DULRAJ,HASSAN vs. ITO WARD -2, HASSAN, HASSAN

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ITA 95/BANG/2026Status: DisposedITAT Bangalore04 August 2026AY 2017-189 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee's explanation for the cash deposits, supported by earlier bank withdrawals and cash book entries, could not be rejected solely on the basis of doubts about how long cash is ordinarily kept. There was no evidence that the withdrawn cash was utilized elsewhere before redeposit.

What were the facts?

The assessee made cash deposits totaling ₹14,98,000 during the demonetisation period. The Assessing Officer (AO) treated these deposits as unexplained investment as the assessee's explanation of using previous cash withdrawals was not substantiated. The CIT(A) confirmed an addition of ₹14,26,000.

What were the issues?

Whether cash deposits made during demonetisation, sourced from earlier bank withdrawals, can be treated as unexplained investment without contrary evidence of utilization.

Which sections of the Income-tax Act were involved?

Section 69

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BANGALORE BENCHES, BANGALORE

Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY

PER SHRI WASEEM AHMED, ACCOUNTANT MEMBER: This appeal is filed by the Assessee against the order of Ld. ADDL. CIT (APPEALS)- 2 COIMBATORE vide DIN: ITBA/APL/S/250/2025-26/1082394696(1) dated 07-Nov-2025 for the Assessment Year 2017-18.

2.

The interconnected effective issue raised by the assessee is that the learned CIT(A) has erred in confirming the addition made by the AO by treating the cash deposit as unexplained investment u/s 69 of the Act.

3.

The assessee, an individual, filed his income tax return for the year 2017-18, reporting a total income of ₹12,08,200/- only. This income included salary earnings of ₹1.2 lakh, house property income of ₹1.01 lakh, and interest income of ₹11,74,200/- only. The case was picked for scrutiny to verify the source of certain cash deposits made during the demonetisation period. During the assessment, the AO noticed that cash deposits totalling ₹14,98,000/- were made during the demonetisation and asked the assessee to explain the sources of cash.

3.1 The assessee explained that he had withdrawn ₹5,00,000/- from Corporation Bank on 25th February 2016 and another ₹5,00,000/- from Karnataka Bank on 14th March 2016. The assessee claimed that these amounts remained unutilised and were part of the cash on hand. By 31st March 2016, the cash balance was of ₹11,40,478/- only. The assessee stated that the cash deposited during demonetisation came from this existing cash balance. To support his explanation, the assessee submitted his cash books covering the periods from 1st April 2015 to 31st March 2016 and from 1st April 2016 to 31st March 2017.

3.2 However, the AO rejected the explanation of the assessee. The AO observed that there were no major cash withdrawals after 01.04.2016 and that it was not reasonable for the assessee to keep large amounts of cash withdrawn in February and March 2016 unused until December 2016. The AO also observed that if the amount of ₹5,00,000/- withdrawn on 25.02.2016 was still available, there was no clear reason for making another withdrawal of ₹5,00,000 on 14.03.2016.

3.3 The AO further noted that deposits of ₹25,000/- and ₹14,73,000/- during the demonetisation were made on 25.11.2016 and 19.12.2016 respectively, whereas the return of income for AY 2016-17 was filed only on 28.12.2016. Therefore, the AO suspected that the cash book for F.Y. 2015-16 was prepared subsequently to show an artificial cash balance of ₹11,40,478/- as on 31.03.2016. Since the assessee failed to establish that the earlier withdrawals remained unutilised and were available at the time of deposit, the AO treated the entire cash deposit of ₹14,98,000/- as unexplained investment u/s 69 of the Act and added the same to the income of the assessee.

4.

