SRISAI SUBRAMANYESWARA CHIT FUNDS PRIVATE LIMITED,WARANGAL vs. ITO, WARD-1, WARANGAL

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ITA 2270/HYD/2025Status: DisposedITAT Hyderabad05 August 2026AY 2017-1812 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee had provided sufficient explanation for the cash receipts of Rs. 18,52,434/- on 08.11.2016, considering the nature of its business and the general unawareness of demonetization notifications on the first day. The addition made by the AO and confirmed by the CIT(A) was deleted.

What were the facts?

The assessee, a chit fund company, deposited Rs. 79,68,250/- in old and new currency notes during the demonetization period. The Assessing Officer (AO) treated Rs. 18,52,434/- as unexplained cash credit, citing an abnormally high cash balance and failure to substantiate the source from new chit groups.

What were the issues?

Whether the cash deposits made by the assessee during the demonetization period were sufficiently explained and if Section 115BBE was correctly invoked.

Which sections of the Income-tax Act were involved?

Section 68,Section 115BBE

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Hyderabad ‘ SMC ‘ Bench, Hyderabad

PER MANJUNATHA G., A.M : This appeal filed by the assessee is directed against the order of the learned Addl/Joint Commissioner of Income Tax (Appeals) –

2 7, Mumbai [in short “Ld. Addl/JCIT”], dated 14.11.2025, pertaining to the assessment year 2017-18. 2. The assessee company, engaged in chit business, filed its return of income for the assessment year 2017-18 on 30.10.2017, declaring total income of Rs.10,52,530/-. The case was selected for scrutiny under CASS to verify cash deposits during the demonetization period. During the course of assessment proceedings, on the basis of ITD/ITS database, the A.O. noticed that the assessee has made cash deposits of Rs.79,68,250/- during the demonetization period into Indian Bank, vide account No.963953753. The A.O. called upon the assessee to file relevant evidences and explain the source for cash deposits. In response, the assessee submitted that it has deposited cash to the tune of Rs.79,68,250/- during the period from 09.11.2016 to 30.12.2016, and out of which cash deposited in SBNs was to the tune of Rs.61,68,500/-, and the balance amount of Rs.18,09,750/- was in new currency notes. The assessee further stated that source for cash deposits of Rs.61,68,500/- in SBNs was out of opening cash balance as on 08.11.2016 of Rs.61,68,421/-. To support its 3 contention, the assessee has filed relevant cash book and other details.

3.

The A.O., after considering the relevant submissions of the assessee, observed that as per the details submitted by the assessee, there is no dispute with regard to the amount of cash deposits in SBNs of Rs.61,68,500/-, and the assessee has explained the source of opening cash balance of Rs.61,68,421/- as on 08.11.2016. Further, on perusal of cash book, the assessee was having a cash balance of Rs.43,06,066/- on 07.11.2016 and has received a further amount of Rs.18,52,434/- in SBNs on 08.11.2016. The A.O. further observed that although the assessee claims to have received cash from subscribers of chit and during the relevant period it has started two new chit groups which resulted in excess collection of cash, but going by the average cash held by the assessee throughout the year, which was at Rs.35 to 40 lakhs, whereas during the period of demonetization, the assessee has shown cash balance of Rs.61,58,500/-, which is abnormally high. Further, the assessee has failed to substantiate the commencement of new two chit groups. Further, the assessee has failed to substantiate the argument that due to 4 commencement of two chit groups, the collection has been increased, is also devoid of merit going by the subsequent period cash balance held by the assessee. Therefore, the A.O. rejected the explanation of the assessee and treated the cash receipts of Rs.18,52,434/- as unexplained cash credits under Section 68 of the Income-tax Act, 1961 and brought the same to tax under Section 115BBE of the Act.

4.

Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee reiterated the submissions made before the A.O. and claimed that it has explained the source for the opening cash balance available as on 08.11.2016 and also filed relevant details. However, the A.O. has ignored the details filed by the assessee and made addition towards cash receipts on 08.11.2016 for Rs.18,52,434/-, even though during the initial transaction period, due to ignorance of various notifications, many people have collected cash in SBNs and thus the assessee has furnished relevant details of cash collected from chit subscribers. The A.O. ought to have accepted the explanation. The Ld. CIT(A), after considering the relevant submissions of the assessee and also taking note of the reasons

5 given by the A.O., held that the assessee has failed to substantiate the claim of the cash received on 08.11.2016 by filing relevant details, including the name, address, and PAN of the alleged subscribers, confirmation letters, affidavits, and statements from the persons. No independent documentary evidence such as PAN copies and ITRs have been filed. Since the assessee has not substantiated cash details by filing relevant details, it is a case of not satisfying the conditions provided under Section 68 of the Act by proving the identity, creditworthiness, and genuineness of the transactions. Therefore, the Ld. CIT(A) observed that, there is no error in the reasons given by the A.O. for making addition of Rs.18,52,434/- towards cash deposit into bank account during the demonetization period as unexplained cash credit.

5.

Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.

6.

The learned counsel for the assessee, Shri A.V. Raghuram, Advocate, submitted that the A.O. and the Ld. CIT(A) erred in making addition of Rs.18,52,434/- under Section 68 of the Act towards cash receipts received on 08.11.2016 in SBNs, which were subsequently deposited into the bank account. The learned

6 counsel for the assessee further submitted that the assessee is in the business of chit transactions, collects cash from subscribers and regularly depositing into bank account. The assessee maintains an average cash balance of Rs.35 to 40 lakhs per month before the demonetization and after the demonetization. However, during the month of December, the cash collection has been slightly increased and the reason for such increase is commencement of two new chit groups, which resulted in a higher cash collection in the above period. The assessee has filed all the details, but the A.O. made addition. The Ld. CIT(A) ignored the details submitted by the assessee and confirmed the addition made by the A.O. Therefore, he submitted that the addition made by the A.O. and confirmed by the Ld. CIT(A) should be deleted.

7.

The learned counsel for the assessee further referring to the additional ground submitted that if at all addition is sustained towards cash deposits, then the same should be taxed at normal rate of tax applicable for the relevant assessment year without invoking Section 115BBE of the Act, because the provisions of Section 115BBE was amended by the Finance Act, 2017 w.e.f. 01.04.2017, which is applicable from A.Y. 2018-19, as held by the 7 Hon'ble Rajasthan High Court in the case of Deepak Maratha vs. PCIT-II in Civil W.P. No.3625/2020, dated 27.05.2026. 8. The learned Senior A.R. for the Revenue, Shri B. Laxmi Kanth, on the other hand, supporting the order of the Ld. CIT(A), submitted that there is no dispute with regard to the fact that the assessee has received cash from the chit subscribers in SBNs on 08.11.2016, but failed to substantiate the cash receipts by filing relevant evidences. Further, there is a huge variation in cash collection during the month of November, 2016 when compared to the other period, and also the average cash balance maintained by the assessee during the year and for the month of November, 2016. The claim of commencement of new two chit groups and receipt of cash from the subscribers is also not proved. The A.O. and the Ld. CIT(A), after considering relevant facts, have rightly treated the cash receipts of Rs.18,52,434/- in SBNs as unexplained cash credit under section 68 of the Income-tax Act, 1961. Therefore, he submitted that the addition made by the A.O. No.500/Hyd/2023 dated 18.12.2024, and claimed that the Tribunal clearly held that the provisions of Section 115BBE are applicable from A.Y. 2017-18 onwards. Therefore, he submitted that the additional ground filed by the assessee should be rejected.

