PAS CONSTRUCTION CO,MUMBAI vs. INCOME TAX OFFICER 2(2), KALYAN

PER OM PRAKASH KANT, AM

This appeal by the Assessee is directed against order dated 04.02.2026, passed by the learned Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre (NFAC)-Delhi (in short, “the learned CIT(A)”), for the Assessment Year 2017-18, raising following grounds:

ITA No. 3605/MUM/2026 PAS Construction Co “1. On the facts and under circumstances of the case and also in law, the Learned CIT(A) is not justified in treating the cash amount of Rs.32,00,000/- deposited in the bank account as unexplained cash credits and thereby adding the same to the total income under section 69A r.w.s. 115BBE of the Income Tax Act, 1961. 2. The Ld CIT erred in charging Interest under section 234A of the Income Tax Act 1961 3. The Ld CIT erred in charging Interest under section 234B of the Income Tax Act 1961 4. The Ld CIT erred in initiating penalty proceeding under section 271AAC of the Income Tax Act, 1961 5. The Ld CIT erred in initiating penalty proceeding under section 271F of the Income Tax Act, 1961 6. The Ld CIT erred in initiating penalty proceeding under section 272A(1)(d) of the Income Tax Act, 1961 7. The appellant craves leave to add further grounds or to amend or alter the existing grounds of appeal on or before the date of hearing.” 2. The assessee has challenged, inter alia, the addition of ₹32,00,000/- made under section 69A read with section 115BBE of the Income-tax Act, 1961 [in short, ‘the Act’], comprising cash deposits of ₹22,00,000/- and a credit of ₹10,00,000/- in its bank account.

ITA No. 3605/MUM/2026 PAS Construction Co collected a copy of bank statement of assessee from Bank and found deposit of Rs. 10.00 lakhs alongwith cash deposit of Rs. 22.00 lakhs. Accordingly, he issued a show cause notice to the assessee to explain source of (i) the cash deposit of Rs. 32,00,000/- and (ii) deposit by way of credit amounting to Rs. 10,00,000/- , aggregating to Rs. 32,00,000/- but no-compliance was made by the assessee. In the absence of compliance, the Assessing Officer treated the aggregate amount of ₹32,00,000/- as unexplained money under section 69A read with section 115BBE of the Act and completed the assessment under section 144 on 28.09.2019 4. Aggrieved, the assessee filed appeal before the Ld. CIT(A) and explained that the cash deposit of ₹22,00,000/- represented part of the cash withdrawn earlier in FY 2011 from its bank account. It was submitted that said amount had been originally withdrawn for the purpose of purchasing of a plot of land for construction business, but the proposed purchase did not materialized. The assessee contended that the cash so withdrawn was available as cash in hand and was subsequently deposited into the bank account. With regard to the balance of amount of Rs.10,00,000/-, the assessee explained that same represented repayment of a loan of Rs.10,00,000/- which was earlier advanced to M/s. KT Trading Company Private Limited. The amount was received through an account payee cheque and deposited into assessee's bank account. The assessee also furnished confirmation and income-tax return acknowledgment of the said party in support of the transaction. The assessee further submitted that the cash deposits were utilized

ITA No. 3605/MUM/2026 PAS Construction Co towards repayment of the outstanding loan obtained from Shri Dilipkumar Manohar Lal Thapar and furnished details of account payee cheque issued toward cash payment. The learned CIT(A), however, rejected the explanation, principally on the ground that retention of such substantial cash for about five years was commercially improbable and that sufficient documentary evidence had not been furnished. Accordingly, the learned CIT(A) dismissed the appeal of the assessee observing as under:

