HIMANSHU JAIN,BENGALURU vs. INCOME TAX OFFICER ASSESSMENT UNIT, BENGALURU

PER WASEEM AHMED, ACCOUNTANT MEMBER:

The appeals directed against the order dated 03.12.2025 passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year 2017–18.

First, we are discussing ITA 516/Bang/2026 for the assessment year 2017-18.

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3.1 The AO found that documentary evidence for cash salary was for Rs. 9.6 lakh only. Therefore, the AO accepted the cash deposit to the extent of 9.6 lakh from explained sources and remaining amount of Rs. 2.15 lakh was treated as unexplained. Accordingly, assessment order under section 143(3) of the Act was passed as on 28th October 2019 after making addition of Rs. 2.15 lakh to the total income.

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current year salary was utilised for making deposit during the demonetisation. Other than salary he has no other sources of income. He also claimed that he is regular tax filer and paying taxes in due course.

4.1 The learned PCIT passed order under section 264 of the Act dated 1st February 2022 with the following observation: 3. Aggrieved by the assessment order, the assessee has filed petition u/s. 264 requesting that in assessment proceedings the salary received in cash for earlier years i.e. F'Y' 2015-16 and F.Y.2014-15 have not been considered as source for making cash deposit during demonetization period. The petition flled by the assessee u/s. 264 of the Act has been carefully considered. 4. ln the interest of natural justice, opportunity of being heard through e proceedings/electronically has been afforded to the assessee through Notice dated 30-11'2021. Further, the assessee has submitted that salary for F.Y. 2014-15, F.y. 2015-16 and F.Y. 2016-17 had been received in cash and thus, the same may kindly be treated as valid explanation for sources for cash deposits made demonetization period. 5. Considering the facts and report of the Assessing officer, the assessment order passed u/s 143(3) of the Act dated 28-10-201g is set aside u/s 264 0f the lT Act with a direction to Ao to pass necessary speaking order after verification of details furnished by assessee to corroborate the sources of cash deposits made during demonetization period. Accordingly, the petition u/s. 264 stands disposed off.

4.2 The AO in the set aside assessment proceeding, observed that the assessee had only salary income and no other source of income. However, with regard to the cash deposits made in the bank account, the assessee stated that the same were out of salary received in cash during the year and savings from earlier years i.e. A.Y. 2015-16 and A.Y. 2016-17. The AO held that this explanation was not supported by any documentary evidence and mere claim of past savings cannot justify the cash deposits. The AO further noted that the assessee had earned salary of Rs. 7,20,000 and Rs. 4,20,000 in the relevant earlier years. The AO held that it was not reasonable for a person with such income to accumulate large cash savings and keep them at home despite having a

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bank account. The assessee also failed to provide details of household expenses or actual savings from such income. Hence rejected the assessee’s claim of past saving.

4.3 The AO also pointed out inconsistency in the assessee’s statements. In proceedings u/s 264 of the Act, the assessee admitted giving small loans to farmers out of his salary, whereas in response to notice issued u/s 142(1) of the Act, the same was denied. This contradiction led the AO to doubt the genuineness of the explanation.

4.4 However, the AO accepted that part of the cash deposit could be from current year salary received up to the demonetization period, and accordingly treated Rs. 7,20,000 being salary from April 2016 to December 2016 as explained. The balance amount of Rs. 4,55,000/- was treated as unexplained money u/s 69A of the Act.

6.2 I have carefully examined the assessment order dated 09/03/2023 and the preceding order of the Principal Commissioner dated 01/02/2022 passed under Section 264 of the Act. The Principal Commissioner, while setting aside the original assessment order dated 28/10/2019, specifically directed the Assessing Officer "to pass necessary speaking order after verification of details furnished by assessee to corroborate the sources of cash deposits made during demonetization period." This direction clearly mandates a fresh verification of details and passing of a speaking order, and does not amount to automatic acceptance of the appellant's claim regarding savings from earlier years. 6.3 The appellant's contention that para 4 of the Principal Commissioner's order accepting salary received in cash of earlier years as valid source is misconceived. A careful reading of para 4 of the order dated 01/02/2022 shows that the Principal Commissioner only noted the submission of the assessee that "salary for F.Y. 2014-15, F.Y. 2015-16 and F.Y.2016-17 had been received in cash and thus, the same may kindly be treated as valid explanation for sources

