EKAMBARAM SUKUMAR,SALEM vs. DEPUTY COMMISSIONER OF INCOME TAX- CIRCLE 1(1) SALEM, SALEM

The Assessee raised the following grounds of appeal :

The learned CIT(A) erred in confirming the addition of Rs. 61,02,000/- made under Section 68 of the Income-tax Act, 1961, being 50% of the cash deposits, on an arbitrary and ad hoc basis without identifying any specific unexplained credit or bringing any cogent material on record to justify such estimation.

The learned CIT(A) failed to appreciate that total cash withdrawals during the year, which is substantially higher than the total cash deposits of Rs. 1,21,18,000/-, and that the withdrawals were fully evidenced by bank statements and were never disputed by the Assessing Officer. In the absence of any finding that such withdrawals were fictitious or non-genuine, sufficient availability of cash stood established.

The learned CIT(A) erred in law in upholding the addition merely on the ground that the appellant could not establish a one-to-one correlation between specific withdrawals and deposits. The law does not require mathematical precision or strict nexus between withdrawals and redeposits once overall cash availability is demonstrated.

The learned CIT(A) failed to appreciate that it is a settled legal position that cash deposits made out of pre-existing withdrawals, which are duly evidenced and not disputed, cannot be treated as unexplained income merely because of timing differences or perceived abnormality in transaction pattern. Once availability of cash is shown, the burden shifts to the Revenue to establish that such cash was utilised elsewhere, which has not been done in the present case.

The learned CIT(A) erred in sustaining an arbitrary estimation of 50% of deposits as unexplained, without assigning any basis, rationale or evidentiary support for adopting such percentage. The impugned addition is based purely on conjecture and suspicion and is therefore unsustainable in law.

The learned CIT(A) erred in questioning the reliability of the cash book without rejecting the books of account under Section 145 of the Act and without pointing out any specific defect in any particular entry. In the absence of rejection of books and proof of falsity, the cash book maintained in the regular course of business could not have been disregarded.

The learned CIT(A) further erred in treating the high closing cash balance of Rs. 62,61,638/- as a circumstance giving rise to suspicion, without appreciating that there is no provision under the Income-tax Act restricting the quantum of cash that an assessee may hold. The magnitude of closing cash balance, by itself, cannot constitute evidence of undisclosed income unless shown to be fictitious or unsupported by books.

The learned CIT(A) failed to appreciate that the closing cash balance was arithmetically derived from undisputed withdrawals and recorded transactions. In the absence of any material to demonstrate that the closing balance was incorrect or fabricated, it could not legally form the basis of adverse inference. Suspicion based solely on comparison with the preceding year's balance is legally untenable.

The learned CIT(A) erred in holding that Section 68 was validly invoked in the present case. Section 68 applies only where a sum is found credited in the books and the assessee fails to offer a satisfactory explanation regarding the nature and source thereof. In the present case, the source of deposits was clearly explained as earlier withdrawals from the same bank account and the same stood evidenced. Redeployment of one's own withdrawn funds does not constitute a fresh cash credit within the meaning of Section 68.

The learned CIT(A) erred in confirming the addition of Rs. 61,02,000/- on the basis of a 50% estimation when, in the show cause notice issued during assessment proceedings, the Assessing Officer had never mentioned such partial estimation to the appellant as a proposed basis of addition, and no opportunity was given to explain or rebut such estimation, thereby violating the principles of natural justice.

The learned CIT(A) erred in observing that even otherwise the addition could be sustained on principles governing unexplained money under other provisions, without such basis having been invoked in the assessment order and without affording the appellant an opportunity to meet such alternative case, thereby acting beyond the scope of the assessment proceedings.

The learned CIT(A) failed to appreciate that the addition confirmed is based entirely on suspicion, conjectures and perceived improbabilities rather than on concrete evidence of undisclosed income and therefore violates settled principles of taxation jurisprudence.

The appellant craves leave to add, alter, amend or withdraw any of the above grounds at or before the time of hearing.”

Briefly the facts of the case are that the appellant is an Individual engaged in the business of purchase, sale and letting on lease buildings. The return of income for the Assessment Year 2019-20 was field on 31.08.2019 declaring income of Rs.41,65,500/-. However, subsequently based on the information that the appellant made cash deposits as well as cash withdrawals from the account maintained with Syndicate Bank, the Jurisdictional Assessing Officer formed an opinion that the income got escaped assessment from tax, accordingly, a notice u/s.148 of the Act was issued calling upon the appellant to file the return of income on 29.03.2023 after duly complying with the procedure laid down u/s.148A of the Act. In response to notice u/s.148 of the Act, the appellant filed the return of income on 08.09.2023 declaring same income as disclosed in the original return of income.

Against the said return of income, the assessment was completed by Assessment Unit of the Department (hereinafter called ‘AO’) vide order dated 20.03.2024 passed u/s.147 r.w.s 144B of the Income Tax Act, 1961 at a total income of Rs.1,02,67,500/-. While doing so, the Assessing Officer treated the 50% of the cash deposits of Rs.1,22,04,000/- as unexplained money of the appellant rejecting the contention of the appellant that the cash deposits were made out of earlier cash withdrawals made from bank account maintained with Syndicate Bank.

Being aggrieved by the above assessment order, the appellant filed an appeal before the ld.CIT(A) contending that the cash deposits were made out of withdrawals made from the bank account. It is further contended that the Assessing Officer cannot make addition merely on surmises that there was no probability of appellant holding closing cash balance of Rs.62,61,638/- as on 31.03.2019. The appellant also placed reliance on the decision of Hon’ble Karnataka High Court in the case of S.R.Venkata Rathnam 127 ITR 807, in support of the proposition that once the assessee disclosed source having come from withdrawals made on given date from the given bank, it was not open to the revenue to examine as to what the Assessee did with that money and cannot chose to disbelieve the plea of the Assessee merely on the surmise that it would not be probable for the Assessee to keep the money unutilized.

The appellant also placed reliance on decisions of several co-ordinate benches of the Tribunal. However, the ld.CIT(A) confirmed the action of the Assessing Officer on the ground that the appellant could not correlate specific withdrawals with the deposits and also doubted the correctness of the entries in the cash book for the reason that there was a closing balance of Rs.62,61,638/- almost 30 times the previous years closing cash balance. The ld.CIT(A) further proceeded to hold that the appellant failed to furnish evidence to substantiate daily expenses, there was no need for repetitive cash withdrawals, accordingly, the ld.CIT(A) dismissed the appeal.

Being aggrieved by the order of ld.CIT(A), the appellant is in appeal before us in the present appeal. The ld.Counsel submits that the ld.CIT(A) ought not have confirmed the addition made by the Assessing Officer on arbitrary adhoc basis without identifying any specific unexplained credit. He further submitted that without rejecting books of accounts, the explanation offered by the appellant cannot be rejected. He further submits that the assessee made total cash withdrawal of s.2,08,25,000/- out of which an amount of Rs.1,21,18,000/- were deposited in the bank account in the absence of evidence to show that the amount withdrawn from the bank was utilized for some other purposes, the amount should be treated as available for deposit in the bank account. He further submits that credits in the bank account of the assessee cannot be construed as credit in the books of account maintained by the assessee and he placed reliance on the following decisions :  S.R. Venkataratnam vs Commissioner of Income-tax, [1981] 127 ITR 807 [Karnataka HC]  Smt. P. Padmavathi vs Income Tax Officer, Raichur, ITA No. 414 of 2009 [Karnataka HC]  Jaya Aggarwal VS Income ITA No. 315 of 2005 Income Tax Officer ITA No.315 of 2015 [Delhi HC]  Ganapathy Panneerselvam vs Income Tax Officer, ITA No. 609 of 2025 [ITAT Chennai bench]  Commissioner of Income-tax, vs Shri Kulwant Rai [2007]163 Taxman 585 [Delhi HC]

On the other hand, the learned Sr.DR placed reliance on the order of Lower Authorities.

We heard rival submissions and perused the material available on record. The solitary issue that arises for our consideration is whether the ld.CIT(A) was justified in confirming the 50% of the cash deposits made in the bank account during the previous year relevant to assessment year under consideration as unexplained money of the appellant. The Assessing Officer made addition of Rs.61,02,000/- being 50% of the total cash deposits of Rs.1,22,04,000/- on the ground that the opening balance of current previous year is very meagre of Rs.2,18,597/- and withdrawals are more than the expenses incurred and doubted the availability of cash for subsequent deposits in the bank account by holding that the appellant had been withdrawing the cash from the bank account despite the fact that he was having sufficient cash on hand to manage expenditure and also the appellant had failed to furnish the explanation in support of the development expenditure incurred. However, on appeal before the ld.CIT(A), the ld.CIT(A) confirmed the action of the Assessing Officer by holding that the cash book is self-generated document and in the absence of supporting documents on expenditure incurred and third party corroboration the nexus between the withdrawals and subsequent deposits could not be proved and accordingly confirmed the addition. We are of the considered opinion that without going into the reasons adopted by Lower Authorities, suffice to hold that when the appellant had taken specific plea that the deposits were made out of earlier withdrawals from the bank account, this submission is required to be verified with reference to the books of accounts, which the ld.CIT(A) had failed to do so, and therefore, we are of the considered opinion that matter requires a remand to the file of ld.CIT(A) for denovo disposal of appeal in accordance with law after affording an opportunity of being heard to the appellant.

In the result, appeal filed by the assessee is partly allowed for statistical purpose. Order pronounced in the open Court on 28th July, 2026.