted that the AO had not brought any positive material on record to show that the cash balance reflected in the books was false, that the rental receipts were not genuine or that the cash was used for any other purpose before being deposited in the bank. The explanation and documents were rejected only on the basis of doubt and suspicion. Mere suspicion, without any evidence disproving the books or the cash-flow statement, could not justify treating the entire deposit as unexplained income. Accordingly, the assessee prayed that the cash deposit of Rs. 14,96,500 was duly explained from the opening cash balance, rental income and rental advances, and the addition made u/s 69A of the Act was liable to be deleted. However, the learned CIT(A) dismissed the assessee's argument and confirmed the addition made by the AO by observing as under:

7.3 During the appellant proceedings, the appellant contended that cash deposits of Rs.14,96,500/- during demonetization were explained through opening cash balance and rental income. However, careful examination of the cash book and ledger, it is seen that the appellant has shown a very high opening cash balance of Rs.10,05,793/- as on 01.04.2016 without any supporting documentary evidence. This balance is carried forward from the earlier year where the closing cash was Rs.4,72,415/-. No independent evidence has been produced to substantiate these balances. Further, the appellant’s household drawings are meagre compared to reasonable living expenses, which makes the claimed accumulation of cash highly doubtful. Section 69A applies when money is found with the appellant and either not recorded in books or not satisfactorily explained. Here, the appellant failed to prove the genuineness of the large cash balance. Rental income was already offered under “House Property” and cannot explain the sudden availability of huge cash. The entries are self-serving and unsupported by confirmations or fund flow statements. It is evident from the perusal of cashbook that appellant has shown loan entries from April 16 to September 16. It is seen that suddenly in September 16 appellant has shown loan received amount of Rs. 250000/-. This is suspicious and seems after thought to increase the cash amount just before the demonetization period. Appellant nowhere submitted the documents to justify the loan amount. Thus, the source of loan remains unexplained. Even opening cash balance as on April 15 and April 16 is not substantiated by any documentary evidence. In absence of this the cash book entries apparently looks to be after thought. It is a settled law that Income Tax Authorities are entitled to look into the surrounding circumstances to find out the reality of the recitals made in documents. It is the duty of the authority to go behind the smoke-screen and discover the true state of affairs. The authority is not to be satisfied with the form but with the substance of the transactions. 7.3.1 The appellant further argues that the addition is excessive. But the deposit amount of Rs.14,96,500/- is clearly reflected in the bank account during the flagged period. The appellant’s explanation of source is not corroborated by fund flow statements or confirmations. The cash book shows deposits and withdrawals but does not establish the source of the cash. The Assessing Officer has correctly treated the entire deposit as unexplained. No part of the deposit is proved to be from genuine sources. The addition is neither excessive nor arbitrary. It is based on actual deposits reflected in the bank account. It is well settled law that strict rules of evidence do not apply to Income tax proceedings and conclusive proof is also not necessary to arrive at any conclusion or to establish a fact. The AO is entitled to arrive at a conclusion on appreciation of several facts, the cumulative effect whereof may be considered to judge the soundness of the conclusion. It is conceivable that a mere denial by the assessee is not sufficient to rebut the circumstantial evidence which considered along with the conduct of the assessee has led to the inescapable conclusion that the assessee had created colorable device to claim cash deposit from undisclosed sources as cash deposits from the disclosed sources and hence the entire transaction is not genuine. 7.3.2 The appellant submits that section 115BBE amendment by Taxation Laws (Second Amendment) Act, 2016 should not apply to AY 2017-18. The appellant further argues that the law applicable is that which existed on 01.04.2016. However, the amendment was effective from 01.04.2017 and applies to AY 2017-18 assessments. The appellant’s reliance on earlier case law is misplaced because those decisions dealt with different provisions and contexts and fact of the case is distinguishable to the present case. The Assessing Officer has correctly applied section 115BBE to income deemed under section 69A is taxable at the special rate. These ground is dismissed. 7.4 From the above facts and finding, during the assessment proceedings as well as appellant proceedings, the appellant has failed to discharge the onus of proving the nature and source of cash deposits especially and also failed to substantiate the genuineness and creditworthiness of cash deposit claimed with supporting documentary evidences. Thus, the AO’s findings are based on facts and law, and there is no reason to interfere with the addition made. The AO’s estimation is neither excessive nor arbitrary.

