ITO, WARD-1, RAMANAGAR vs. SYED AZMATH ULLA, RAMANAGAR

PDF · subscribers
ITA 1667/BANG/2025Status: DisposedITAT Bangalore22 June 202612 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the cash deposits were out of sale proceeds and taxing them again would amount to double taxation. The Tribunal also found the Rs. 12,00,000 cash deposit explained by the assessee's submission of a confirmation letter and related documents.

What were the facts?

The assessee, engaged in the animal feed business, deposited Rs. 85,70,000 in banned old notes after November 8, 2016, exceeding their cash balance. The AO treated Rs. 69,09,000 as unexplained cash credit. Additionally, a Rs. 12,00,000 cash entry was deemed unexplained.

What were the issues?

Whether cash deposits made in banned old notes from sale proceeds are taxable as unexplained cash credit, and if additional evidence can be admitted by the CIT(A) without referring back to the AO.

Which sections of the Income-tax Act were involved?

Section 68,Section 115BBE,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B’’ BENCH: BANGALORE

Before: SHRI PRASHANT MAHARISHI & SHRI KESHAV DUBEY

Hearing: 25.03.2026Pronounced: 22.06.2026

PER KESHAV DUBEY, JUDICIAL MEMBER:

This appeal at the instance of the assessee is directed against the order of the ld. CIT(A)/NFAC dated 30.10.2024 vide DIN & Order No. ITBA/NFAC/S/250/2024-25/1070032891)1) passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2017-18.

2.

The assessee has raised the following grounds of appeal:-

ITA No.1667/Bang/2025 Syed Azmath Ulla, Ramanagara Page 2 of 12

3.

At the outset, the ld. D.R. submitted that there is a delay of 196 days in filing the appeal before this Tribunal. The ld. D.R. also drew our attention on an application for condonation of delay filed along with an affidavit dated 15.7.2025 stating the reasons for the delay, which is reproduced below for ease of reference and record:

ITA No.1667/Bang/2025 Syed Azmath Ulla, Ramanagara Page 3 of 12

ITA No.1667/Bang/2025 Syed Azmath Ulla, Ramanagara Page 4 of 12

ITA No.1667/Bang/2025 Syed Azmath Ulla, Ramanagara Page 5 of 12

ITA No.1667/Bang/2025 Syed Azmath Ulla, Ramanagara Page 6 of 12 3.1 Perused the record and having heard learned counsel for the assesse as well as the ld. D.R., it is perceived that the explanation offered is plausible and sufficient cause has been shown by the Revenue, which prevented them from filing the appeal within the specified period and accordingly, we are inclined to condone the delay in filing the appeal before this Tribunal & admit the appeal for adjudication.

4.

The brief facts of the case are that the assessee is an individual, engaged in the business of sale of animal feed. The assessee filed his return of income for the AY 2017-18 on 30.10.2017, declaring total income of Rs.6,30,960/-. The return was processed u/s 143(1) of the Act and subsequently selected for scrutiny under CASS. The AO issued statutory notices u/s 143(2) & 142(1) of the Act and relevant details were sought by the AO. During the course of assessment proceeding, the AO noticed that the assessee had made cash deposits in banned old notes of Rs.85,70,000/- after 8.11.2016, whereas, the cash balance shown as on 8.11.2016 was only Rs.16,61,244/-. The AO held that even after considering the cash balance as on 8.11.2016 as a source for deposit, the balance of Rs.69,09,000/- deposited in old banned notes remains unexplained. The AO also noticed that the assessee was not permitted to obtain SBNs on or after 8.11.2016. As such, the AO concluded the assessment order bringing to tax the excess cash of Rs.69,09,000/- as income under the provisions of section 68 r.w.s. 115BBE of the Act.

4.1 The AO also noticed that there is an entry of receipt of Rs.12,00,000/- in the cash book and no details were provided by the assessee towards the source of such cash entry. Accordingly, Rs.12,00,000/- being cash entry made on 1.5.2016 was treated as unexplained u/s 68 of the Act and taxed u/s 115BBE of the Act. Thus, the AO completed the assessment proceedings on a total

ITA No.1667/Bang/2025 Syed Azmath Ulla, Ramanagara Page 7 of 12 assessed income of Rs.87,39,960/- vide order passed u/s 143(3) of the Act dated 12.12.2019.

