MOHAMMED UMAR RAIS AHMED QURESHI ,MUMBAI vs. ITO WARD 23(2)(3), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “J(SMC)” MUMBAI

BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI ANIKESH BENERJEE (JUDICIAL MEMBER)

ITA No.278/MUM/2026 Assessment Year: 2017-18

Mohammed Umar Rais Ahmed Qureshi, Income Tax Officer, Ward 23(2)(3), Flat No.103, A Wing Om Sai Krupa Room No.110, 1st Floor, Matru Building, A K Marg, Bandra (East), Vs. Mandir, Tandeo Road, Mumbai, Maharashtra - 400051. Maharashtra – 400007. PAN NO. AADPQ 1097 Q APPELLANT RESPONDENT

: Shri Mani Jain Assessee by : Dr. Sumit Jha, (SR. DR) Department by : 23.06.2026 Date of Hearing : 29.06.2026 Date of pronouncement ORDER PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against the order dated 13.11.2025, passed by the Learned Commissioner of Income-Tax Appeals – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for Assessment Year (in short ‘A.Y’) 2017-18, raising following grounds:-

“1. That on the facts and in the circumstances of the and in law, the impugned order erred in the proper appreciation of the nature of the considering the Appellant's area and nature of work.

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1.1. The Appellant in his submissions before the National Faceless Appeal Centre (NFAC) as well as before the Ld. Assessing Officer ("A.O.") had clearly stated that he was a practising Advocate providing services in the areas of Income Tax, MVAT, Service Tax, etc. The status of the Appellant was not disputed at either stage. 1.2. The Appellant's services to his clients included receiving amounts in cash or cheques, as the case may be, from his clients for the purpose of onward payment of taxes through the Appellant's bank accounts (net banking). 1.3. The Appellant had regularly been receiving, depositing and making onward payments towards taxes for and on behalf of his clients and such a practice was not unique for the year under appeal, but was a consistent method over the years of his practice. 1.4. The Ld. A. O. had recorded such a fact and also the nature of cash and bank transactions in the assessment order of the Appellant for A. Y. 2016-17 which was also passed under Section 143(3). The Ld. A. O. did not find any infirmity and did not treat such cash deposits within the meaning of Section 69A of the Income Tax Act, 1961 ("the Act"). 1.5. The Appellant had referred to the fact of the order u/s 143(3) for the preceding assessment year before the NFAC. The NFAC erred in its observation in para 4.2.3 of the impugned which reads as follows: "4.2.3 The appellant has also claimed that a similar claim of deposit of cash received from the clients for paymet of taxes on behalf of clients was accepted for AY 2016-17 and hence the same should be allowed for AY 2017-18 also. The above submission lacks merit as the circumstances in the impugned AY are totally different in view of demonetisation." [Emphasis supplied]

1.6. The Hon'ble ITAT, Delhi, has in a ruling w. r. t. Section 68 of the Act held that when there is no change in the facts and circumstances of an assessee relating to the issue of loan held that if in any previous assessment/appeal, an assessing authority has accepted the correctness of certain transactions and such transactions are repeated and similar in the subsequent assessment year, there being no change in circumstances or fact, any additions made on the grounds of doubting the genuineness thereof required to be set aside. 1.7. Applying the above ratio relating to Section 68 to the facts and circumstances of the Appellant's case, it cannot be denied that the Ld. A.O. had in the immediately preceding assessment year accepted the nature and genuineness of similar cash deposit transactions. For the year under Appeal, the impugned order's observation that the circumstance of demonetization period is the reason

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for viewing a consistently followed practice as being not genuine is arbitrary and bad in law. 1.8. An Appellate Authority is expected to exercise judicial application of mind. Regardless of the fact that the Appellate Authority is part of the scheme of Revenue, disregard of settled law reflects bias and arbitrariness. The NFAC has imprudently displayed bias and prejudice towards the Appellant merely because of the demonetisation period. It is also a fact that the Appellant had deposited cash received from his clients throughout the year and not only during demonetisation period, which fact has very apparently been ignored by the NFAC. 2. That on the facts and in the circumstances of the case and in law, the impugned order erred in the correct application of the law laid down and as settled and is therefore arbitrary and contradictory to the settled law, especially with respect to issues relating to Specified Bank Notes (SBNs) 2.1. The law with respect to Section 69A contains the following necessary ingredients, which, unless met with, cannot be fastened on to any assesse merely for the purpose of meeting with and satisfying unwritten directions to raise revenue at the cost of law abiding tax payers: 2.1.1. "ownership" of money, AND