7.4.1 Further, nobody can prove the appellant's intentions other than himself but this is a clear instance where the decisions in the cases of CIT v. Durga Prasad More [1971]82 ITR 540 (SC) and Sumati Dayal v. CIT [1995] 80 Taxman 89/214 ITR 801 (SC)can be applied where the Supreme Court has laid down Human Probability test alone of the important test in order to check genuineness of the transactions entered into the books of account of the assesses. The Apex court stated that, taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. 7.4.2 The above findings are supported by the following factual position and judicial pronouncements: (i) Section 69A of the I.T. Act. 1961 gives a statutory recognition to the principle that the unexplained money which is not satisfactorily explained may be assessed as income. Reliance is placed on 140-ITR- 151, 155(AII) reported in the case of Nanak Chand Laxman Dass V/s CIT. (ii) It was held in the decision of Hon'ble Supreme Court in the case of Roshan Di Hatti relevant para of the judgment is reproduced as under:- "The law is well-settled, that the onus of proving the source of a sum of money found to have been received by an assessee is on him. If he disputes the liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the Revenue is entitled to treat it as taxable income. To put it differently, where the nature and source of a receipt, whether it be of money or of other property, cannot be satisfactorily explained by the assessee, it is open to the Revenue to hold that it is the income of the assessee and no further burden lies on the Revenue to show that the income is from any particular source." (iii) It is also trite law that the Income Tax Authorities can apply the test of human probabilities to see whether the transactions could be considered as genuine or not. Reliance in this regard is placed on the judgment of Hon'ble Supreme Court in the case of Sumati Dayai V/s CIT 214- ITR-101. "The question is whether the apparent can be considered as real. As laid down by the court, the apparent must be considered as real until it is shown that there are reasons to believe that the apparent is not the real and taxing authorities are entitled to look into the surroundings circumstances to find out the reality and matter has to be considered by applying the test of human probabilities. " (vi) Their lordships of the Supreme court in the case of CIT V/s Durga Parshad More, 82-ITR-540, have held that taxing authorities were entitled to look to surrounding circumstances to find out the reality or otherwise of transactions.

(v) The Hon'ble Supreme Court in the case of Commissioner of Income Tax, West v. Durga Prasad More [1971] 82 ITR 540 (SC) observed the often quoted following relevant observation: "It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals otherwise it will be very easy to make self-serving statements in documents either executed or taken by aparty and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents." (vi) Hon'ble Apex Court in the case of McDowell & Co Ltd. v CTO [1985] 22 Taxman 11 (Hyderabad) has held that:- "Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid payment of tax by resorting to dubious methods''. Tax planning should not be done with intent to defraud the revenue; though all transactions entered into by an assessee taken individually could be legally correct, yet on the whole these transactions may be devised to defraud the revenue. Thus, planning for tax should be correct both in form and substance. All such methods which are resorted to deceive and impairing the true construction of the statute, resulting in availing non sacrosanct advantage of law would be termed as colorable devices. Those devices where statue is followed in strict words but actually spirit behind the statue is marred would be termed as colorable devices." 7.4.3 Even the appellant failed to produce any concrete evidence to support his claim. In such scenario appellant’s claim remains unexplained and it questions the veracity of the cash deposit. The onus is on the appellant to prove that the deposits are genuine by submitting proper documentary evidence. As per settled legal principles, the appellant must establish three key aspects together: the identity of the creditor, their financial capacity to give the amount, and the genuineness of the transaction. Thus, appellant failed to discharge this burden. No reliable documents submitted by the appellant to prove the source of the deposits, and the explanation offered remain unsubstantiated. Therefore, the addition made by the Assessing Officer under Section 69A is justified and deserves to be upheld. 7.5 In view of the facts and material available on record, I don’t find any infirmity in the assessment order. Thus, the assessment order does not warrant any interference at this stage. Hence, the addition of Rs.14,96,500/- u/s 69A made by the AO and tax liability computed as per provision of section 115BBE of the I.T.Act, is confirmed. 7. Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us. 7

8.1 The Ld. AR further submitted that the assessee had been regularly earning income from salary, rent, interest on loans and advances and other sources.

The learned AR further contended that the AO wrongly proceeded on the assumption that the assessee had explained the deposits from cash sales, whereas the assessee had never claimed to be carrying on any such business. The explanation was consistently based on accumulated cash, rental receipts and rental advances. Therefore, merely doubting the availability of cash without bringing any contrary material on record was not sufficient to make an addition u/s 69A of the Act. He accordingly prayed that the addition be deleted.