5.

Aggrieved by the aforesaid order of AO dated 12.12.2019, the assessee preferred an appeal before the ld. CIT(A)/NFAC.

6.

The ld. CIT(A)/NFAC allowed the appeal of the assessee with the following observations: -

i. With regard to addition of Rs.69,09,000/- u/s 68 of the Act, the ld. CIT(A)/NFAC observed as under: a) It is not a secret that considering the nature of business which involves dealing with small/medium class traders the same is predominantly cash oriented. b) The assessee is maintaining regular books of accounts and the said books of accounts are subject to compulsory audit u/s 44AB of the Act. c) The assessee is also filing its VAT returns in connection to its purchases and sales to the concerned authority. d) The AO has not disputed the authenticity of business activity carried out by the assessee. e) The AO has accepted the income offered by the assessee from the business, however, the SBN currency deposited in the bank account was again taxed as unexplained cash credit u/s 68 of the Act. f) The cash deposit include SBN deposited during the demonetization period are already included in the turnover of Rs.11.28 crores, which is not disputed by AO. g) When the income earned on the said turnover is already declared, addition of cash deposit again is nothing but taxing a transaction twice.

ITA No.1667/Bang/2025 Syed Azmath Ulla, Ramanagara Page 8 of 12 ii. Further, with regard to cash deposits of Rs.12,00,000/- made on 1.5.16, the assessee had submitted an affidavit/confirmation letter from Mr. Adil Abrar confirming return of advances of Rs.12 lakhs on 1.5.2016. As the assessee had furnished relevant details substantiating the identity of the payer and also genuineness of the transaction entered, hence the ld. CIT(A)/NFAC found source of cash deposit of Rs.12 lakhs as explained.

7.

Aggrieved by the order of ld. CIT(A)/NFAC, the Revenue has filed the present appeal before this Tribunal.

8.

Before us, the ld. D.R. vehemently submitted that ld. CIT(A)/NFAC grossly erred in accepting the assessee’s claim that the deposits of SBNs of Rs.69,09,000/- were out of the sale proceeds without any corroborative evidences. Further, the ld. D.R. submitted that in the present case, the assessee neither claimed before the AO that cash deposits were out of sale proceeds nor proved with any supporting documents and the ld. CIT(A)/NFAC grossly erred in not calling for the remand report from the AO on the fresh claim as made by the assessee. Further, with regard to cash deposit of Rs.12 lakhs, the ld. D.R. submitted that ld. CIT(A)/NFAC erred in admitting the additional evidences without providing opportunity to the AO to examine the evidences which is in violation to Rule 46A (3).

9.

The ld. A.R. of the assessee supported the order of ld. CIT(A)/NFAC and vehemently submitted that the AO himself after verifying the cash book observed in the assessment order that cash deposits were made only out of sale proceeds however the AO had rejected the claim of the assessee solely on the ground that the assessee had deposited banned SBNs and accordingly held to be remain unexplained.

ITA No.1667/Bang/2025 Syed Azmath Ulla, Ramanagara Page 9 of 12

10.

We have heard the rival submissions and perused the materials available on record. The assessee in the present case is earning his income from business being a trader of animal feed. The assessee maintains books of accounts on day to day basis and the books of accounts were also audited by the Chartered Accountant. The AO as well as the CA had found no fault with the books of accounts maintained by the assessee. On perusal of the assessment order, we observed that during the course of assessment proceedings, the assessee submitted the purchase register, sales register, VAT returns, cash book and ledger along with the other details as called for by the AO. The AO also noted that the total sales as per VAT return and profit & loss account were Rs.11,28,83,804/- . Further, during the course of assessment proceedings, the assessee by submitting the cash book stated that total cash deposits made in to his bank account were all cash sales. The AO seen that the assessee had made cash deposit in banned old notes of Rs.85,70,000/- after 8.11.2016 and also categorically observed that as per cash book, it is seen that the cash so deposited was out of sales. Therefore, in our considered opinion, the contention of the ld. D.R. that the assessee’s claim of deposit of balance SBN of Rs.69,09,000/- out of sale proceeds not claimed before the AO is unsustainable. We are of the considered opinion that the AO had not accepted the claim of the assessee solely on the ground that assessee was not allowed to collect old notes for the sales made as the old notes were banned from circulation w.e.f. 9.11.2016. The AO although accepted that the sales are routed through the cash book, however, since the notes were banned, did not accept the demonetized currency as movable assets. Therefore, in our considered opinion, there is no dispute that the cash deposits were made out of the cash sale proceeds made by the assessee during the demonetization period. Therefore, we completely agree with the view

ITA No.1667/Bang/2025 Syed Azmath Ulla, Ramanagara Page 10 of 12 of ld. CIT(A)/NFAC that assessee has explained the sources and nature of cash deposits into the bank account. We also agree with the contention of the ld. CIT(A)/NFAC that when the cash deposit including the SBNs deposited during the demonetization period were already included in the turnover of Rs.11.28 crores which is not disputed by the AO, in such a situation, the addition of cash deposit once again u/s 68 of the Act is nothing but taxing a transaction twice.

10.1 Admittedly, the assessee may not be authorized to receive the SBNs, but this is not in the dominion of taxation u/s 68 of the Act. The provision of section 68 of the Act says that if the nature and source of the sum credited in the books of accounts of the assessee is not explained to the satisfaction of the AO, then it can be added as unexplained cash credit in the hands of the assessee. In the present case, assessee had appropriately explained from where the SBN notes have come and such notes have also been deposited in the bank accounts and therefore, addition u/s 68 of the Act is unwarranted. The assessee had clearly demonstrated the nexus of cash sales with the amount of cash deposited into bank accounts. The AO had also not brought any adverse material on record except by saying that assessee was not authorized to accept the SBNs in view of the RBI guidelines. In view of the above, the additions made by the AO are not sustainable and accordingly, we affirm the view taken by the ld. CIT(A)/NFAC and dismiss this ground of appeal of the revenue.

10.2 Now coming to the cash deposit of Rs.12,00,000/- as made on 1.5.2016, the ld. D.R. vehemently submitted that ld. CIT(A)/NFAC erred in admitting the evidence under Rule 46A (1) filed by the assessee with regard to cash deposit of Rs.12 lakhs into the bank account without providing opportunity to the AO to examine the evidence. Undisputedly, the assessee before the ld. CIT(A)/NFAC

ITA No.1667/Bang/2025 Syed Azmath Ulla, Ramanagara Page 11 of 12 submitted an affidavit/confirmation letter from Mr. Adil Abrar confirming return of advance of Rs.12 lakhs on 1.5.2016. The assessee had also submitted confirmation letter, identity details of the concerned person and also provided details of property for which transaction was intended. Thus, the ld. CIT(A)/NFAC after being satisfied with the details furnished by the assessee substantiating the identity of the payer and also genuineness of the transactions entered, deleted the addition of Rs.12 lakhs as made by the AO.

10.3 Further, we are of the considered opinion that it is well settled law that the powers of the ld. CIT(A)/NFAC are co-terminus and co- extensive with that the AO. The ld. CIT(A)/NFAC is not only an appellate authority but also possesses the power of an adjudicating authority similar to that of an AO. The powers of enquiry thus in a sense runs concurrently. Under the provisions of section 250(4) of the Act, the ld. CIT(A)/NFAC may either himself make such further enquiry as he thinks fit or he may direct the AO to make further enquiry and report the result of the same to him. Therefore, in our opinion, there is nothing wrong as per the provisions contained in section 250(4) of the Act. In our considered opinion, the ld. CIT(A)/NFAC after verifying and examining the copy of affidavit, confirmation letter, identity details of concerned person, details of the property only deleted the additions of Rs.12 lakhs. Thus, in our opinion, the assessee had completely explained the nature and source of money found credited in the bank account and therefore we don’t find any infirmity in the order of ld.CIT(A)/NFAC and accordingly we upheld the same.

ITA No.1667/Bang/2025 Syed Azmath Ulla, Ramanagara Page 12 of 12

11.

In the result, the appeal filed by the revenue is dismissed.

Order pronounced in the open court on 22nd June, 2026

Sd/- Sd/- (Prashant Maharishi) (Keshav Dubey) Vice President Judicial Member

Bangalore, Dated 22nd June, 2026. VG/SPS

Copy to:

1.

The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order

Asst. Registrar, ITAT, Bangalore.

More judgments on Section 68

All 29,931 judgments and leading authorities on Section 68 →

Recent GST High Court judgments

Search GST case law →