VALAR ADITI SOCIAL FINANCE PVT. LTD.,MADURAI vs. DCIT, CORP. CIRCLE,, MADURAI

आदेश / O R D E R

PER MANU KUMAR GIRI, JM:

The captioned appeal filed by the Assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi, [CIT(A)] dated 20.02.2026 for Assessment Year 2017-18. 2. The assessee has raised the following grounds of appeal: 1. The order of the Commissioner of Income Tax (Appeals) NFAC dismissing the appeal is contrary to law, erroneous and unsustainable on the facts of the case. 2. The CIT(A) NFAC erred in confirming the addition of Rs. 1,61,34,000/- under sec.68 of the Act.

ITA No. 1215/Chny/2026 (A.Y. 2017-18) Valar Aditi Social Finance Pvt. Ltd. Vs DCIT, CC :: 2 :: 3. The CIT(A) NFAC failed to appreciate that the Earnest Monthly Instalments (EMIS) repaid by the borrowers in cash and duly deposited in the Bank Account cannot be construed as the unexplained credit of the assessee. 4. The CIT(A) NFAC further failed to appreciate that assessee is engaged in inclusive financial service for women in rural areas and catering to the lower and middle strata of society, who make all the repayments compulsory in cash and duly recorded in the books of assessee and hence confirming the addition made as unexplained credit is wholly unjustified and unsustainable on the facts of the case. 5. The CIT(A) NFAC further failed to appreciate that the entire activity of extending credit facility and the repayment of amounts by borrowers in EMIs is diligently recorded in the books of assessee and confirming the addition was only on surmises and conjectures. 6. The CIT(A) NFAC further failed to appreciate that assessee is a RBI recognised micro finance and due diligence carried out by a RBI approved body and hence there is perfect record keeping of the lending and recovery of amounts and the addition u/s.68 is wholly unjustified. 7. The CIT(A) NFAC further failed to appreciate that in the scrutiny assessment, details were called for to examine the SBNs of Rs.49,11,500/- deposited in the bank a/c during demonetisation period and were duly submitted by assessee in the e-proceedings, whereas addition was made of non-SBNs also and hence confirming the erroneous addition is unjustified on the facts of case. 8. The CIT(A) NFAC was not justified in concluding that assessee had not provided the correlation between cash collected and borrowers, on the contrary, assessee had uploaded all the requisite details both in the assessment stage and in the appeal hearing and therefore the confirmation of addition on this score was totally wrong and unjust. 9. The CIT(A) NFAC further failed to appreciate that assessee had clearly provided the bifurcation of cash on hand versus new currency and SBNs in the e-proceedings and the addition is confirmed on a non- application of the mind to the entire data provided by assessee and therefore the addition needs to be deleted in toto. 10. The CIT(A) NFAC further failed to appreciate assessee has provided voluminous data on names and addresses of the borrowers who are entirely women from rural areas and that the onus on the assessee of proving the identity and genuineness of payments is fully discharged and therefore the addition cannot be confirmed merely on surmises. 11. The CIT(A) NFAC, in any event, ought to have seen that both in the assessment stage and appellate stage, assessee had furnished the details to substantiate the source of the deposits in the Bank including the SBNs and the addition wrongly made ought not to have been confirmed. 12. The CIT(A) NFAC, in any view of the matter, ought to have considered the contentions of assessee in the proper perspective

ITA No. 1215/Chny/2026 (A.Y. 2017-18) Valar Aditi Social Finance Pvt. Ltd. Vs DCIT, CC :: 3 :: and deleted the addition entirely and accepted income returned by assessee. 2.1 The brief facts of the case are that the assessee, Valar Aditi Social Finance Private Limited, is a Non-Deposit accepting Non- Banking Financial Company (NBFC) registered with the Reserve Bank of India and is engaged in the business of micro-financing activities primarily catering to women belonging to rural and economically weaker sections of society. The assessee extends micro-credit facilities through community-based groups and derives income from interest on loans and processing charges.