“4.3 In this case, the appellant deposited cash amounting to Rs.22,00,000/- in the bank account in the Axis Bank during the demonetization period. There was also credit of Rs. 10,00,000/- in the bank account during the demonetization period. During the assessment proceeding, the appellant could not submit any explanation regarding nature and source of Rs. 32,00,000/- deposited its bank account despite of giving various opportunities of being heard. Therefore, the AO made the addition of Rs. 32,00,000/- as unexplained money u/s 69A of the IT Act. During the appellate proceeding, the appellant submitted that the cash deposits of Rs. 22,00,000/- during the demonetization period were made out of cash withdrawals of Rs. 27,00,0000/- from the bank account during the financial year 2011-12 which was withdrawn for the purpose of purchasing plot of land for its construction business. Appellant further submitted that amount of Rs. 10,00,000/- was credited on 03/12/2016 after receiving the amount through cheque from M/s KT Trading Company Pvt Ltd to which the loan was given of Rs. 10,00,000/- on 16/03/2011. The appellant submitted copy of Acknowledgment of return of income of M/s KT Trading Co. Pvt Ltd for AY 2017-18, one page Cash Book and Bank statement of the appellant. I perused the entire submissions of the appellant, I find that the explanation submitted by the appellant is not bonafide, not reasonable and not satisfactory. It is not at all believable that the cash withdrawals of Rs. 27,00,000/- in the year 2011 was kept for five years in its office or house of the partners and deposited the same in the bank account in the year 2016, after more than five years. If, the cash withdrawals were not utilized for the purpose for which these were withdrawn, such cash should normally be deposited in the bank account in the normal course of business as the amount of Rs. 27,00,000/- was not a small amount. Further, any businessman cannot keep such a huge amount of cash lying ideal in the house or office as there will be loss of income from the interest also, whereas the appellant had the bank account. The appellant has not submitted any credible evidence in support of its contention that the same cash of Rs. 22,00,000/- withdrawn in year 2011 was deposited in the year 2016. It is not possible in the normal business practice. The appellant did not submit any reason for non-utilization of the cash amounts for the purpose for which these amounts were withdrawn from bank account in the year 2011. Further, the appellant has also not submitted any

ITA No. 3605/MUM/2026 PAS Construction Co reason as to why the cash of Rs. 27,00,000/- was not deposited in the bank account if not utilized. Further, in support of source of credit of Rs. 10,00,000/-, the appellant could not submit the sufficient documents like the bank account, Audited Balance sheet, P&L account of the M/s KT Trading Co. Pvt Ltd to prove its contention that the said loan amount was genuine and to prove correctness of the reason given for the receipt of Rs. 10,00,000/- as loan re-payment. In my considered view, the reasons submitted by the appellant are not bonafide, it is only afterthought. The appellant failed to establish the genuine nature and source of cash/credit amounts of Rs. 32,00,000/- with cogent evidences. Therefore, the addition made by the AO is hereby confirmed and thus, the grounds of appeal are dismissed.” 5. Before us, the learned counsel drew our attention to the assessee's bank statement placed at page 24 of the paper book. It was submitted that the assessee had withdrawn ₹27,00,000/- from its bank account during July-August 2011 and subsequently deposited cash aggregating to ₹22,00,000/- during November 2016. It was further submitted that ₹10,00,000/- had earlier been advanced to M/s KT Trading Company Pvt. Ltd. on 16.03.2011 and was subsequently received back through banking channels. The written submission filed by the learned counsel is submitted as under:

The Appellant is a partnership firm engaged in the business of builders and developers. The firm was formed on 18.03.2010 and maintained a current account with Axis Bank Limited. The bank account was opened in the year 2010 and the transactions therein were in the ordinary course of the financial affairs of the Appellant. The Appellant had maintained books of account, cash book, bank records and balance sheets which recorded the financial transactions and availability of funds. During the appellate proceedings, the Appellant furnished relevant documentary material in support of the explanation regarding the impugned deposits and credits. The Assessing Officer noticed total credits of Rs.32,00,000 in the Axis Bank account of the Appellant, comprising cash deposits of Rs.22,00,000 during the demonetization period and a further credit of Rs. 10,00,000. The entire amount was treated as unexplained money under section 69A read with section 115BBE of the Act. The Appellant respectfully submits that the mere fact of a deposit or credit appearing in the bank account cannot, by itself, lead to the conclusion that