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for cash deposits made during demonitisation period." The Principal Commissioner did not make any finding accepting such salary as valid source, but merely set aside the matter for fresh consideration after verification. The direction was to verify and corroborate the sources, which clearly indicates that the matter required further examination. 6.4 The assessment order dated 09/03/2023 shows that the Assessing Officer issued notices under Section 142(1) on 31/10/2022 and 30/12/2022 and the appellant filed responses on 02/11/2022, 09/01/2023 and 21/01/2023. A Show cause Notice was issued on 23/02/2023 clearly proposing the addition of Rs. 4,55,000/- as unexplained money under Section 69A, to which the appellant filed reply dated 27/02/2023. These facts clearly demonstrate that adequate opportunity of being heard was provided to the appellant and there is no violation of principles of natural justice. 6.5 The Assessing Officer has specifically recorded in the assessment order that during the course of assessment proceedings, the assessee was asked to substantiate the savings from previous years with documentary evidence and was also asked to submit details of loans given to farmers as stated in the petition u/s 264. The Assessing Officer has noted that the assessee did not submit any valid explanation substantiating the savings from the previous years salary income and further denied giving any loan to the farmers. These findings show that the Assessing Officer did consider the various submissions and documents filed by the appellant including during the revision proceedings. 6.6 The Assessing Officer has clearly brought on record that the assessee has received Rs. 7,20,000/- and Rs. 4,20,000/- as salary income for F.Y. 2015-16 and 2014-15 respectively as certified by the employer. However, the Assessing Officer has rightly observed that simply stating that the source of cash deposit is from the savings of previous years cannot substantiate the cash deposits in the absence of any valid documentary evidence. The Assessing Officer has also noted that it is very impractical for a person to keep lakhs of rupees in his house in the form of cash, despite having an active bank account, and that the manner and place where the money has been kept has not been furnished by the appellant. 6.7 The transfer of the case to Faceless Assessment Unit was in accordance with the scheme notified under Section 144B of the Act and does not vitiate the assessment proceedings. The Faceless Assessment scheme is intended to eliminate human interface and bring greater transparency and efficiency in assessment proceedings. The fact that the case was assessed under the Faceless scheme does not in any manner prejudice the appellant's case or violate any legal provisions. 6.8 In view of the above discussion, I find no merit in the appellant's contentions regarding procedural irregularities or violation of principles of natural justice. The Assessing Officer has acted in accordance with the directions of the Principal Commissioner, has provided adequate opportunities to the appellant, has considered the submissions and documents filed by the appellant, and has passed a detailed speaking order after due application of mind. These grounds of appeal are accordingly dismissed. 6.9 These grounds relate to the addition of Rs. 4,55,000/- made under section 69A of the Act as unexplained money. The appellant has contended that the Assessing Officer erred in invoking section 69A, did not apply judicious mind, had preconceived notions, did not consider the work environment and personal