2.1.2. "absence" of such "owned" money being accounted in the books, AND

2.1.3. "failure" of the assessee to offer any explanation about the nature and source of such "owned" money OR offering an unsatisfactory explanation 2.2. The ingredients carved out above from the statute require ownership of money, which should not have been accounted in the books, the existence of the books not being mandatory considering the use of words "if any", and finally, the assessee offering or not, of any explanation and the use of discretion by the AO to express satisfaction or reject the explanation offered. 2.3. Applying the above ingredients in law to the facts of the case, the NFAC failed to appreciate: 2.3.1. That the cash deposited was not the ownership of the Appellant. He was merely acting as channel to collect and deposit tax on behalf of tax payers. 2.3.2. That the receipt of cash and its subsequent deposit in bank was fully recorded, not only in the year under appeal but also in the earlier assessment year(s).

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2.3.3. That the Appellant provided full and complete explanation, including bank statements, details of clients from whom cash was received, discharge of liability for and behalf of such clients, proof of payment by way of challans, and day wise Cash Book for the entire year including the demonetisation period. 2.3.4. That merely because the Ld. AO was required to exercise arbitrariness only on the ground of demonetisation period ought to have been considered by the NFAC and weighed with respect to the fulfilment of the necessary ingredients of Section 69A. The NFAC erred and failed in proper appreciation of facts and correct application of the law by rejecting the Appellant's prayer to quash the addition u/s 69A. 3. That in the facts and circumstances of the case and in law, the NFAC erred by rejecting the Appeal of the Appellant purely on conjectures and surmises by holding that conduct of the Appellant during the demonetisation period was against accepted prudent human conduct 3.1. The impugned order has held that it was difficult to believe that the SBNs were accepted by the appellant from his clients before 8 November 2016. 3.2. The Appellant had vide his submission during the appellate proceedings provided detailed explanation of the cash transactions. 3.3. The Appellant had further provided copies of the submissions made to the Ld. AO during the assessment proceedings. 3.4. The Appellant had, in the course of the assessment proceedings vide his submission dated 20-11-209 provided the Ld. AO with the Cash Book and all Bank Books for the entire financial year under scrutiny, fact of which is admitted by the Ld. AO in his order u/s 143(3). The Ld. AO has further admitted having scrutinised and verified the cash and bank books. The Appellant craves leave to refer and rely upon the said submission dated 20-11-2019 as and when produced. 3.5. The said cash book shows an opening cash in hand balance on 08/11/2016 of Rs.36,81,800/- (Rupees thirty six lakhs eighty one thousand eight hundred only). The NFAC failed to appreciate that the Ld. AO had erred in factual appreciation of the issue under assessment. There was sufficient recording of the cash held by the Appellant and in the face of this, such cash deposited cannot be held to be unaccounted merely because it was deposited during demonetisation period. 3.6. The NFAC erred in holding that had the Appellant held cash in hand as on 08/11/2016, he would have deposited the same at first go and not deposited in tranches. This view is erroneous as there is no law, especially the law governing demonetisation (which is dealt with separately) that compulsorily required every