The aggrieved assessee preferred an appeal before the learned CIT(A) and reiterated its submission from the assessment proceedings. However, the learned CIT(A) confirmed the addition made by the AO to the extent of Rs. 14,26,000/- by observing as under:

5.2 The appellant during the appeal proceedings ahs furnished the same evidences furnished in the assessment proceedings such as the cash book for AY 2016-17 and AY 2017-18, and the appellant has filed the ITR-V, Statement of total income, capital account and Balance sheet for AY 2014-15, AY 2015-16, AY 2016-17 and AY 2017- 18. Upon perusal of the submissions made by the appellant, it is seen that the appellant has shown cash in hand of Rs. 11,40,478/- for AY 2016-17.It is noticed from the record available and the return of income filed by the appellant that the appellant has not shown any cash in hand for the A.Y.2016-17. The appellant has contended that the cash deposits made during the Assessment Year 2017-18 represent redeposit of cash in hand available as on 31.03.2016. However, this contention of the appellant is not found to be tenable. On verification of the return of income and computation statement filed for the Assessment Year 2016-17, it is observed that the appellant has not disclosed any amount of cash in hand in return of income for the A.Y.,2016-17. The return of income for that year does not reflect any such cash balance carried forward to the subsequent year.In the absence of any documentary evidence or record substantiating the availability of such cash balance as on 31.03.2016, the explanation furnished by the appellant remains unverified and merely self-serving. It is a settled position of law that the onus lies on the assessee to establish, with credible evidence, the source and genuineness of the cash deposits made in the bank account. Mere oral submissions without corroborative documentary proof cannot be accepted as a valid explanation. In view of the above facts, the claim of the appellant that the deposits were out of earlier year’s cash in hand is rejected. Hence, the opening cash balance of Rs. 11,40,478/- shown in the cash book for AY 2016-17 is not acceptable and the addition made to the extent of Rs. 11,40,478/- is hereby confirmed. 5.3 Upon on perusal of the cash book, during the FY 2016-17 the appellant has shown cash receipts from persons named ‘ S Mahesh Kumar’ and from ‘K Ibrahim S/o Mohiddin Shop Advance’ of Rs. 1,60,000/- and Rs. 2,00,000/- for which the appellant has not given any proof during the assessment as well as appeal proceedings. Out of total addition made of Rs. 14,98,000/-, the opening cash balance of Rs. 11,40,478/- is already denied in the above adjudication. The rent received from Ibrahim shop upto demonetization period of Rs. 60,000/- and the cash withdrawals from IDBI of Rs. 12,000/- can be treated as source of the cash deposit to an extent of R. 72,000/-. Hence, the remaining amount of Rs. 14,26,000/- the appellant has not proven the source both during the assessment proceedings as well as the appeal proceedings. The addition made to the extent of Rs. 14,26,000/- ( Rs. 14,98,000/- minus Rs.60,000/- minus Rs. 12,000/-) is hereby confirmed on the basis of the facts and material submitted by the appellant. 5. Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us.

6.

The learned AR before us filed a paper book running from pages 1 to 88 comprising, copy of financial statements for F.Y. 2013-14 to 2016-17(A.Y. 2014-15- to 2017-18), copy of cash book for F.Y. 2015-16 & 2016-17, copy of bank statements, copy of ITR-V and income computation for A.Y. 2014-15 to 2017-18. The learned AR before us also filed a compilation of case laws running from page 89 to 176.

6.1 The learned AR, on the strength of the above document, submitted that the assessee derived income from salary, shop rent and interest income. The assessee has available cash balance in the form of opening balance and receipts (rent & other receipts) during the year which can be verified from the cash book for the year under consideration and for the immediately previous year. It contended that cash withdrawals of Rs. 5 lakh each as on 25th February 2016 and 14th March 2016 remained unutilised till redeposit of the same during the demonetisation. The revenue authority, without bringing on record any contrary material that the cash withdrawn was utilised or invested somewhere, rejected the assessee's explanation. The learned AR argued that it is a settled position of law, by the decisions of several benches of Tribunals and Hon’ble High Courts, that cash withdrawn on an earlier occasion shall be deemed a source of subsequent deposit unless material on record suggests that the earlier withdrawn cash has been incurred or invested somewhere by the assessee. Likewise, the assessee has been receiving rental income in cash for several years and offered income from house property as well, which can be verified from the financial statement and return of income made available on record. From the financial statement made available on record, it is also discernible that the assessee has also advanced loans to certain persons on an interest basis as well as free of interest. Hence, apart from rental income, loans and advances were also recovered during the year in cash.

6.2 Accordingly, the learned AR prayed to us that the addition made by treating the cash deposit as unexplained investment should be deleted as it is not unexplained but sourced from duly accounted cash from the financial statements.

7.

The Ld. DR relied upon the orders of the lower authorities and submitted that the assessee failed to satisfactorily establish that the cash withdrawn several months earlier remained unutilised and was available for deposit during the demonetisation period. He submitted that the cash balance shown by the assessee was not supported by sufficient evidence and, therefore, the addition confirmed by the Ld. CIT(A) was justified.

8.

We have heard the rival contentions of both the parties and perused the materials available on record. The issue before us is whether the cash deposited by the assessee during the demonetisation period can be treated as unexplained merely because the cash had been withdrawn several months earlier.

8.1 The assessee deposited cash of ₹14,98,000 during the demonetisation period. The assessee's explanation is that substantial cash was already available with him out of earlier withdrawals and other cash receipts. In particular, the assessee had withdrawn ₹5,00,000 from Corporation Bank on 25.02.2016 and another ₹5,00,000 from Karnataka Bank on 14.03.2016. According to the cash book, the assessee had cash in hand of ₹11,40,478 as on 31.03.2016. The assessee has placed on record the cash books for F.Ys. 2015-16 and 2016-17, bank statements, financial statements, returns of income and computation of income for the relevant years.

8.2 The AO rejected the explanation mainly on the ground that it was improbable that the assessee would keep the cash withdrawn in February and March 2016 unutilised until the demonetisation period. The AO also doubted the cash book because the return of income for AY 2016-17 was filed on 28.12.2016, after substantial cash had already been deposited during demonetisation. However, we find that the rejection of the assessee's explanation is based primarily on suspicion and probability rather than any material showing that the cash withdrawn earlier had actually been spent, invested or otherwise utilised by the assessee.

8.3 It is not in dispute that the withdrawals of ₹5,00,000/- each on 25.02.2016 and 14.03.2016 were actually made from the assessee's bank accounts. Once the withdrawals themselves are established from the bank statements, the availability of such cash for subsequent deposit cannot be rejected merely because there was a time gap between the withdrawal and the deposits. If the Revenue seeks to reject the explanation, there should be some material to indicate that the cash withdrawn earlier was utilised for some other purpose. No such material has been brought on record in the present case.

8.4 We also do not find the reasoning of the Ld. CIT(A) convincing that the cash balance of ₹11,40,478 should be rejected because cash in hand was not separately reflected in the return of income for AY 2016-17. Cash in hand is a balance sheet item and not income by itself. Therefore, non-mention of the cash balance in the return of income cannot, by itself, establish that such cash was not available, particularly when the assessee has furnished the cash book, bank statements and financial statements in support of its claim. The Ld. CIT(A) was required to examine these documents and the flow of cash instead of rejecting the opening cash balance merely on the basis that it was not reflected in the return of income.

8.5 We further note that the assessee has not merely given an oral explanation. Before us, the assessee has filed a paper book containing financial statements for F.Ys. 2013-14 to 2016- 17, cash books for F.Ys. 2015-16 and 2016-17, bank statements, ITR-V and computation of income for AYs 2014-15 to 2017-18. The assessee has also explained that, apart from the opening cash balance, he was receiving rental income in cash and had loans and advances from which amounts were recovered during the year. These facts are relevant while examining the overall availability of cash with the assessee.

8.6 The Revenue has not pointed out any defect in the bank statements evidencing the earlier withdrawals. There is also no material showing that the withdrawn amount was subsequently spent or invested elsewhere. The mere fact that the assessee made two withdrawals of ₹5,00,000 within a short period, or retained the cash for several months, may give rise to a doubt, but doubt alone cannot take the place of evidence. The manner in which an assessee chooses to retain his own cash cannot be decided merely on the basis of what the AO considers to be normal or prudent conduct.

8.7 Further, we note that several coordinate benches of the Tribunal in the identical facts have accepted the source of cash deposit out of earlier withdrawal. One such case, we deem it to refer is the decision of a coordinate bench of the Raipur Tribunal in the case of Arihant Associates vs. Income-tax Officer, reported in [2024] 158 taxmann.com 7, wherein it was held as under:

15.

I am unable to persuade myself to concur with the aforesaid observation of the AO. Admittedly, the AO had not doubted the availability of C.I.H of Rs. 52.47 lacs (supra) on 1-4-2016 with the assessee firm. Although I find that there is a time gap of 7 months in depositing the cash in the bank account of the assessee firm, i.e. in the month of November 2016, but at the same time, I cannot remain oblivion of the fact that it is not the case of the department that as cash-in-hand of Rs. 52.47 lacs (supra) was utilized/invested somewhere else by the assessee firm, therefore, availability of the same to the extent of Rs. 33 lacs (supra) with the assessee firm for making cash deposits in the assessee's cannot be accepted. Apart from that, the claim of the assessee firm as regards availability with it on 31-3-2016 of C.I.H of Rs. 52.47 lacs (supra) cannot be dubbed as an afterthought or a concocted story that was hatched to explain the source of the cash deposits of Rs. 33 lacs (supra) in its bank account. My aforesaid conviction is supported by the fact that the return of income for the preceding year, i.e. A.Y 2016-17 wherein C.I.H of Rs. 52.47 lacs (supra) was shown available in the "balance sheet" of the assessee firm on 31-3-2016 was filed on 24- 11-2016, i.e much prior to the issuance of the letter dated 11-12-2017 by the A.O, wherein the latter had for the first time queried as regards the source of cash deposits of Rs. 33 lacs (supra) in the assessee's bank account during the year under consideration. Although the return of income of the assessee firm for the immediately preceding year, i.e A.Y 2016-17 was not filed within the stipulated time period but the same being a belated return of income that was validly filed under sub-section (4) of Section 139 of the Act cannot be brushed aside. As the department has neither drawn any adverse inference as regards the claim of the assessee firm that it had C.I.H of Rs. 52.47 lacs (supra) available with it on 31-3-2016 nor initiated any proceedings to scrutinize much the less dislodge the same, therefore, the only logical inference that can be drawn is that it had accepted the factual position as was canvassed and projected by the assessee firm in its return of income for the said preceding year. So far, the A.O.'s observation that the assessee firm's explanation, regarding the source of cash deposits in its bank account did not inspire much confidence as they were made during the demonetization period; I am afraid that the same cannot be accepted. On the contrary, the conduct of the assessee firm in depositing whatever cash that was available as C.I.H in its books of account during the demonetization period could be the only prudent approach that the assessee firm could have adopted. Also, as the A.O had neither established that the C.I.H of Rs. 52.47 lac (supra) that was available with the assessee firm on 1-4-2016 was thereafter utilized by it for making any other investment or was exhausted towards incurring any expenditure, therefore, I find no justification on his part in summarily rejecting the assessee's explanation that the cash deposits of Rs. 33 lacs (supra) made in its bank account during the year were sourced out of the same. Accordingly, I am of the view that the explanation of the assessee firm as regards the source of the cash deposits of Rs. 33 lacs (supra) in its bank account No. 16660200000753 maintained with Federal Bank, Bilaspur merits acceptance. Thus, in terms of the aforesaid observation, I set aside the order of the ld. CIT(A) and vacate the addition of Rs. 33 lacs (supra) made by the AO u/s 69A of the Act. The Ground of appeal no. 1 of the assessee firm is allowed in terms of my aforesaid observations. 8.8 Considering the totality of the facts and circumstances, we are of the view that the explanation of the assessee cannot be rejected merely on presumptions regarding how long a person would ordinarily keep cash with him. The source of substantial cash available with the assessee stands supported by the earlier bank withdrawals and the cash book, and there is no evidence on record showing utilisation of such cash elsewhere before its redeposit. Accordingly, we are unable to sustain the addition of ₹14,26,000 confirmed by the Ld. CIT(A). Therefore, we hereby set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Hence, the grounds raised by the assessee are hereby allowed.

9.

In the result, the appeal of the assessee is hereby allowed.

Order pronounced in the open court on 4th August, 2026

KESHAV DUBEY WASEEM AHMED JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore Dated: 4th August, 2026 Vms Copy to:

DULRAJ, MARKET ROAD SAKLESHPUR HASSAN, 1 HASSAN-573134, KARNATAKA

ITO WARD -2 , HASSAN, INCOME TAX OFFICE, AAYAKAR 2 BHAVAN, BELUR ROAD VIJAYANAGAR, HASSAN-573134, KARNATAKA

3 THE PCIT / CIT, 4 THE D.R., ITAT, BANGALORE BENCH 5 GUARD FILE

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