10.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. There is no dispute with regard to the amount of cash deposit into bank account during the demonetization period in SBNs and the explanation offered by the assessee for explaining the source for said cash deposit. The assessee right from the beginning claims that the source for cash deposit was out of opening cash balance available as per cash book as on 07.11.2016, which was at Rs.61,68,421/-, whereas cash deposit in SBNs during the demonetization period was at Rs.61,68,500/-. In fact, the A.O. never disputed these facts. The A.O. accepted the cash balance

9 available as per cash book on 08.11.2016, which was at Rs.43,06,066/-. However, rejected the explanation of the assessee towards cash received on 08.11.2016 for Rs.18,52,434/- on the ground that the assessee failed to substantiate the receipt of cash with supporting documentary evidence. Except this, the A.O. has not disputed the books of accounts maintained by the assessee and the nature of business. As per cash book maintained by the assessee, the cash balance available as on 08.11.2016 was at Rs.61,68,421/-, which includes cash received on 08.11.2016 for Rs.18,52,434/-. The assessee has recorded party-wise cash receipts on 08.11.2016 with reference to chit subscription. Upon perusal of relevant cash book, we find that cash collections for chit subscription was a very small amount from different subscribers, and going by the amount of cash collections for earlier period and subsequent period when compared to the demonetization period, there is no abnormal deviation in cash collections during the month of demonetization and more particularly on 08.11.2016. Also, there is a slight increase in cash balance held by the assessee on 08.11.2016 when compared to earlier months, which was at about Rs.35 to 40 lakhs average cash balance on every month. But as per the explanation of the 10 assessee, the sudden increase in cash collection on 08.11.2016 was on account of subscription received from two new chit groups, and the same has been explained to the A.O. Going by the nature of business and the amount of subscription towards chit by various parties, in our considered view, the assessee has received a small amount of cash from a number of subscribers. Insofar as the cash received on 08.11.2016 in SBNs, it is the first day after demonetization, and many people were unaware of various notifications issued by the Government of India and RBI, and continued to accept cash in SBNs in the usual course of business. The assessee has also collected or received cash on 08.11.2016 in SBNs like earlier period, for which the assessee claims to have furnished relevant evidences. Therefore, in our considered view, the A.O. ought to have accepted the explanation of the assessee towards cash receipts of Rs.18,52,434/- received on 08.11.2016 and deposited into bank account during the demonetization period. The Ld. CIT(A), without appreciating the relevant facts, simply upheld the addition made by the A.O. Thus, we set aside the order of the Ld. CIT(A) and delete the addition of Rs.18,52,434/- made under Section 68 of the Act.

11

11.

Insofar as the additional ground filed by the assessee, challenging higher rate of tax as per Section 115BBE of the Act, in our considered view, the additional ground filed by the assessee does not require adjudication because the addition made by the A.O. towards cash deposits has been deleted in total and thus the additional ground filed by the assessee has become infructuous and is accordingly dismissed.

12.

In the result, the appeal filed by the assessee is allowed.

Order pronounced in the Open Court on 5th August, 2026. श्री विजय पाल राि (मंजूनाथ जी) (VIJAY PAL RAO) (MANJUNATHA G.) उपाध्यक्ष /VICE PRESIDENT लेखा सदस्य/ACCOUNTANT MEMBER

Hyderabad, dated 05.08.2026. TYNM/sps

12 आदेशकी प्रतततिति अग्रेतषत/ Copy of the order forwarded to:- 1. तनर्ााररती/The Assessee : SRISAI SUBRAMANYESWARA CHIT FUNDS PRIVATE LIMITED, 4-3-16 & 17, NEHRU CHOWK, MAHABUBABAD, WARANGAL-506101, TELANGANA 2. राजस्व/ The Revenue : ITO, WARD-1, 1-8-610, 3RD FLOOR, MAYURI COMPLEX, OPP. TSNPDCL BHAWAN, NAKKALAGUTTA, HANUMKONDA, WARANGAL-506001, TELANGANA

3.

The Principal Commissioner of Income Tax, Hyderabad. 4. तवभागीयप्रतततनतर्, आयकर अिीिीय अतर्करण, हैदराबाद / DR, ITAT, Hyderabad 5. गार्ाफ़ाईि / Guard file

आदेशानुसार / BY ORDER TIRUPATI YAMINI YAMINI NAGA NAGA MALLESWARI Date: 2026.08.11 MALLESWARI 11:37:18 +05'30'

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