JAGDISH NARAINDAS CHANDAN ,MUMBAI vs. ITO 24(2)(1) , MUMBAI

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ITA 5450/MUM/2026Status: DisposedITAT Mumbai23 September 2026AY 2017-1813 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the addition of ₹73,70,300 made under section 69A could not be sustained and directed its deletion. The Tribunal found that the assessee had satisfactorily explained the nature and source of the cash deposits. The primary reasoning was that the assessee's consistent explanation was the redeposit of cash previously withdrawn from his disclosed bank accounts, which was supported by documentary evidence including bank statements and the cash book reflecting contra entries. The Tribunal noted that the authorities below had focused on insignificant cash sales and rejected the explanation based on commercial improbability rather than on any positive evidence of alternate utilization or generation of unaccounted cash. The Tribunal emphasized that the acceptability of an explanation under section 69A should be tested against the evidence on record, not merely by substituting the commercial judgment of the authorities. The fungible nature of cash was also considered, and the requirement was to show that adequate cash remained available and there was no material indicating intervening utilization. The Tribunal also noted minor variations in figures but concluded that the disclosed and recorded withdrawals were sufficient to explain the deposits. Consequently, the application of section 115BBE was also directed to be deleted. The initiation of penalty proceedings under section 271AAC and charging of interest under sections 234A, 234B, and 234C were deemed consequential and to be recomputed by the Assessing Officer.

What were the facts?

The assessee, Jagdish Naraindas Chandan, an individual engaged in manufacturing, appealed against the order of the Addl./JCIT(A)-1, Jaipur, for Assessment Year 2017-18. The core issue was the confirmation of an addition of ₹73,70,300 by the Assessing Officer under section 69A, representing cash deposited in bank accounts during the demonetisation period. The assessee's explanation was that these deposits were redeposits of cash previously withdrawn from his disclosed bank accounts for business liquidity. The Assessing Officer rejected this, citing lack of a detailed cash book and insufficient explanation for cash generation, and applied section 115BBE. The CIT(A) upheld the addition, finding no one-to-one linkage between withdrawals and deposits and questioning the commercial prudence of holding large cash amounts.

What were the issues?

1. Whether the cash deposits aggregating to ₹73,70,300 in the assessee's bank accounts during the relevant previous year can be treated as unexplained money under section 69A of the Income-tax Act, 1961, despite the assessee's explanation that it represented redeposits of previously withdrawn funds. Assessee's Contentions: - The authorities below proceeded on an incorrect factual premise, as the assessee had produced all relevant books and supporting records, including bank statements, audited financial statements, tax audit reports, cash book, and purchase/sales registers. - Total cash withdrawals during the year were ₹1,43,96,000, and withdrawals between April and October 2016 alone amounted to ₹86,23,700. The net cash generated from these withdrawals (₹76,12,900) was more than sufficient to explain the deposits made during November and December 2016 (₹59,91,500). - The addition was sustained on conjecture regarding the improbability of retaining cash, without defects in the cash book or proof of utilization elsewhere. - The CIT(A)'s insistence on a one-to-one linkage between withdrawals and deposits overlooks the fungible nature of cash. Revenue's Contentions: - The assessee failed to establish that the cash withdrawn over preceding months actually remained available until the dates of deposit. - Mere existence of earlier withdrawals does not constitute satisfactory proof of cash availability, especially with a substantial interval between withdrawals and deposits. - The addition made under section 69A was justified.

Which sections of the Income-tax Act were involved?

Section 69A,Section 115BBE,Section 271AAC,Section 234A,Section 234B,Section 234C,Section 250,Section 143(1),Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘F’ BENCH

For Appellant: Shri Vimal Punmiya
For Respondent: Shri Dhiraj Kumar, SR DR
Hearing: 22/09/2026Pronounced: 23/09/2026

आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been preferred by the assessee against the order dated 09.04.2026 passed by the learned Addl./JCIT(A)-1, Jaipur, under section 250 of the Income-tax Act, 1961, for the Assessment Year 2017–18. The principal

2 ITA No.5450/Mum/2026 Jagdish Naraindas Chandan grievance raised by the assessee is against the confirmation of addition of ₹73,70,300 made by the Assessing Officer under section 69A of the Act in respect of cash deposited in the bank accounts during the relevant previous year and the consequential application of section 115BBE. The assessee has also challenged the initiation of penalty proceedings under section 271AAC and charging of interest under sections 234A, 234B and 234C of the Act.

2.

The brief facts are that the assessee is an individual carrying on manufacturing activity through his proprietary concern, M/s Chandan Enterprises. The assessee had filed his return of income on 07.11.2017 declaring total income of ₹5,58,750 after claiming deduction of ₹1,60,000 under Chapter VI-A. The return was initially processed under section 143(1) and, thereafter, the case was selected for scrutiny under CASS on the issue of cash deposits made during the demonetisation period. In the course of assessment proceedings, the Assessing Officer noticed that cash aggregating to ₹73,70,300 had been deposited in the bank accounts maintained by the assessee, comprising ₹71,17,365 deposited in the account with Central Bank of India and ₹2,52,935 deposited in the account with Corporation Bank.