9.1 The Ld. DR submitted that mere entries in the cash book or cash-flow statement could not establish the genuineness and actual availability of cash. The assessee failed to furnish sufficient independent evidence to substantiate the accumulated cash balance and, therefore, the AO was justified in treating the cash deposits of Rs.

14,96,500/- as unexplained money u/s 69A of the Act. He accordingly prayed that the order of the Ld. CIT(A) be upheld.

10.1 On examination of the materials, we find that the assessee's explanation cannot be rejected merely on the ground that a substantial amount of cash was kept by him. The assessee is an individual deriving income from salary, house property and other sources. The return of income for the year under consideration was filed declaring total income of Rs. 7,09,330/-. Thus, this is not a case where the assessee had no disclosed or identifiable source of income.

10.2 The cash-flow statement also shows continuity in the availability of cash. As per the details furnished, the assessee had opening cash in hand of Rs. 4,72,415/- as on 01.04.2015. During F.Y. 2015-16, the assessee had shown cash inflow of Rs. 10,06,860/- from rent, bank withdrawals and other receipts. Against the same, cash outflow towards drawings and expenses was Rs. 4,76,380/-, resulting in net cash inflow of Rs. 5,30,480/-. After considering the cash movement during the year, the assessee has shown cash balance of Rs. 10,05,793/- as on 01.04.2016. The cash book for the preceding year was also furnished before the Revenue authorities to demonstrate the continuity of the cash balance. The AO himself has taken note of the opening cash balance of Rs. 4,72,415/- as on 01.04.2015 and the closing cash balance of Rs. 10,05,793/- as on 31.03.2016.

10.3 Further, the cash-flow does not stop with the opening balance as on 01.04.2016. From April to October 2016, the assessee has further shown net cash inflow of Rs. 4,12,119/- after considering drawings, other payments and deposits. Thus, the availability of cash immediately before the demonetisation period has been explained through a running cash-flow and is not based merely upon a single entry introduced immediately before the cash deposits.

10.4 An important aspect which, in our view, has not been properly appreciated by the Revenue authorities is the nature of the assessee's sources of income. The assessee has been showing income from salary, rent, interest on loans and advances and other sources over the years. More importantly, the assessee has claimed that rental income was received in cash and that certain amounts were also received as rental advances. The names of the persons from whom such rental advances were received were also furnished. The assessee's specific explanation throughout was that the source of the impugned deposits was the accumulated cash balance, rental receipts and rental advances. The record also shows that this was the explanation specifically placed before the Ld. CIT(A).

10.5 We further find merit in the assessee's contention that the AO proceeded on an incorrect factual premise by referring to "cash sales" and the absence of business books. The assessee had never claimed that the impugned cash was generated from any business or cash sales. His explanation was based on the opening cash balance, rental receipts, rental advances, bank withdrawals, and other disclosed receipts. Therefore, rejection of the explanation on the ground that the assessee failed to establish cash sales or failed to produce business books does not address the actual explanation furnished by the assessee. This factual inconsistency has also been specifically pointed out in the proceedings before the Ld. CIT(A).

10.6 We are also unable to agree with the observation that since the rental income was already offered to tax under the head "Income from house property", the same could not explain the availability of cash. The taxability of a receipt and the availability of such receipt as a source of cash are two different matters. Once rental receipts are disclosed and the assessee claims that such rent was actually received in cash, the fact that rental income has already been offered to tax does not make the cash generated from such receipts unavailable for subsequent deposit into the bank. Rather, if the rental income has already been disclosed, the same constitutes an identifiable source which has to be considered while examining the cash-flow.

10.7 Similarly, merely because the assessee retained cash instead of depositing the same immediately in the bank cannot, by itself, does not render the cash balance as unexplained. There is no statutory requirement that an individual must deposit his cash receipts in a bank within any particular period. The reasonableness of keeping cash may certainly be examined in the light of surrounding circumstances, but the explanation cannot be rejected only because the Revenue considers the amount of cash retained by the assessee to be high.