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citizen holding SBNs to deposit the entire holding of SBN at one go. It is pertinent to submit that such a view was not even held by the Ld. AO. The NFAC has shown utter arbitrariness and lack of prudence itself by creating this reason to declare the Appellant as imprudent. 3.7. The NFAC further erred in holding that the failure of the Appellant to deposit the cash in one go and multiple visits to the bank to deposit in tranches proved that the Appellant did not hold the cash in hand as on 08/11/2016. Such a view being erroneous is further strengthened by the fact of failure to appreciate that the Appellant had submitted a detailed cash book to the Ld. AO, who ought to have considered this fact before invoking Section 69A against the Appellant. 4. That in the facts and in the circumstances of the case and in law, the NFAC erred in holding that SBN's ceased to be legal tenders from 8 November 2016 onwards. 4.1. That the Appellant had consistently been depositing cash received from his clients in his bank account for payment of taxes on their behalf is not disputed, such practice having been consistent over the years. 4.2. That the Appellant had cash in hand of Rs.36,81,800/- as on 08/11/2016 can also not be disputed considering the documentary records that the Appellant had submitted and on which he relies upon. 4.3. That the deposits in the Appellant's bank account amounting to Rs.36,09,500/- during the demonetisation period are out of and from the cash in hand as on 08/11/2016 has been sufficiently proved by the Appellant, regardless of the fact of such documentary proof having been ignored by the Ld. AO and the NFAC. 4.4. Without prejudice and even assuming without admitting the observation of the NFAC in para 4.2.2 clause (iii) of the impugned order that the Appellant could not have accepted SBNs from his clients during the demonetisation period, which very clearly he did not, basis the detailed cash book, requires a careful analysis in terms of the law governing demonetisation. 4.5. At the cost of repeating that the analysis of the law governing demonetisation is without prejudice and is only to negate the view in the impugned order about the status of the SBNs, assuming without admitting that the Appellant could not have accepted SBNs during the demonetisation period, the following analyses of the law is necessary: 4.5.1. Vide Notification No. 2652 dated 8 November 2016 (hereinafter refer to as "the SBN Notification"), the Central Government declared that the specified bank notes shall cease to be legal tender with effect from the 9th November 2016. The

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Appellant craves leave to refer and rely upon the said notification dated 08/11/2016 as and when produced. 4.5.2. For the purpose of the above notification, the Govt. of India brought in an ordinance titled Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 on 30th December 2016. The ordinance was thereafter passed as a law by the Parliament in its next session and which was named as The Specified Bank Notes (Cessation of Liabilities) Act, 2017 dated 27th February 2017 (hereinafter referred to as "the SBN Act"). 4.5.3. Whether a citizen could hold the SBNs on and after 08/11/2016 can be understood by reading Para 2 of the SBN Notification which states that "the SBNs held by a person may be exchanged...". By the use of words may be, it was NOT COMPULSORY to exchange or deposit the SBNs. The words "may be" and not "shall be" also imply that the person is allowed to use SBNs for purposes other than exchanging. Further, the said para provided that the SBNs may be exchanged for a period up to and including the 30th December 2016. 4.5.4. Whether the SBNs held value and could be held, transferred or received or not could be understood from the provisions of the SBN Act. 4.5.4.1. The Act declared 31st day of December as the "appointed day". 4.5.4.2. Section 3 of the Act declares that the SBNs shall cease to be liability of the Reserve Bank of India from the appointed day. The section further provides that though the SBNs have ceased to be legal tender from the date stated in the SBN notification, the SBNs shall cease to be liabilities of the Reserve Bank of India from the appointed day. 4.5.4.3. Section 5 of the Act prohibits holding, transferring or receiving specified bank notes ON AND FROM the appointed day. 4.5.4.4. Considering the provisions of sections 3 and 5, SBNS continued to hold value and could be held and transferred up to the appointed day. 4.5.4.5. The Hon'ble ITAT, Chennai has also held in terms of the above.

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2.1 During the course of assessment proceedings, the Assessing Officer referred to information received through the Statement of Financial Transactions (SFT) indicating substantial cash deposits made by the assessee in various bank accounts during the demonetisation period. The information reflected aggregate cash deposits of Rs.36,09,500/- in different bank accounts maintained with Axis Bank, Indian Bank, Canara Bank and Bank of Maharashtra.

2.2 On the basis of the aforesaid information, the Assessing Officer issued a show-cause notice requiring the assessee to explain why the cash deposits made during the demonetisation period should not be treated as unexplained money under section 69A of the Act. 2.3 In response, the assessee submitted that he is a practising Advocate rendering professional services in the field of Income-tax, MVAT, Service Tax and GST. It was explained that, in the ordinary course of his professional practice, clients entrusted cash to him for

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the limited purpose of making statutory tax payments through online banking facilities. According to the assessee, the cash deposited during the demonetisation period represented amounts received from clients prior to demonetisation, which were subsequently deposited into his bank accounts and utilised for remitting taxes on behalf of such clients through banking channels. The assessee furnished copies of tax challans, bank statements, cash book and other supporting documents in support of his explanation.