ITA No. 3605/MUM/2026 PAS Construction Co the amount represents unexplained income. The nature and source of each transaction have to be examined independently on the basis of the surrounding circumstances and documentary evidence. With regard to the cash deposit of Rs.22,00,000, the Appellant had furnished a specific explanation that the said amount represented cash available with the Appellant out of earlier cash withdrawals from its own bank account. The Appellant had withdrawn an aggregate amount of Rs.27,00,000 during the financial year 2011-12 for the purpose of purchasing a plot of land for its construction and development business. However, the proposed acquisition did not materialise and the amount remained available with the Appellant. The subsequent deposits of Rs.22,00,000 represented utilisation of such available funds and not any fresh undisclosed income earned during the relevant previous year. The Appellant had specifically identified the dates and amounts of the cash deposits. An amount of Rs.6,00,000 was deposited on 24.11.2016, Rs.9,00,000 on 29.11.2016 and Rs.7,00,000 on 30.11.2016, aggregating to Rs.22,00,000. Thus, the deposits were identifiable transactions appearing in the regular bank account of the Appellant. It is respectfully submitted that the source identified by the Appellant is not an unverifiable or third party source. The source of the cash was the Appellant's own bank withdrawal of Rs.27,00,000. The Appellant had furnished the bank statement evidencing the earlier withdrawal. The fact of such withdrawal has also not been disputed by the Department. The controversy essentially relates to the subsequent availability of the withdrawn cash and its deposit into the bank account during the demonetization period. Therefore, the issue is not whether the Appellant had withdrawn Rs.27,00,000, but whether the explanation regarding the availability and subsequent deposit of a part thereof can be rejected merely on the basis of an assumption that such cash would ordinarily not have been retained for a long period. The learned CIT(A) rejected the explanation primarily on the ground that it was not considered believable that cash of Rs.27,00,000 withdrawn in the year 2011 could have remained available for approximately five years and thereafter Rs.22,00,000 could have been deposited during the demonetization period. It was observed that a businessman would ordinarily deposit unused cash into the bank rather than retain a substantial amount in cash. The Appellant respectfully submits that the aforesaid reasoning proceeds essentially on a presumption regarding normal business conduct and does not establish that the amount of Rs.22.00.000 represented undisclosed income of the Appellant. The fact that retention of cash for a substantial period may appear unusual cannot, by itself, establish that the source of the subsequent deposit was unexplained. There is a material distinction between an explanation being considered unusual and the Department establishing that the amount actually arose from an undisclosed source. In the present case, the Appellant has identified the source of the cash with reference to an actual banking transaction. The earlier withdrawal of

ITA No. 3605/MUM/2026 PAS Construction Co Rs.27,00,000 was made from the Appellant's own bank account and was stated to be for the purpose of acquiring land for the business. The proposed acquisition did not materialise. The Appellant subsequently deposited Rs.22,00,000 into the same bank account. Therefore, the explanation cannot be rejected merely because the Department considers the period of retention to be commercially unusual. It is further relevant that the Appellant had sufficient surrounding banking transactions which corroborate the explanation regarding the purpose for which the deposited funds were utilised. The Appellant explained that the amounts deposited were utilised towards repayment of the loan raised from Shri Dilipkumar Manoharlal Thapar. The Appellant had received a loan of Rs.37,00,000 from Shri Dilipkumar Manoharlal Thapar on 29.06.2010 and furnished the relevant confirmation and income tax return acknowledgement of the lender. The subsequent repayment of the loan was made through identifiable account payee cheques. The details furnished by the Appellant were Rs.6,00,000 through cheque no.120833 dated 25.11.2016, Rs.9,00,000 through cheque no.120834 dated 30.11.2016, Rs.7,00,000 through cheque no.120835 dated 01.12.2016 and Rs.10,00,000 through cheque no.120836 dated 03.12.2016. These transactions demonstrate that the amounts deposited in the bank account were not unexplained funds lying without any identifiable purpose but formed part of the financial transactions of the Appellant and were utilised towards repayment of an existing liability. The surrounding circumstances therefore assume considerable importance. The cash deposit of Rs.22,00,000 cannot be examined in isolation from the earlier withdrawal of Rs.27,00,000, the cash book, the balance sheets and the subsequent repayment of the loan through banking channels. When the complete chain of transactions is considered, the explanation furnished by the Appellant has a reasonable factual basis. The Department has not brought any independent material to establish that the said Rs.22,00,000 was generated as undisclosed business receipts or income of the Appellant during the relevant year. The Appellant respectfully submits that the fact that the deposits were made during the demonetization period cannot by itself change the character or source of the funds. The timing of a transaction may justify an enquiry into the source, but once the assessee furnishes an identifiable source supported by banking records and books of account, the explanation has to be examined on the basis of the evidence available on record. There cannot be an automatic presumption that every cash deposit made during the demonetization period represents undisclosed income. In the present case, there is no finding that the Appellant had suppressed any corresponding sales, business receipts or other income during the relevant previous year which generated the cash of Rs.22,00,000. There is also no material referred to in the assessment order demonstrating that the Appellant had received the said amount from any unidentified customer or any undisclosed transaction. The addition is therefore based substantially on non-acceptance of the explanation rather than on positive material establishing an undisclosed source.