10.8 We also find that the AO questioned the drawings and proceeded to estimate personal expenses at Rs. 2,00,000/- without bringing any material on record regarding the actual household expenditure of the assessee. The Ld. CIT(A) has similarly observed that the household drawings were meagre and, therefore, accumulation of cash was doubtful. In our considered view, an addition of the entire cash deposit cannot be sustained merely on such an estimate. If the Revenue was of the view that the drawings shown were inadequate, it was open to it to examine the family circumstances, number of dependants, standard of living and actual household expenditure and thereafter draw an appropriate conclusion. However, an estimated inadequacy of drawings, by itself, cannot lead to the conclusion that the entire accumulated cash balance ceased to exist.

10.9 We also note that the Ld. CIT(A) doubted the receipt of Rs. 2,50,000/- shown in September 2016 and treated the same as suspicious merely because it was received shortly before the demonetisation period. The timing of a receipt may be a relevant circumstance for verification, but timing alone cannot establish that the receipt is fictitious. Moreover, the assessee has furnished the name of the person from whom the amount/rental advance was stated to have been received. If the Revenue doubted the correctness of such receipt, it could have verified the transaction from the person concerned. There is nothing on record to show that any such enquiry was conducted or that the person named by the assessee denied having made the payment.

10.10 The principles laid down in the decisions relied upon by the Ld. CIT(A) regarding human probabilities and surrounding circumstances are well settled. However, the test of human probability cannot substitute factual enquiry where the assessee has furnished an identifiable source, a cash-flow statement and the names of the persons connected with the receipts. Suspicion may give rise to an enquiry, but the result of such enquiry must be based upon material. In the present case, no positive material has been brought on record to establish that the cash-flow furnished by the assessee was false, that the disclosed rental receipts were not received, that the rental advances were fictitious, or that the cash shown as available had been spent or utilised elsewhere before the demonetisation period. This aspect was also specifically raised by the assessee before the Ld. CIT(A).

10.11 Further, the cash book and cash-flow statement have to be considered as a whole. The Revenue cannot merely doubt the opening and closing cash balances without examining the corresponding receipts and payments from which such balances have arisen. Once the assessee has explained the movement of cash from the opening balance as on 01.04.2015 up to the period immediately preceding demonetisation, the explanation has to be tested by examining the individual inflows and outflows. The entire cash deposit cannot be treated as unexplained merely because the Revenue considers the accumulated cash balance to be unusually high.

10.12 The provision of section 69A of the Act can be invoked where the assessee is found to be the owner of money which is not recorded in the books of account, if any, maintained by him and the assessee either offers no explanation about its nature and source or the explanation offered is not found satisfactory. In the present case, the assessee has not merely offered a general explanation. He has explained the source through the opening cash balance, rental receipts, rental advances, bank withdrawals and other receipts and has supported the same with a cash book and cash-flow statement. Therefore, before invoking section 69A of the Act, the Revenue was required to examine these sources objectively and demonstrate why the cash claimed to be available from such sources could not have existed.

10.13 Considering the totality of the facts and circumstances, we find that the assessee has reasonably explained the source and availability of cash deposited during the demonetisation period. The explanation is supported by the continuity of the cash flow from the preceding financial year, disclosed sources of income, rental receipts, rental advances and other cash receipts. The Revenue authorities have rejected the explanation mainly on the basis of suspicion regarding accumulation of cash and inadequacy of household drawings, without bringing any cogent material on record to establish that the cash-flow was false or that the available cash had been utilised elsewhere. Accordingly, we are of the considered view that the addition of Rs. 14,96,500/- u/s 69A of the Act cannot be sustained. We, therefore, set aside the finding of the Ld. CIT(A) on this issue and direct the AO to delete the addition of Rs. 14,96,500/-. Consequently, the application of section 115BBE of the Act to the said addition does not survive for consideration. Thus, the grounds of appeal of the assessee on this issue are allowed.

Order pronounced in the open court on 17th August, 2026

Sd/- Sd/- KESHAV DUBEY WASEEM AHMED JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore Dated: 17th August, 2026 Vms Copy to: CHENARAM CHOUDHARY, NO.6 , TULSI THOTA BENGALURU 1 560053 ,KARNATAKA,INDIA, BENGALURU-560053, KARNATAKA THE ITO, WARD (2)(2)7 BANGALORE NOW ITO WARD (2)(2)(3) BANGALORE, BMTC BUILDING, NEXT TO NATIONAL 2 GAMES VILLAGE, 80 FEET ROAD, KORAMANGALA 6TH BLOCK, BANGALORE-560095, KARNATAKA, 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