CRESCENT AMITY REALTORS PRIVATE LIMITED,MUMBAI vs. INCOME TAX OFFICER WARD 9(2)3, MUMBAI

The Assessee a private limited company during the AY under consideration was engaged in the business of builders and developers and thus filed its return of income on 30.10.2017 declaring a total loss of Rs.1,30,005/-. The case was selected for scrutiny and the assessment was completed u/s 143(3) of the Act on 19.12.2019 by determining the total income at Rs.91,81,495/-, after making an addition of Rs.93,11,500/- u/s 68 r.w.s. 115BBE of the Act.

During the assessment proceedings, the AO observed that the Assessee had deposited cash aggregating to Rs.93,11,500/- in the following bank accounts during the demonetisation period:

The Assessee explained before the AO that it was developing an SRA project at Malad (West), Mumbai, where several slum dwellers were occupying the project site. According to the Assessee, cash was withdrawn from its bank accounts during the period from 01.04.2016 to 08.11.2016 for making immediate payments to the slum dwellers, in case the negotiations materialized. Since the negotiations could not be finalized, the unutilised cash was, redeposited in the bank accounts during the demonetisation period.

The AO rejected the explanation of the Assessee, inter alia, on the following grounds:

The AO, thus on the aforesaid reasons, held the cash book as unreliable and ultimately treated the entire cash deposit of Rs.93,11,500/- as unexplained cash credit u/s 68 r.w.s. 115BBE of the Act.

Thus, the Assessee, being aggrieved, challenged the addition before the Ld. Commissioner and reiterated that the deposits represented redeposit of cash withdrawn earlier from its disclosed bank accounts. The Ld. Commissioner, however, affirmed the addition by observing that the Assessee had not furnished contemporaneous documentary evidence to substantiate the alleged negotiations and had failed to establish that the very same cash remained available for redeposit.

The Assessee, thus, being aggrieved with the impugned order, has preferred the instant appeal. The Ld. Counsel submitted that the cash deposits were fully supported by the preceding withdrawals recorded in the regular books of account and reflected in the bank statements.

The Ld. Counsel further submitted that the AO has neither disputed the genuineness of the bank accounts nor doubted the source of the balances available therein. No discrepancy has been pointed out in the dates or amounts of the withdrawals and subsequent deposits. The Ld. Counsel further submitted that withdrawal and redeposit of cash was a regular feature of the Assessee’s business. The year-wise cash withdrawals and deposits furnished by the Assessee are as under:

The Ld. Counsel also contended that the AO considered only the increase in the deposits without considering the corresponding increase in cash withdrawals. Further the books of account were duly audited and were not rejected u/s 145(3) of the Act. The AO has not pointed out any arithmetical discrepancy, fictitious withdrawal, negative cash balance or defect in the bank statements.

With regard to the AO’s observation that no expenditure was incurred in cash, the Ld. Counsel submitted that the expenditure referred to in the assessment order, aggregating to Rs.21,28,832/-, was in fact incurred through banking channels and the corresponding ledger accounts were furnished. Therefore, the presumption that the cash withdrawn by

The Ld. Counsel, while relying upon various judgments, including the decision of the Tribunal in Empower India Ltd. v. ACIT, Central [2026] 186 taxmann.com 770 (Mumbai-Trib.), dated 18.05.2026, submitted that the addition was based merely on suspicion and perceived improbability.

On the contrary, the Ld. DR relied upon the orders passed by the authorities below and submitted that the Assessee had failed to furnish contemporaneous evidence regarding negotiations with the slum dwellers. The Ld. DR further submitted that mere proof of preceding withdrawals did not establish that the same cash remained unutilised and was subsequently redeposited.

We have heard the parties, perused the material available on record and considered the rival submissions. Ground Nos.1 and 2 are interlinked and therefore,taken up together for adjudication. The limited controversy is “whether the cash deposits aggregating to Rs.93,11,500/- stand explained by the preceding cash withdrawals reflected in the Assessee’s bank accounts and cash book”.

It is an undisputed fact that the Assessee had withdrawn substantial cash from its disclosed bank accounts priorto the demonetisation period. Neither the source of the funds available in the bank accounts nor the actual withdrawals made there from, have been doubted by the AO. The withdrawals and subsequent deposits are recorded in the regular books of account. We are in concurrence with the contention of the Assessee that though the AO doubted the cash book, however, no specific discrepancy, fictitious withdrawal, negative cash balance or incorrect entry has been pointed out and the audited books were not rejected u/s 145(3) of the Act.

The absence of contemporaneous evidence regarding negotiations with the slum dwellers may weaken the explanation regarding the precise business purpose for retaining the cash. However, the business purpose for retaining cash and the source of the cash deposited are distinct issues. Where the source and availability of cash are established from the regular books and disclosed bank withdrawals, the addition cannot be sustained merely because the stated business purpose is not fully substantiated.

The AO presumed that the cash withdrawn earlier must have been utilised for unrecorded expenditure. However, no particular expenditure, investment or diversion has been identified. The Assessee also furnished details showing that the business expenses referred to by the AO were paid through banking channels. Therefore, the inference that the withdrawn cash was no longer available, is founded merely on presumption and not on any positive material brought on record by the Revenue.

We further observe that withdrawal and redeposit of cash was not confined to the year under consideration. The Assessee had undertaken substantial cash withdrawals and deposits in the preceding financial years as well. Though the quantum during the year under consideration was higher, however, an increase in the cash handled cannot, by itself, establish undisclosed income.

The Tribunal in Empower India Ltd. v. ACIT, Central (supra), in the absence of any adverse material brought on record by the Revenue, accepted the explanation of cash deposits supported by preceding withdrawals, bank statements and books of account. The principle laid down in the aforesaid decision squarely applies to the facts of the present case.

In the instant case, the preceding withdrawals are not disputed and the Assessee, through the bank statements filed before us, has also demonstrated approximately 95 instances of withdrawals of amounts or making the payments to slum dwellers during the year under consideration, which strengthens the genuineness of the modus operandi adopted by the Assessee and its contention regarding retention of cash. Further, the books have not been rejected, no negative cash balance has been pointed out and no material has been brought on record to establish that the withdrawn cash was utilised or diverted elsewhere.

Thus, considering the peculiar facts and circumstances in totality, we are of the considered view that the Assessee has satisfactorily explained the nature and source of the cash deposits aggregating to Rs.93,11,500/-. Consequently, the addition made u/s 68 r.w.s. 115BBE of the Act is not sustainable. The impugned order is accordingly set aside and the addition of Rs.93,11,500/- is deleted.

In the result, the Assessee’s appeal is allowed.