MOHAMEDALI BASHEER,ARANTHANGI vs. ITO WARD, 2 PUDUKKOTTAI, PUDUKKOTTAI

The Assessee raised the following grounds of appeal :

The CIT(A) NFAC erred in upholding the order of the officer on jurisdiction and merits of the case.

The CIT(A) NFAC failed to appreciate that the appellant was engaged in the sale of coconuts, on both cash and credit basis, and that the cash deposits in the bank account represented recoveries of outstanding credit sales, which the Learned AO failed to consider, a fact that was duly reiterated in both the submissions made before the CIT(A) and assessment proceedings.

The CIT(A) NFAC failed to consider the fact that the AO had made addition to the total income considering the sale of coconuts as business of the appellant, but considered only the cash deposits made through other than Specified Bank Notes as Business income.

The CIT(A) NFAC erred in upholding the assessment order, wherein the AO has prejudicially differentiated deposits in SBN and other than SBN, and erroneously considered only the non-SBN portion as business deposits, which is untenable in law.

The CIT(A) NFAC failed to appreciate the fact that, as the existence of business is not disputed by the AO.

The CIT(A) NFAC failed to appreciate that the entire cash deposits are to be considered as arising out of business, and additions ought to have been made at 8% of deposits, without differentiating the SBN and Non-SBN Cash deposits.

The CIT(A) NFAC erred in upholding the assessment order, which had been erroneously passed without due consideration of the appellant's valid claims including the list of parties from whom the collection of said receipts has been made, thereby resulting in a violation of the principles of natural justice.

The CIT(A) NFAC, in any event, ought to have seen that the jurisdictional requirements as per the provisions of the Act are not satisfied and hence the assessment is bad in law and thus allowed the appeal.”

Briefly, the facts of the case are that the appellant is an individual deriving income under head “Income from House Property” and sale of coconuts. The Return of Income for the Assessment Year 2017-18 was filed on 26.04.2017 disclosing total income at Rs.4,03,750/-. Against the said return of income, the assessment was completed by the ITO, Ward-2, Pudukkottai vide order dated 06.12.2019 passed u/s.143(3) of the Act at a total income of Rs.15,22,250/-. While doing so, the Assessing Officer made addition of Rs.10,38,500/- being the cash deposits in Specified Bank Notes during the Demonetization Period in the bank account maintained with State Bank of India, treating as unexplained money of the appellant by rejecting the explanation of the appellant that said cash deposits were made out of realizations from sundry debtors and sale of coconuts from his farm. The Assessing Officer also made addition of estimated income on sale of coconuts 8% of the gross turnover of Rs.10 lakhs.

Being aggrieved by the above assessment order, the appellant preferred an appeal before ld.CIT(A), who vide impugned order confirmed the action of the Assessing Officer by holding that the appellant had failed to substantiate the explanation on the cogent evidence.

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 Lower Authorities had failed to appreciate that the appellant was engaged into the business of dealing in coconuts on both cash and credit basis. The cash deposits in specified bank notes during the Demonetization Period were made out of realization of sundry debtors and also sale proceeds of the coconuts. Without prejudice to the above, he further submits that the entire cash deposits are made out of the business receipts and additions should have been made at 8% of the said deposits without distinguishing the Specified Bank Notes(SBN) and Non-Specified Bank Notes.

On the other hand, Learned Sr.DR vehemently opposed the above submissions.

We heard rival submissions and perused the material available on record. The issue that arises for our consideration is whether the ld.CIT(A) was justified in sustaining the addition of Rs.10,38,500/- on account of cash deposits in the Specified Bank Notes in the bank account maintained with SBI during the Demonetization Period. When the appellant was called upon to explain the source of the cash deposits, the appellant filed an explanation stating that the cash deposits were made out of the sale proceeds of coconuts and realization from debtors account. The fact that the appellant was into the business of dealing in coconuts was not disputed by the Assessing Authority as the Assessing Officer himself made addition of business profits by estimating the profit at 8% on the turnover of 10 lakhs. The appellant also filed a statement showing availability of cash, extracted by the ld.CIT(A) in page no.2 and 3 and outstanding sundry debtors. There is no material brought on record by the Assessing Officer to disbelieve the explanation of the appellant. In the circumstances, the ld.CIT(A) ought to have deleted the addition made on account of cash deposits during the Demonetization Period.

Orders of the Lower Authorities are reversed to this extent and directed the Assessing Officer to delete the addition of Rs.10,38,500/-. However, we confirmed the addition of Rs.80,000/- made under the business income s we feel that estimates of gross profit of 8% is reasonable.

In the result, appeal filed by the assessee is partly allowed. Order pronounced in the open Court on 11th June, 2026.