2.2 For the assessment year (AY) 2017-18, the assessee filed its return of income declaring a total income of Rs.79,04,277/-. The case was selected for scrutiny under CASS. During the course of assessment proceedings, the Assessing Officer (AO) examined cash deposits made by the assessee in its bank accounts during the demonetisation period. In response to notices issued u/s.143(2) and 142(1) of the Act, the assessee furnished details of month-wise cash collections, branch-wise cash deposits, details of cash collected during the demonetisation period, consolidated cash book, annual report and explanations regarding the source of cash deposits.

2.3 The assessee explained that it was engaged in micro-finance activities and that the deposits represented EMI collections and processing fees received from borrowers in cash in the ordinary course of business. It was further explained that the collections were made through various branches and deposited into the respective bank accounts. The Assessing Officer observed that the assessee had admitted receipt of EMI collections and processing fees in demonetised currency during the demonetisation period. According to him, the assessee was not authorized to receive and

ITA No. 1215/Chny/2026 (A.Y. 2017-18) Valar Aditi Social Finance Pvt. Ltd. Vs DCIT, CC :: 4 :: deal in SBNs after the demonetisation notification. He held that the cash deposits made during the demonetisation period represented unexplained money and treated the entire sum of Rs.1,61,34,000/- deposited during the relevant period as unexplained cash credit u/s. 68 of the Act. Accordingly, the said amount was added to the total income of the assessee.

Now assessee is in appeal before us.

ITA No. 1215/Chny/2026 (A.Y. 2017-18) Valar Aditi Social Finance Pvt. Ltd. Vs DCIT, CC :: 5 :: 4. The ld. Authorised Representative (AR) submitted that the very foundation of the addition is legally unsustainable. The AO invoked section 68 of the Act even though the alleged addition related to cash deposits in bank accounts and not to any unexplained cash credits appearing in the books of account. It was submitted that the provisions of section 68 are therefore inapplicable on the admitted facts. It was further contended that the ld.CIT(A) travelled beyond the assessment order and sustained the addition u/s.69A of the Act without issuing any specific show cause and without satisfying the statutory requirements of that provision. The assessee submitted that section 69A can be invoked only where money is found to be owned by the assessee and is not recorded in the books of account. In the present case, every receipt and every deposit were duly recorded in the regular books maintained by the assessee. Therefore, the basic condition for invoking section 69A was absent.

4.1 On merits, the ld.AR submitted that the assessee is an RBI registered micro-finance institution catering to thousands of rural women borrowers whose repayments are predominantly made in cash. The EMI collections and processing fee receipts are part of the regular business activity of the assessee and are systematically recorded branch-wise in its books. Detailed cash books, collection registers, branch-wise deposit statements and comparative cash collection data for earlier years were furnished before both the lower authorities. It was further submitted that cash deposits were a regular feature of the assessee’s business and similar cash collections and deposits were made throughout the year and in preceding years. Therefore, the observation of the ld.CIT(A) regarding sudden influx of cash was factually incorrect. It was also

ITA No. 1215/Chny/2026 (A.Y. 2017-18) Valar Aditi Social Finance Pvt. Ltd. Vs DCIT, CC :: 6 :: pointed out that the denomination-wise details obtained from the bank clearly established that actual SBN deposits were only Rs.49,11,500/- whereas the AO wrongly treated the entire cash deposit of Rs.1,61,34,000/- as SBN deposits.

4.2 The ld. AR therefore submitted that the assessee had discharged the burden cast upon it by establishing the source of cash deposits and that the addition was made merely on suspicion and surmises without bringing any adverse material on record.

ITA No. 1215/Chny/2026 (A.Y. 2017-18) Valar Aditi Social Finance Pvt. Ltd. Vs DCIT, CC :: 7 :: 6.1 At the outset, we find merit in the contention of the assessee that the addition made u/s.68 of the Act is misconceived. Section 68 applies where any sum is found credited in the books of account of the assessee and the assessee fails to explain the nature and source thereof. In the present case, the addition has not been made with reference to any unexplained credit entry in the books but solely on account of cash deposits made in bank accounts during the demonetisation period. Therefore, invocation of section 68 on the facts of the present case is legally untenable.

6.2 We further find that the ld.CIT(A), while confirming the addition, shifted the basis of the addition from section 68 to section 69A. However, section 69A can be invoked only where the assessee is found to be the owner of money which is not recorded in the books of account maintained by him. In the present case, the Revenue has nowhere disputed that the cash collections and deposits were recorded in the regular books of account of the assessee. On the contrary, the assessee had furnished consolidated cash books, collection registers, branch-wise cash deposit details and supporting records before the authorities below. Therefore, the essential requirement for invoking section 69A is conspicuously absent.

6.3 We also note that the assessee consistently explained that the deposits represented EMI collections and processing fees received from borrowers in the ordinary course of its micro-finance business. The assessee furnished supporting records including month-wise cash collections, branch-wise deposits and comparative figures relating to earlier years. The Revenue has not brought any material on record to establish that the cash deposits represented income from undisclosed sources. No enquiry appears to have been

ITA No. 1215/Chny/2026 (A.Y. 2017-18) Valar Aditi Social Finance Pvt. Ltd. Vs DCIT, CC :: 8 :: conducted with any borrower nor has any discrepancy been pointed out in the books of account maintained by the assessee. The observations of the ld.CIT(A) regarding a sudden influx of cash are not borne out from the material placed before us. The comparative statements demonstrate that cash collections and deposits were regular business features of the assessee across different periods and years. Mere cash deposits during the demonetisation period, without any corroborative evidence indicating introduction of unaccounted money, cannot justify an addition.

6.4 We further find force in the contention of the assessee that actual SBN deposits, as evidenced by bank records, amounted to Rs.49,11,500/- whereas the AO proceeded on the assumption that the entire cash deposit of Rs.1,61,34,000/- represented SBNs. This fundamental factual error has remained unaddressed by the authorities below.

6.5 The Revenue has proceeded entirely on suspicion arising out of the timing of the deposits during the demonetisation period. Suspicion, however strong, cannot take the place of evidence. Once the assessee furnished a plausible explanation supported by books of account and business records and the Revenue failed to rebut the same by bringing any contrary material on record, no addition could be sustained either u/s. 68 or u/s. 69A of the Act.

6.6 We also find support for the above conclusion from the following judgments u/s. 68 and 69A of the Act:

i. Commissioner of Income-tax vs. Taj Borewells [2007] 291 ITR 232 (Madras)/[2007] 210 CTR 543 (Madras)[02-04-2007]; ii. CIT v. Orissa Corporation Pvt. Ltd. (1986) 159 ITR 78 SC;

ITA No. 1215/Chny/2026 (A.Y. 2017-18) Valar Aditi Social Finance Pvt. Ltd. Vs DCIT, CC :: 9 :: iii. Commissioner of Income-tax vs. Smt. P.K. Noorjahan [1999] 103 Taxman 382 (SC)/[1999] 237 ITR 570 (SC)/[1999] 155 CTR 509 (SC)[15-01-1997]; iv. Mehta Parikh & Co. vs. Commissioner of Income-tax [1956] 30 ITR 181 (SC)[10-05-1956].

6.7 Considering the entirety of the facts and circumstances, we hold that the assessee has satisfactorily explained the nature and source of the cash deposits. The addition of Rs.1,61,34,000/- sustained by the ld.CIT(A) is therefore unsustainable in law and on facts. Accordingly, the addition of Rs.1,61,34,000/- is directed to be deleted.

Sd/- Sd/- (प�ावती एस) (मनु कुमार िग#र) (PADMAVATHY S) (MANU KUMAR GIRI) लेखा सद%या/ACCOUNTANT MEMBER &या�यक सद%य/JUDICIAL MEMBER

चे&नई/Chennai, (दनांक/Dated: 19th June, 2026. SNDP, Sr. PS

आदेश क� ��त)ल*प अ+े*षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF