VENU VENKATESH,BANGALORE vs. INCOME TAX OFFICER, WARD-6(3)(1) , BANGALORE

PER WASEEM AHMED, ACCOUNTANT MEMBER: The present appeal filed at the instance of the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals) under the National Faceless Appellate Centre (hereafter the Ld. CIT-A) for the Assessment Year 2017-18, passed under section 250 of the Income Tax Act, 1961 (hereafter the Act).

6.1 During the assessment proceedings, the AO required the assessee to explain the nature and sources of the amount credited or deposited in his bank account. The assessee claimed that he received advance against proposed sale of immovable property from M/s. Arunoday Construction and M/s Silver Stone Ventures. The assessee further submitted that the cash was withdrawn for medical emergency purposes in relation to his parents and other purposes, and the withdrawn cash was also utilized for subsequent redeposit. Furthermore, the assessee submitted that a sum of Rs. 27,50,000/- was credited in the bank on account of cancellation of the DD.

6.2 The AO did not accept the assessee's claim for receipt of advance because no evidence of completion of the sale of immovable property was furnished, and no banking trail or other evidence was provided to show that the advance received was returned in the case of an uncompleted transaction. Similarly, the AO did not accept the claim of cash withdrawal for medical and other emergency purposes and subsequent redeposit. The AO found no correlation between the cash withdrawals, documented medical expenses, and the redeposit pattern. The AO found the assessee's explanation as an afterthought to justify large unaccounted cash transactions. Accordingly, the AO held that the assessee failed to explain the amounts credited or deposited in his bank account except for Rs. 27.5 lakh credited on account of DD cancellation. Hence, the AO treated the entire credit of Rs. 88,10,554/- (1,15,60,554 -27,50,000) as unexplained money under section 69A of the Act and added it to the assessee's total income.

8.1 The assessee submitted that during the relevant year, an aggregate amount of Rs. 36,85,000/- and Rs. 35,00,000/- was received on different dates from Shri D. Surender Chakravarthy, proprietor of Arunodaya Constructions and from M/s Silver Stone Ventures as advance towards the proposed sale of property situated at No. 165, Peenya 3rd Stage, Lageere Village, Yeshwanthpura Hobli, Bengaluru, No. 24, 12th Cross, Sadashivanagara, Bengaluru and No. 356, 2nd Stage, 2nd Block, RMV Extension, Bangalore respectively.

8.2 In support of the explanation, the assessee furnished a copy of the separate agreement entered into with the above-stated parties in Annexure- 16 & 18. It was submitted that the proposed sale could not be completed because of disputes relating to the impugned properties and the matters were pending before the Courts. The assessee also furnished documents relating to the pending court proceedings in Annexure-17.

8.3 It was further explained that because the property disputes had not been resolved and the sale deeds had not been executed, the advance continued to remain pending for revenue recognition. For the same reason, the amount had also not been returned to the proposed purchasers. Thus, according to the assessee, the bank credits aggregating to Rs. 36,85,000/- and Rs. 35,00,000/- represented identifiable advances received against the proposed sale of properties.

8.4 With regard to the cash deposits aggregating to Rs. 10,26,000/- made on different dates in the bank account. The assessee submitted that these deposits were made out of cash withdrawn earlier from the bank account. The assessee furnished details of the deposits as well as a cash-flow statement showing the availability of cash from the preceding withdrawals in Annexure 19 & 20.

8.5 The assessee also explained that his father was aged about 77 years and was suffering from cancer. Likewise, his mother was aged about 73 years and also not keeping good health. Both parents required regular medical attention. In view of the possibility of medical emergencies and the need for immediate availability of funds, the assessee used to withdraw cash from the bank and keep the same available for meeting medical requirements.

8.6 It was explained that whenever the cash was ultimately not required, depending upon the health condition of the parents at the relevant point of time, the unutilised cash was redeposited into the bank account after some time. The assessee furnished medical bills and medical reports of the parents in support of this explanation in Annexure-21.

8.7 Regarding the balance credits aggregating to Rs. 5,99,555/-, the assessee submitted that an amount of Rs. 1,370/- represented interest credited to the savings bank account. Thus, the nature of this credit was clearly identifiable from the bank account itself. As regards the remaining amount of Rs. 5,98,185/-, the assessee fairly submitted that due to the considerable lapse of time, the exact nature of these old credits was not readily ascertainable. Further, the narration appearing in the bank statement was also not sufficiently clear to enable the assessee to identify the precise nature of each such credit.