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circumstances, did not consider savings from earlier years, and that the source of cash deposit has been duly explained. 6.10 Section 69A of the Act provides that where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. 6.11 The undisputed facts are that the appellant deposited cash of Rs. 11,75,000/- in his Canara Bank account during the demonetization period from 09/11/2016 to 31/12/2016. The appellant's case is that this cash represented his salary received in cash for FY 2014-15, FY 2015-16 and FY 2016-17 and savings from such salary. The Assessing Officer has accepted that the salary received during FY 2016-17 up to 31/12/2016 amounting to Rs. 7,20,000/- (Rs. 80,000 x 9 months) could be the source of part of the cash deposit. However, the Assessing Officer has held that the balance amount of Rs. 4,55,000/- remains unexplained as the appellant failed to substantiate the savings from earlier years with documentary evidence. 6.12 I have carefully considered the submissions of the appellant and the findings of the Assessing Officer. The appellant has submitted that he received salary of Rs. 7,20,000/- in FY 2015-16 and Rs. 4,20,000/- in FY 2014-15, predominantly in cash, and that he saved money from such salary over the years. However, mere assertion of having saved money from earlier years is not sufficient to discharge the onus cast upon the assessee under Section 69A. The appellant was required to demonstrate, with credible evidence, that he actually had such savings in cash form and that such cash was accumulated out of explained sources. 6.13 The Assessing Officer has rightly observed that the appellant has not submitted any details of expenditure incurred from salary of previous years and the net amount available for savings. A person earning salary of Rs. 7,20,000/- and Rs. 4,20,000/- in the earlier two years would necessarily have to incur substantial expenditure on basic necessities of life such as food, clothing, conveyance, medical expenses, and other personal and social expenses. Even assuming that the appellant lived in a joint family and his personal expenses were minimal, it is highly improbable that he could have saved substantial amounts in cash from such moderate levels of income without any credible explanation of his actual expenditure pattern. 6.14 The appellant has submitted Statement of Affairs and Own Account for the years ending 31/03/2015, 31/03/2016 and 31/03/2017. While these documents purport to show cash balances and sundry debtors at the end of each year, they are unverified self-serving statements prepared by the appellant himself. The Assessing Officer has rightly not placed any reliance on such statements in the absence of any corroborative evidence. The Statement of Affairs and Own Account are not statutory documents required to be maintained by a salaried individual and cannot be considered as reliable evidence of cash savings.

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6.15 The appellant's explanation that he gave small loans to farmers and received back such amounts before demonetization is also not supported by any documentary evidence. The Assessing Officer has recorded that when specifically asked to furnish details of loans given to farmers during assessment proceedings, the appellant denied having given any loans. This contradiction between the explanation given in the revision petition and the response during assessment proceedings further weakens the credibility of the appellant's case. 6.16 The appellant has argued that there is no law restricting the amount of cash savings that can be held by a person and that his preconceived notion about keeping cash at home is not justified. While it is correct that there is no legal restriction on holding cash savings, the issue is not whether a person can legally hold cash but whether the appellant has satisfactorily explained the source and accumulation of such cash. The observation of the Assessing Officer that it is impractical to keep lakhs of rupees at home is a valid observation based on common human experience and conduct. In the present case, the appellant admittedly had an active bank account, was a regular income tax assessee, and was employed in a formal establishment. Under these circumstances, the explanation that he consciously chose to accumulate and keep large amounts of cash at home instead of depositing in the bank over multiple years strains credulity. 6.17 The appellant has relied upon para 4 of the Principal Commissioner's order which noted his submission that salary for earlier years was received in cash. As discussed earlier, the Principal Commissioner merely noted the submission and directed verification, and did not make any finding accepting such salary as valid source for the cash deposits. The burden to prove the source with credible evidence remained on the appellant, which has not been discharged. 6.18 The Assessing Officer has given full credit to the salary received during FY 2016-17 up to the end of demonetization period as source for Rs. 7,20,000/- out of total cash deposit of Rs. 11,75,000/-. This shows that the Assessing Officer has not been unreasonable or prejudiced but has carefully examined each component of the appellant's explanation. The balance amount of Rs. 4,55,000/- has been treated as unexplained only after the appellant failed to substantiate savings from earlier years with credible evidence. 6.19 The appellant has argued that he comes from Marwadi community, lives in joint family, has minimal expenses, works in APMC dealing with farmers who transact in cash, etc. While these factors may be relevant circumstances, they do not by themselves constitute proof of accumulation of cash savings from earlier years. The appellant was required to demonstrate with credible documentary evidence or corroborative material that he actually had such cash savings, which he has failed to do. 6.20 The appellant's argument that the order is passed in haste and with prejudice is not borne out from the records. There is no material on record to suggest any hasty or prejudiced approach by the Assessing Officer. 6.21 I find that the Assessing Officer has rightly invoked the provisions of section 69A of the Act in respect of the sum of Rs. 4,55,000/- which represents cash deposit during demonetization for which the source has not been satisfactorily explained by the appellant. The addition is based on proper appreciation of facts and evidence and is in accordance with law. These grounds of appeal are accordingly dismissed.

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past savings. Furthermore, the appeal order passed under section 264 of the Act is not appealable.

9.1 We further note that in the original assessment framed u/s 143(3) of the Act, the AO himself accepted the source of cash deposits to the extent of Rs. 9.6 lakh as explained out of salary received in cash and made addition only to the extent of Rs. 2.15 lakh. This finding of the AO clearly establishes that the primary source of cash deposits, being salary income received in cash, stands accepted by the department.

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assessee before the learned PCIT was limited to non-acceptance of availability of cash of Rs. 2.15 lakh from past savings, as the source of Rs. 9.6 lakh was already accepted by the AO.

10.1 We find that the learned PCIT, after considering the submissions of the assessee, has noted the fact that the assessee had received salary in cash for earlier years also and accordingly set aside the assessment with a direction to the AO to verify the availability of cash from earlier years. Thus, the direction of the learned PCIT was only with respect to verification of availability of cash from past savings and not to re- examine the entire issue afresh or to disturb the findings already accepted by the AO in the original assessment.

10.2 However, we note that in the set aside proceedings, the AO has taken a completely different approach and restricted the explained source only to Rs. 7.2 lakh and enhanced the addition to Rs. 4.55 lakh. In our considered view, such action of the AO is not in accordance with law. Once the source of Rs. 9.6 lakh was accepted in the original assessment, and the revision u/s 264 was sought only for limited relief of Rs. 2.15 lakh, the AO, in proceedings pursuant to section 264 of the Act, cannot take a view which is prejudicial to the assessee by reducing the accepted portion and enhancing the addition. This is clearly contrary to the scheme and spirit of section 264 of the Act.

10.3 Coming to the issue on merits, we find that the assessee has consistently explained that the cash deposits were made out of salary received in cash over the years and savings therefrom. The fact that the assessee was receiving salary in cash is not disputed. The assessee has

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also explained that he is unmarried and living in a joint family, resulting in minimal personal expenditure. In such factual background, the possibility of savings out of salary income cannot be brushed aside mechanically.

10.4 The AO has rejected the explanation mainly on the ground that no documentary evidence was produced to show past savings and that it is improbable to keep cash at home. In our view, such reasoning is not sustainable in the given facts. When the source of income itself is accepted which is in cash, and when the assessee has no other source of income, the availability of some savings in cash form is a natural consequence. The law does not mandate that savings must necessarily be kept in bank or must be supported by documentary trail in all circumstances.

10.5 Further, the addition originally made was only Rs. 2.15 lakh, which itself indicates that the AO had substantially accepted the explanation of the assessee. The dispute before us is only with respect to such balance amount. Considering the total salary received over three years aggregating to substantial amount, and considering the personal circumstances of the assessee, we find that the availability of cash of Rs. 2.15 lakh out of past savings cannot be doubted.

10.6 We also find merit in the contention that the present proceedings arise out of the original assessment framed u/s 143(3) of the Act, and the direction u/s 264 of the Act was only for limited verification. Therefore, the issue relating to addition of Rs. 2.15 lakh is very much within our jurisdiction. Once we hold that the assessee has satisfactorily

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explained the availability of such cash from past salary income, no addition is called for.

10.7 In view of the above discussion, we hold that the action of the AO in enhancing the addition in proceedings pursuant to section 264 of the Act is not sustainable in law. On merits also, the explanation of the assessee regarding availability of cash out of past salary savings is reasonable and acceptable in the facts of the case. Accordingly, the addition made u/s 69A of the Act is directed to be deleted.

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Order pronounced in court on 8th day of May, 2026

Sd/- Sd/- (SOUNDARARAJAN K) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 8th May, 2026 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore