RAJA BASAVARAJ BHIMALLI,KALABURAGI vs. INCOME TAX OFFICER, WARD-1 & TPS, GULBARGA

We have considered the submissions of both sides and perused the materials available on record. The brief facts of the case are that the assessee is an individual and is a partner in a partnership firm. For the year under consideration, the assessee filed its return of income on 29.11.2017, declaring a total income of Rs. 9,44,940/-. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, it was observed that the assessee has deposited an amount of Rs. 25 Lakh on 15.11.2016 and Rs. 20 Lakh on 21.11.2016, i.e. during the demonetisation period, in the bank account maintained with the Axis Bank. Accordingly, the assessee was asked to prove the source of the cash deposits. In response, the assessee submitted that he is a partner in a partnership firm and apart from the share of profit from the firm, the assessee has income from other sources in the form of interest and other income. The assessee furnished the cash flow statement and a copy of the balance sheet for the year ending 31.03.2017 and the cash book from 01.04.2014 to 31.03.2017. The assessee submitted that the total cash deposit of Rs. 45 Lakh is out of the cash balance in hand as on 31.03.2016 of Rs. 1,00,43,748/-.

The Assessing Officer (“AO”), vide order dated 21.12.2019 passed under section 143(3) of the Act, disagreed with the submissions of the assessee and held that the cash balance as on 31.03.2016 is Rs. 64,63,700/- and cash balance as on 31.03.2017 was Rs. 20,16,176/- as per the cash book, but in the balance sheet the cash in hand is shown as Rs. 55,98,752/-. Thus, the AO concluded that the cash book furnished by the assessee is unreliable and that the source of cash deposited in the bank account during the demonetisation period is not proved. Therefore, in the absence of any proper explanation regarding the source of cash deposit made during the demonetisation period, the entire cash deposit of Rs. 45 Lakh was treated as an unexplained cash deposit under section 69A of the Act by the AO.

The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee on this issue, observing as follows: - “6.3. After carefully reading the assessment order and the submissions made by the appellant, I am of the considered view that the contentions of the appellant are not tenable. It is evident that the appellant has failed to satisfactorily explain the nature and source of the cash deposits of Rs. 45,00,000/- made during the demonetization period. The appellant initially declared opening and closing cash balance of Rs. 1,00,43,748/- and Rs. 55,98,752/- for the FY 2016-17 but later revised them to Rs. 64,63,700/- and Rs. 20,16,176/- respectively. These contradictory submissions cast doubt on the credibility of the appellant’s financial statements, which are not audited to begin with. The appellant has not submitted any satisfactory explanation for the revision in the figures nor provided any supporting documents to corroborate the revision. Further, he has not rebutted the specific finding of the Assessing Officer that the closing cash balance as per the balance sheet for 31-03-2017 was shown as Rs. 55,98,752/-, which contradicts the revised figure of Rs. 20,16,176/-. This discrepancy severely undermines the reliability of the cash book and other financial statements. Another observation of the Assessing Officer has remained unanswered that the cash book entries for 15.11.2016 and 21.11.2016 merely state “remittance to bank” without any corresponding source of cash receipt, thus, further weakening the explanation for the impugned deposits. Although the appellant submitted cash flow statements for FYs 2014-15 and 2016-17, he did not adequately establish a clear , date- wise cash trail linking the purported opening balance to the demonetization period deposits. Moreover, appellant has not clearly explained the nature and source of huge cash in his hands of Rs 64,63,700/- on 01-04-2016, since he had no independent business during the year and was a partner in two firms. Further, he has not explained, with verifiable documents, that the opening cash in hand of Rs 64,63,700/- remained unutilised till 15-11-2016 and 21-11-2016 , i.e. the dates on which cash deposits were made. It is highly improbable that an individual will sit on such a huge amount of cash in hand for Page 4 of 7 more than 8 months of the year. Furthermore, the appellant’s claim that the Assessing Officer did not question the genuineness of the opening cash balance does not automatically validate the source of the cash deposits, especially in light of conflicting figures and unreliable documentation. 6.4. In view of the inconsistencies in the appellant’s submissions, discrepancies in the financial statements and lack of substantiating evidences, the appellant’s explanation for nature and source of cash deposits remains unsubstantiated. Hence, since the appellant has not controverted the findings of the Assessing Officer, I have no option but to uphold the Assessing Officer’s action in treating the sum of Rs. 45,00,000/- as unexplained money u/s 69A of the Act. Being aggrieved, the assessee is in appeal before us.

During the hearing, the learned Authorised Representative (“learned AR”), by referring to the cash flow statement, forming part of the paper book submitted, stated that the assessee had sufficient cash in hand for the deposit of cash during the demonetisation period. The learned AR also referred to the bank account statement of the assessee maintained with Tamil Nadu Mercantile Bank Ltd. for the period 01.04.2014 to 31.03.2017, which is filed before us by way of an additional evidence duly supported by an application filed by the assessee under Rule 29 of the ITAT Rules, 1963.

On the other hand, the learned Departmental Representative vehemently relied upon the order passed by the lower authorities.

We have considered the submissions of both sides and perused the materials available on record. The solitary issue that arises for our consideration is whether the assessee had sufficient cash in hand for the deposit of Rs. 45 Lakh in two trenches during the demonetisation period. As per the assessee, in the period prior to the demonetisation, there were multiple transactions of cash withdrawal by the assessee from his bank account maintained with Tamil Nadu Mercantile Bank Ltd. and the source of cash deposit during the demonetisation period is nothing but the cash in hand available with the assessee from such cash withdrawals. Undisputedly, in the present case, before the lower authorities, the assessee has filed its cash book and the balance sheet for the year ending 31.03.2017. To further substantiate its submission, the assessee has now placed on record his bank statements for the period from 01.04.2014 to 31.03.2017 as additional evidence. Considering the submissions made by the assessee in his application filed under Rule 29 of the ITAT Rules, 1963, the said additional evidence is admitted. However, it is equally evident that the transactions in his bank account were neither tallied nor verified against the transactions in the cash book by any of the lower authorities. Since the issue is only qua the source of cash deposited during the demonetisation period by the assessee, we are of the considered view that such an exercise is necessary to accept the contention of the assessee that the source of cash deposited was nothing but the cash withdrawn from the bank account in the period prior to the demonetisation. Therefore, we restore this issue to the file of the Jurisdictional AO for de novo adjudication after verification of the details in the bank statement against those provided by the assessee in his cash book. We further direct that for complete verification of the entries in the bank statement placed on record by the assessee, if any other detail is required by the AO, the same may be sought from the assessee. Needless to mention, no order shall be passed without affording reasonable opportunity of hearing to the assessee. With the above directions, the impugned order on this issue is set aside, and the grounds raised by the assessee are allowed for statistical purposes.

In the result, the appeal by the assessee is allowed for statistical purposes. Order pronounced in the open court on 22nd June, 2026