ITA No. 3605/MUM/2026 PAS Construction Co Coming to the second component of Rs. 10,00,000, the Appellant had furnished a specific explanation that the amount represented repayment of a loan earlier advanced by the Appellant to M/s KT Trading Co Pvt Ltd. The Appellant had advanced Rs.10,00,000 to the said concern on 16.03.2011. The amount was subsequently received through an account payee cheque drawn on State Bank of India and deposited into the Appellant's bank account. The Appellant had furnished confirmation obtained from M/s KT Trading Co Pvt Ltd and also furnished the acknowledgement of its income tax return. Thus, the Appellant had identified the party from whom the amount was received, explained the nature of the receipt as repayment of an earlier loan and demonstrated that the receipt was made through normal banking channels. The learned CIT(A), however, rejected the explanation on the ground that the Appellant had not furnished certain documents such as the bank account, audited balance sheet and profit and loss account of M/s KT Trading Co Pvt Ltd. The learned CIT(A) accordingly concluded that the genuineness of the transaction and source of the Rs.10,00,000 had not been satisfactorily established. The Appellant respectfully submits that the conclusion that the entire Rs.10,00,000 is unexplained does not properly appreciate the evidence which was in fact furnished. The transaction was not a cash receipt from an unidentified person. It was a receipt through an account payee cheque from an identified corporate entity. The Appellant had also furnished confirmation and income tax return acknowledgement of the said entity. Further, the receipt was explained with reference to an earlier loan transaction of Rs. 10,00,000 advanced by the Appellant to the same party. The nature of the transaction was therefore specifically identified and explained. The Department has not brought any material on record to demonstrate that the earlier loan was fictitious or that the repayment was not made by M/s KT Trading Co Pvt Ltd. The receipt having been made through banking channels, the relevant transaction was capable of independent verification from the bank records and the records of the concerned entity. It is further submitted that the addition of Rs. 10,00,000 under section 69A is conceptually different from a case where an assessee is found to be in possession of unidentified cash or an unexplained asset. Here, the amount was credited through a banking transaction from an identified party and was specifically linked to an earlier loan advanced by the Appellant. The transaction therefore required examination as a loan repayment rather than being treated as unexplained merely because the learned CIT(A) was not satisfied with the extent of third party documentation furnished. The Appellant further submits that both components of the addition were incorrectly considered together without appreciating their distinct nature. The Rs.22,00,000 represented cash deposits explained with reference to earlier withdrawals from the Appellant's own bank account, whereas Rs.10,00,000 represented repayment of an earlier loan by an identified party through an account payee cheque. There was therefore no justification for treating the entire Rs.32,00,000 as one unexplained amount.

ITA No. 3605/MUM/2026 PAS Construction Co The assessment order itself records that the bank account of the Appellant contained the relevant transactions and that the total credits amounted to Rs.32,00,000. The addition was made by treating the amount as unexplained primarily because the source was considered insufficiently established. However, the subsequent appellate record contains a detailed explanation and supporting documents furnished by the Appellant. The same deserve to be considered in their entirety while determining the true nature of the transactions. The Appellant respectfully submits that the assessment of an unexplained amount cannot be sustained merely on the basis of suspicion, conjecture or an assumption regarding the manner in which a prudent businessman would ordinarily conduct his affairs. The test has to be whether the explanation furnished by the Appellant, considered along with the documentary evidence and surrounding circumstances, establishes a reasonable and identifiable source. In the present case, there are identifiable sources for both components of the addition. In respect of the Rs.22,00,000, the identifiable source is the earlier withdrawal of Rs.27,00,000 from the Appellant's own bank account, supported by bank records. In respect of Rs.10,00,000, the identifiable source is repayment of the loan by M/s KT Trading Co Pvt Ltd through an account payee cheque, supported by the confirmation and income tax return acknowledgement of the said party. The explanations are therefore not vague or general in nature. It is also relevant that the Appellant had furnished its cash book and balance sheets as supporting evidence. The Appellant specifically relied upon the balance sheets as on 31.03.2016 and 31.03.2017 to demonstrate the financial position and availability of cash. The learned CIT(A) has acknowledged that the Appellant submitted the cash book, bank statement and other supporting documents during the appellate proceedings. The Appellant respectfully submits that the evidence should be appreciated cumulatively and not piece-meal. The earlier bank withdrawal, availability of cash as reflected in the books, subsequent cash deposit, subsequent repayment of loan and the corresponding banking entries constitute a chain of transactions which needs to be examined as a whole. Similarly, the earlier advance of Rs.10,00,000 to M/s KT Trading Co Pvt Ltd, subsequent repayment through banking channels and confirmation from the concerned party constitute a separate and identifiable transaction. The learned CIT(A) has rejected the explanation regarding the cash deposit mainly because the retention of cash for several years was considered commercially improbable. However, commercial improbability cannot by itself establish the existence of undisclosed income. At best, it may warrant closer scrutiny of the explanation. Once the assessee produces documentary evidence showing the source and the Department does not bring any contrary material establishing a different source, the explanation cannot be rejected solely on a presumption of what would ordinarily be done by a businessman. The Appellant respectfully submits that there is also no finding that the earlier withdrawal of Rs.27,00,000 was bogus or that the amount was subsequently