2.4 The Assessing Officer, however, rejected the explanation and held that the assessee had failed to satisfactorily establish the nature and source of the cash deposits. Invoking the provisions of section 69A of the Act, the Assessing Officer treated the entire cash deposits of Rs.36,09,500/- as unexplained money and brought the same to tax under section 115BBE of the Act observing as under:-

“10. In the present case, the assessee has deposited Cash in its bank accounts which are not explained. Further, the nature and source of such Deposits made in the bank accounts were not at all satisfactorily explained, Further, for invoking deeming provisions under Section 69A of the act, there should be clearly identifiable asset or unexplained Money. It is amply proved beyond doubt that the assessee has deposited Cash in bank accounts stands unexplained, and the sum of Rs. 36,09,500 /- are identifiable unexplained assets. X DEPAR All three limbs of Section 69A of the Act stands qualified in the case of the assessee, i.e. 1. The assessee was found to be owner of the Money: 2. Such Money was not recorded in the books of accounts (if maintained); and

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3.1 The learned CIT(A), however, affirmed the addition substantially on the premise that the assessee's explanation did not accord with normal human conduct. According to the learned

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CIT(A), had the cash actually been in possession of the assessee prior to demonetisation, the same would ordinarily have been deposited in one instance instead of being deposited in several instalments over a period of nearly two months. The learned CIT(A. further observed that, after the announcement of demonetisation, Specified Bank Notes (SBNs) had ceased to be legal tender and, therefore, it was improbable that clients would have entrusted such notes to the assessee during the intervening period. On the aforesaid reasoning, the addition under section 69A was sustained. The relevant finding of the Learned CIT(A) is reproduced as under:-

“4.2.1 The appellant on the other hand has claimed that he was an advocate practicing as IT, MVAT and GST consultant. He further explains that the cash was the total collection from clients given for various online tax payments during FY 2016-17. The appellant has further submitted that he had given details of clients from whom the said money was received and has further provides the details of challan paid during 08.11.2016 to 30.12.2016, which according to him are for Rs.31,81,009/- . He further claims that the total payment of taxes online by him comes to the above figure which is very close to the cash deposit figure of Rs.36,09,500/- and hence the same should be allowed. He further submitted that the difference between the above 2 figures i.e. Rs.4,28,391/- is his income, which he had offered to tax and paid tax thereon. 4.2.2 I have gone through the explanation and submissions of the appellant. The explanation given by the appellant is acceptable for the following reasons:- (i) First of all, it is to be noted that the cash deposited by the appellant were SBN or specified bank notes which ceased to be legal tenders from 08.11.2016 onwards. Hence, the appellant had no reason to accept those notes from his clients and hence this explanation is difficult to believe. (ii) Even though the appellant has not in specific words claimed so, but even for argument's sake it cannot be believed that the notes in question i.e. the cash was accepted by the appellant from the clients before 08.11.2016 and were only deposited during demonetisation period. From the submission provided by the appellant, it is seen that the appellant has

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deposited the cash in the various bank accounts on different dates. The submission as given by the appellant is reproduced below:- It is seen that the first deposit in Axis bank account was made 12.11.2016 followed by further deposits on 13.11.2016, 05.12.2016 and 06.12.2016. Similarly, in Indian bank account first deposit was made on 29.11.2016 followed by further deposits on 02.12.2016 and 07.12.2016. In Canara bank account first deposit was made on 15.11.2016 followed by further deposits on 08.12.2016. In Bank of Maharashtra account first deposit was made on 10.11.2016 followed by 11 instances of further deposits ending 30.12.2016. In another account of bank of Maharashtra first deposit was made on 24.11.2016 followed by further deposits on 25.11.2016 and 28.11.2016 and Abyudhaya bank account on 18.11.2016. As stated earlier that it is impossible to draw a presumption in appellant's favour that he had accepted the SBNs prior to demonetization because, had such been the case the appellant would have deposited the same at the first go and would not have taken the trouble of depositing the same in small batches spanning a period of almost two months requiring the visit to same branch of banks on as many as 11 occasions in some cases. Considering the huge rush and inconvenience involved in depositing the cash in banks at the time of demonetisation, any person would have preferred to deposit the entire amount sitting with him at one go rather than splitting it in parts requiring multiple visits to the same branch. Rather any prudent person would have preferred to deposit the entire amount, in one account, at one go, on the first given opportunity. But the appellant not only made multiple visits to the same branch but also decided to split the amount in multiple bank accounts probably to avoid coming into notice. This conduct of the appellant clearly shows that the cash was not accepted by the appellant from the clients prior to demonetisation in the circumstances as claimed by him and was from sources for which he either did not have any explanation or did not want to give any explanation. Thus, the explanation offered leaves a lot to be desired. (iii) From the submission given by the appellant it is seen that in his clients, apart from a couple of them, are mostly small or medium business men, for whom he has made the tax payment ranging from some hundreds of rupees to Rs. 40 to 50 thousands. Obviously, persons of such modest means would give money for payment of taxes, as claimed by the appellant only a few days before the due date and would definitely not part with his money two or three months in advance for payment of tax which is due a couple of months later i.e. before demonetisation for tax payment to be made in December, 2016. Such being the case and demonetisation being in force, there is no way that they could have made payment to the appellant in SBNs, which was no longer a legal tender and could not have been accepted by the appellant. Hence, the explanation given by the appellant is apparently against the accepted, prudent human conduct and hence simply cannot be accepted. There is no doubt that the appellant had made online payment of taxes on behalf of its clients but the same cannot be explained as a source for the cash deposited in the form of SBNs in the bank accounts.

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4.2.3 The appellant has also claimed that a similar claim of deposit of cash received from the clients for payment of taxes on behalf of clients was accepted for AY 2016-17 and hence the same should be allowed for AY 2017-18 also. The above submission lacks merit as the circumstances in the impugned AY are totally different in view of demonetisation. Due to the loss of legal tender status of the SBNs, the appellant could not have accepted these notes from 08.11.2016 to 30.12.2016 and hence as explained in the preceding para it is highly unlikely that his small and medium clients would have given him amounts almost 2 months in advance for online payment of taxes which was paid as late as in the last week of December. Hence, the circumstances of impugned assessment year cannot be compared with that of earlier AY in light of an extra ordinary event. 4.2.4 In view of the above, the appellant has failed to explain the source of cash deposited by him in the bank account and hence the addition made by the AO amounting to Rs.36,09,500/- u/s 69A requires no interference and this ground of appeal is dismissed.” 4. Before us, the learned counsel for the assessee reiterated the submissions advanced before the authorities below. It was submitted that the assessee's professional practice involved preparation and verification of VAT, Service Tax and other statutory returns based upon the records furnished by clients. Only after verification of the tax liability were the corresponding tax payments made. Consequently, the cash received from different clients could not have been deposited on a single date, as each payment depended upon completion of the requisite professional exercise. This, according to the assessee, adequately explains why the deposits were made in different instalments.

4.1 The learned counsel further invited our attention to the assessment order passed under section 143(3) for the immediately preceding Assessment Year 2016-17, wherein the Assessing Officer had accepted the identical modus operandi of the assessee involving

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receipt of cash from clients, deposit thereof into bank accounts and subsequent payment of statutory taxes on behalf of those clients. It was submitted that during the preceding assessment year the assessee had deposited cash amounting to Rs.44,15,480/-, besides substantial cheque deposits, and no adverse inference whatsoever was drawn by the Revenue.