8.8 On the basis of the above explanation, the assessee submitted that out of the total bank credits of Rs. 88,10,555/-, credits aggregating to Rs. 82,12,370/- stood specifically explained and were supported by documentary evidence. The assessee therefore contended that there was no justification for treating the entire bank credits as unexplained money merely on the basis of their appearance in the bank account.

8.9 The learned CIT(A) accepted the assessee contention regarding the sources of cash deposit of Rs. 10,26,000/- and bank interest of Rs. 1370/-. However, the sources of bank credit on account of advance against the property for Rs. 36,85,000/- and Rs. 35,00,000/- as well as other credit of Rs. 5,98,185/- were not accepted, and the addition was confirmed. The relevant finding of the learned CIT(A) is extracted as under:

On a detailed examination of the submissions made by the appellant, it is observed that the explanations concerning the advances received from Arunodaya Constructions (Rs.36,85,000/-) and Silver Stone Ventures (Rs.35,00,000/-) do not fully substantiate the claim that these amounts represent genuine transactions. While the appellant has produced copies of agreements and indicated that the sales of the respective properties are pending due to ongoing court disputes, no conclusive evidence has been provided to show that any of the advances have been ultimately realized as income or that the transactions have reached a legally enforceable stage. The mere existence of agreements, which are contingent on the resolution of disputes, does not, by itself, establish that the amounts credited to the bank accounts are beyond question genuine or attributable to completed sales. Further, the appellant has not furnished any receipts, escrow confirmations, or banking trail linking the receipt of these amounts to a finalized consideration for transfer of property. In the context of section 69A, which deals with unexplained credits, it is imperative that the assessee provide convincing evidence to demonstrate the authenticity and legal validity of the amounts credited. The facts on record show that the claimed advances remain uncertain and contingent, and the documents submitted, including the agreements and court references, do not satisfactorily establish the reality or genuineness of the bank credits. Similarly, the cash deposits explained as medical expenses are partially supported, and therefore Rs.10,26,000/- is allowed as legitimate. Additionally, the interest credited to the savings account amounting to Rs.1,370/- is clearly attributable and is also allowed. The remaining amount of Rs.77,84,184/- (Rs.88,10,554/- minus Rs.10,26,000/- and Rs.1,370/-) remains unexplained, as no adequate documentary evidence or economic rationale has been provided to justify these credits. The appellant’s reliance on medical bills, agreements, and court documents does not sufficiently explain the unexplained portion of the bank credits. The AO has rightly treated these amounts as unexplained money under section 69A read with section 115BBE of the Act. Suspicion arising from unexplained bank credits, together with discrepancies in banking transactions and lack of reconciliation, provides a valid basis for addition under law. Accordingly, the addition is upheld to the extent of Rs.77,84,184/-, while the amounts of Rs.10,26,000/- (medical deposits) and Rs.1,370/- (interest) are allowed. The appeal in respect of Ground 2 is therefore Partly Allowed. 9. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.

10.1 On the strength of the above, the learned AR before us submitted that the credit of Rs. 36.85 lakh and 35 lakh are out of advance against the sale of property duly established from the documentary evidence. Therefore, the addition confirmed by the learned CIT(A) deserves to be deleted.

10.2 Regarding the remaining credit of Rs. 5,98,185/-, the learned AR submitted that the credits do not represent income.

12.1 The major part of the addition sustained by the Ld. CIT(A) relates to the advances of Rs. 36,85,000/- received from Shri D. Surendra Chakravarthy, proprietor of Arunoday Construction, and Rs. 35,00,000/- received from M/s Silver Stone Venture. The assessee has consistently explained that these amounts were received as advances against proposed sale of immovable properties. In support, the assessee furnished copies of the respective sale agreements as well as documents relating to the disputes pending before the Courts. The explanation of the assessee was that because of such disputes, the sale deeds could not be executed and, therefore, the advances continued to remain outstanding.

12.2 We have carefully perused the sale agreement entered into with Shri D. Surendra Chakravarthy, proprietor of Arunoday Construction. We note that the immovable property was agreed to be sold for a total consideration of Rs. 15 crores. Out of the agreed consideration, a sum of Rs. 1 crore was paid as advance through cheque drawn on ICICI Bank and the remaining consideration was payable at the time of registration of the sale deed. The paper book also contains confirmation from Arunoday Construction confirming payment of advance of Rs. 36.85 lakh during the relevant year on different dates through RTGS. Thus, the amount credited in the assessee's bank account cannot be viewed in isolation. It is directly connected to an identified party and an identified transaction supported by the sale agreement and confirmation.

12.3 Similarly, on perusal of the agreement entered into with M/s Silver Stone Venture, a partnership firm, we note that the sale consideration was agreed at Rs. 3.75 crores, against which Rs. 50 lakh was paid as advance through nine different demand drafts dated between 19.07.2016 and 27.07.2016. Therefore, in this case also, the transaction is supported by a written agreement, and the advance was received through banking channels.

12.4 In our view, the Ld. CIT(A) was not justified in rejecting these advances mainly on the ground that the proposed sales were not ultimately completed and the advances were neither recognised as income nor returned to the purchasers. The genuineness and source of a bank credit have to be examined with reference to the facts existing when the amount was received. Merely because the sale deed could not subsequently be executed due to property disputes would not, by itself, convert an otherwise explained advance into unexplained money. In fact, the assessee had specifically explained that the transactions remained pending because disputes concerning the properties were before the Courts and had also furnished supporting documents in this regard.

12.5 We also do not find merit in the observation of the Ld. CIT(A) that the assessee was required to establish that the advances were ultimately realised as income or that the transactions had reached a legally enforceable stage. The issue before the Revenue was the nature and source of the amounts credited in the bank account and not whether the proposed sale was ultimately completed. Once the assessee has identified the persons from whom the advances were received, furnished the agreements showing the underlying property transactions and demonstrated receipt through banking channels, the credits cannot be treated as unexplained merely because the sale transactions remained incomplete.

12.6 Further, the fact that the consideration stated in the agreements is substantially higher than the advances received supports the explanation that the impugned amounts represented part payment towards the proposed property transactions. The Revenue has brought nothing on record to establish that the agreements are false or fabricated, that the identified purchasers denied making the payments, or that the money actually belonged to the assessee and was merely routed back through these parties. In the absence of such contrary materials, the documentary evidence furnished by the assessee cannot be rejected merely on suspicion. Accordingly, considering the sale agreements, the identity of the parties, the agreed sale consideration, the mode of payment and the other supporting materials placed on record, we are satisfied that the assessee has sufficiently explained the nature and source of the advances of Rs. 36,85,000/- received from Arunoday Construction and Rs.35,00,000/- received from M/s Silver Stone Venture. We therefore direct the AO to delete the addition in respect of these two amounts.

12.7 As regards the remaining bank credits of Rs. 5,98,185/-, we note that the assessee had fairly submitted before the Ld. CIT(A) that due to considerable lapse of time and absence of clear narration in the bank statement, the exact nature of these credits could not be identified. However, while considering this issue, an important fact cannot be ignored. In response to the notice issued u/s 148 of the Act, the assessee filed the return of income declaring taxable income from salary for Rs. 50,000/- and House Rent income of Rs. 4,83,594/- only. Thus, the assessee has already offered income of Rs. 5,33,590/- to tax in the return filed pursuant to the reassessment proceedings. While treating the entire unidentified bank credits of Rs. 5,98,185/- as unexplained money, the AO has not examined whether any part of these credits is already represented by, or connected with, the income declared by the assessee. Without carrying out such reconciliation, the entire amount of Rs. 5,98,185/- cannot straightaway be brought to tax as unexplained money, as it may result in taxing the same income twice. Considering these facts, we deem it appropriate to restore this limited issue to the file of the AO. The AO shall verify the nature of the credits aggregating to Rs. 5,98,185/- and reconcile the same with the income already declared by the assessee in the return filed u/s 148 of the Act. To the extent any credit is found to be represented by or attributable to the income already offered to tax, no separate addition shall be made. Only the balance amount, if any, which remains unexplained after such verification may be considered in accordance with law. The assessee shall be given reasonable opportunity to furnish the necessary explanation and supporting details.

12.8 In view of the above, the addition of Rs.36,85,000/- and Rs.35,00,000/- representing advances received against proposed sale of properties is deleted, while the issue relating to the remaining credits of Rs.5,98,185/- is restored to the file of the AO for fresh adjudication. Accordingly, the grounds raised by the assessee are partly allowed for statistical purposes.

Order pronounced in the open court on 21st August, 2026

Sd/- Sd/- KESHAV DUBEY WASEEM AHMED JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore Dated: 21st August, 2026 Vms Copy to: VENU VENKATESH, 419, 12TH CROSS, PALACE UPPER 1 ORCHARDS,, BANGALORE-560080, KARNATAKA INCOME TAX OFFICER, WARD-6(3)(1) , BMTC BUILDING, 80 FEET ROAD, 6TH 2 BLOCK, KORAMANGALA, BANGALORE-560095, KARNATAKA 3 THE PCIT / CIT, 4 THE D.R., ITAT, BANGALORE BENCH 5 GUARD FILE By Order

ASSISTANT REGISTRAR / I.T.A.T., BANGALORE