ITA No. 3605/MUM/2026 PAS Construction Co redeposited from some other undisclosed source. The Department has not identified any corresponding expenditure or utilisation of the earlier withdrawal which would conclusively demonstrate that the amount could not have remained available. The rejection of the explanation therefore rests primarily on an inference rather than affirmative evidence against the Appellant. The same principle applies to the Rs. 10,00,000 receipt. The Department has not brought any material to show that the payment made by M/s KT Trading Co Pvt Ltd was towards any undisclosed income or unaccounted transaction of the Appellant. The payment was made through banking channels and was linked to an earlier loan transaction. In the absence of contrary material, the explanation furnished by the Appellant deserves due consideration. The Appellant therefore respectfully submits that the conditions necessary for treating the entire amount of Rs.32,00,000 as unexplained money under section 69A have not been established on the facts of the case. The Appellant has discharged the factual burden of explaining the nature and source of the respective transactions by furnishing documentary evidence and identifiable sources. The addition has been sustained principally because the explanation was considered improbable or incomplete, rather than because any positive evidence of undisclosed income was found. In view of the above facts and submissions, it is respectfully prayed that the Hon'ble Tribunal may kindly appreciate the transactions in their proper factual perspective and hold that the cash deposit of Rs.22,00,000 was explainable with reference to the earlier withdrawal of Rs.27,00,000 and availability of cash with the Appellant, while the credit of Rs.10,00,000 represented repayment of an earlier loan by M/s KT Trading Co Pvt Ltd through banking channels. The Appellant therefore respectfully prays that the addition of Rs.32,00,000 made under section 69A read with section 115BBE and confirmed by the learned CIT(A) may kindly be deleted in full. The consequential demand and interest arising therefrom may also kindly be deleted and the appeal of the Appellant may kindly be allowed.” 6. We have heard the rival submissions and perused the material available on record. As regards the cash deposit of ₹22,00,000/-, the bank statement prima facie establishes the earlier withdrawal of ₹27,00,000/- from the assessee's own bank account and the subsequent cash deposits. The learned CIT(A) has rejected the explanation essentially on the ground that it was improbable for a businessman to retain such substantial cash for nearly five years. In our considered view, such commercial improbability, by itself,

ITA No. 3605/MUM/2026 PAS Construction Co cannot conclusively establish that the subsequent deposit represented undisclosed income. At the same time, the assessee has also not placed adequate evidence to substantiate its explanation that the earlier withdrawal was made for acquisition of a plot and that the amount remained available with it until the subsequent deposit. 6.1 As regards the credit of ₹10,00,000/-, the assessee has furnished confirmation and income-tax return acknowledgment of M/s KT Trading Company Pvt. Ltd., besides the bank statement evidencing the earlier advance of ₹10,00,000/- and its subsequent repayment. Thus, prima facie, the source of this credit is identifiable and capable of verification 6.2 The learned Departmental Representative submitted that the aforesaid documents were furnished before the learned CIT(A) and that the procedure contemplated under Rule 46A was not followed. We find that the material now relied upon by the assessee requires factual verification, particularly from the relevant bank records. The issue, therefore, cannot appropriately be concluded merely on the basis of the material presently available before us. 6.3 In the totality of the facts, we are of the considered view that the assessee has furnished a prima facie explanation regarding both components of the impugned addition; however, the same requires verification by the Assessing Officer. Accordingly, in the interest of substantial justice, we set aside the impugned order and restore the matter to the file of the Assessing Officer for fresh examination. The

ITA No. 3605/MUM/2026 PAS Construction Co Assessing Officer shall verify the relevant bank entries, the earlier withdrawal of ₹27,00,000/-, the subsequent cash deposits, the earlier advance and repayment of ₹10,00,000/-, as well as the supporting documentary evidence, and thereafter adjudicate the issue afresh in accordance with law, after affording adequate opportunity of being heard to the assessee.

6.4 We make it clear that we have expressed no final opinion on the merits of the addition. All contentions of the parties are left open.

6.5 The grounds relating to the impugned addition are accordingly allowed for statistical purposes.

Order pronounced in the open Court on 14/08/2026.

Sd/- Sd/- (ANIKESH BANERJEE) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 14/08/2026 Kunal Kumar, P.S.

ITA No. 3605/MUM/2026 PAS Construction Co

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

BY ORDER,

//True Copy// (Assistant Registrar) ITAT, Mumbai