4.2 The learned Departmental Representative, on the other hand, supported the orders of the lower authorities and submitted that the assessee had failed to establish the genuineness of the source of cash deposited during the demonetisation period and, therefore, the addition under section 69A had rightly been sustained. 5. We have given our thoughtful consideration to the rival submissions and carefully examined the orders of the authorities below together with the material available on record. The principal controversy before us is whether the cash deposits aggregating to Rs.36,09,500/- made during the demonetisation period can legitimately be treated as unexplained money under section 69A of the Act. The explanation offered by the assessee is that the impugned cash represented monies received from various clients exclusively for making statutory tax payments on their behalf through banking channels. In support thereof, the assessee has placed on record complete cash books covering the entire financial year, bank statements, client-wise details and copies of tax challans

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evidencing actual remittance of taxes into the Government Treasury. The reconciliation furnished before the appellate authority further demonstrates that tax payments aggregating to Rs.31,81,109/- were made on behalf of clients out of the amounts so deposited.

5.1 Significantly, it is not the Revenue's case that the taxes were never deposited or that the challans furnished by the assessee are fabricated or non-genuine. The existence of corresponding tax payments has not been disputed. Once the utilisation of the funds for payment of statutory dues on behalf of clients stands established, the explanation offered by the assessee cannot be rejected merely on the basis of conjectures regarding the manner or timing of the deposits. We also find considerable merit in the submission of the assessee that the deposits were necessarily made in installments. The explanation that each client's tax liability required independent verification and computation before actual remittance through banking channels is both reasonable and consistent with the nature of professional services rendered by a tax practitioner. Merely because the cash deposits were spread over different dates cannot, by itself, constitute a legally sustainable basis for invoking the deeming provisions contained in section 69A.

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5.2 The reasoning adopted by the learned CIT(A) that a prudent person would have deposited the entire cash in one instance immediately after demonetisation is founded entirely upon assumptions relating to probable human conduct. Such assumptions, however plausible, cannot substitute evidence. Tax liability under a deeming provision such as section 69A must rest upon objective material and not upon subjective notions of what a prudent person ought to have done. Equally significant is the undisputed fact that the assessee had consistently followed the same professional practice in the immediately preceding Assessment Year 2016-17. The Assessing Officer, while completing assessment under section 143(3) for that year, accepted the receipt of cash from clients, its deposit into the bank account and subsequent payment of taxes on behalf of clients. No distinguishing factual circumstance, except the occurrence of demonetisation, has been brought on record by the Revenue to discard the established practice consistently followed by the assessee.

5.3 It is a well-settled principle that where a particular method of accounting or business practice has been consistently accepted in earlier years and the Revenue seeks to depart therefrom, the burden lies upon the Revenue to establish a material change in facts or law warranting such departure. In the present case, except

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relying upon the extraordinary event of demonetisation and drawing presumptions therefrom, no cogent evidence has been brought on record to establish that the explanation offered by the assessee is false or lacks credibility.

The assessee has also produced the cash book for the entire financial year, including the period preceding demonetisation, demonstrating the availability of cash balances and receipt of monies from clients. The Revenue has not pointed out any specific defect either in the books of account or in the reconciliation furnished by the assessee. Once the documentary evidence remains substantially uncontroverted, the addition cannot be sustained merely on the basis of suspicion, however strong such suspicion may appear.

5.4 It is equally pertinent to observe that section 69A contemplates the existence of unexplained money of which the assessee is found to be the owner and in respect of which either no explanation regarding the nature and source is offered or the explanation offered is found to be unsatisfactory on the basis of objective material. In the present case, the assessee has furnished a detailed explanation supported by contemporaneous documentary evidence. The authorities below have not disproved the documentary evidence but have rejected the explanation solely on the basis of perceived improbabilities. Such an approach, in our

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considered opinion, does not satisfy the statutory requirements of section 69A.

In view of the totality of the facts and circumstances, we are satisfied that the explanation offered by the assessee is both plausible and duly supported by contemporaneous documentary evidence. The findings recorded by the learned CIT(A) are founded predominantly on presumptions regarding human conduct rather than on any material establishing that the impugned cash represented the undisclosed income of the assessee. We, therefore, hold that the authorities below were not justified in invoking the provisions of section 69A of the Act. The addition of Rs.36,09,500/- is accordingly directed to be deleted.

Order pronounced in the open Court on 29/06/2026.

Sd/- Sd/- (ANIKESH BENERJEE) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 29/06/2026 M. Ranganath Vittal , Sr. P.S.

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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