3 ITA No.5450/Mum/2026 Jagdish Naraindas Chandan 3. The Assessing Officer called upon the assessee to explain the nature and source of the aforesaid cash deposits. In response, the assessee furnished details of cash withdrawals and deposits, creditors, debtors, loans and advances, and month-wise details of sales and purchases. The specific explanation of the assessee was that substantial amounts had been withdrawn from his disclosed bank accounts during the period from April 2016 to October 2016, primarily for maintaining liquidity and meeting the immediate requirements of his manufacturing business. Consequent upon the announcement of demonetisation on 08.11.2016, the cash remaining available out of such withdrawals was deposited back into the banking channel. It was further stated that the withdrawals and corresponding deposits were recorded in the regular books of account as contra entries and, therefore, the deposits did not represent any fresh or undisclosed income.

4.

The Assessing Officer, however, did not accept the explanation. According to him, the assessee had not furnished a cash book containing narration of the relevant entries or demonstrated the precise purpose for which the earlier cash withdrawals had been made. He further observed that the cash sales of the assessee during the relevant year were only ₹84,176 and that, since most of the business transactions were carried out on credit, there was no

4 ITA No.5450/Mum/2026 Jagdish Naraindas Chandan sufficient source for generation of such substantial cash. Proceeding on this basis, he held that the source and nature of the deposits remained unexplained and treated the entire amount of ₹73,70,300 as unexplained money under section 69A. The said amount was also subjected to tax under section 115BBE, and penalty proceedings under section 271AAC were initiated separately. The assessment was accordingly completed under section 143(3) vide order dated 25.12.2019 at a total income of ₹79,29,050.

5.

Before the learned CIT(A), the assessee reiterated that the source of the deposits was not the cash sales made during the year but the amounts previously withdrawn from his own disclosed bank accounts. It was submitted that the assessee was engaged in manufacturing spare parts for corporate entities, including Mahindra & Mahindra, and was required to maintain liquidity for meeting business exigencies and completing orders within the prescribed timelines. The assessee also relied upon the bank statements, cash book and month-wise statement of withdrawals and deposits and submitted that the corresponding transactions stood recorded in the regular books as contra entries. The learned CIT(A), however, declined to accept the explanation, primarily on the ground that the assessee had not established a one-to-one linkage between the earlier withdrawals and the subsequent deposits and had not satisfactorily shown that the cash

5 ITA No.5450/Mum/2026 Jagdish Naraindas Chandan withdrawn during the preceding months continued to remain available until its redeposit. The learned CIT(A) also observed that a person having access to banking facilities would ordinarily have transferred the funds to another bank instead of withdrawing and retaining such a substantial amount in cash. The addition was accordingly confirmed.

6.

Before us, the learned counsel submitted that the authorities below had proceeded on an incorrect factual premise that the assessee had not produced the relevant books and supporting records. Our attention was drawn to the index of the paper book, which contains, inter alia, the return and computation of income, audited balance sheet and profit and loss account, tax audit report in Forms 3CB and 3CD, VAT and CST returns with the VAT audit report, corresponding audited accounts for the preceding year, statement of cash withdrawn and deposited during the year, cash book for the relevant assessment year, purchase and sales registers, sample purchase and sales invoices and the relevant bank statements. The index is accompanied by a specific certificate that all these documents had been filed before the Assessing Officer as well as the learned CIT(A) during the respective proceedings.

7.

The learned counsel further drew our attention to the month-wise statement of cash withdrawals and deposits and

6 ITA No.5450/Mum/2026 Jagdish Naraindas Chandan submitted that the total cash withdrawals during the year amounted to ₹1,43,96,000, whereas the total deposits reflected in the statement amounted to ₹73,82,300. It was emphasised that, between April and October 2016, the assessee had withdrawn ₹86,23,700 from his bank accounts, whereas the cash deposited during the same period amounted to only ₹10,10,800. Thus, before the announcement of demonetisation, the net cash generated from the disclosed bank withdrawals was ₹76,12,900, which was more than sufficient to explain the deposits of ₹59,91,500 made during November and December 2016. It was accordingly submitted that the addition had been sustained merely on conjecture regarding the alleged improbability of retaining cash and without pointing out any defect in the cash book or demonstrating that the withdrawn amount had been utilised elsewhere.

8.

The learned Departmental Representative, on the other hand, relied upon the orders of the authorities below and submitted that the assessee had failed to establish that the cash withdrawn over the preceding months had actually remained available until the dates of deposit. According to him, mere existence of earlier withdrawals could not, by itself, constitute satisfactory proof of availability of cash, particularly when a substantial interval existed between the

7 ITA No.5450/Mum/2026 Jagdish Naraindas Chandan withdrawals and the deposits. He accordingly submitted that the addition made under section 69A was justified.

9.

We have heard the rival submissions and perused the relevant material placed before us. The central issue is whether the cash deposited in the bank accounts can be regarded as unexplained money under section 69A despite the assessee’s explanation that it represented redeposit of cash previously withdrawn from his disclosed bank accounts and duly reflected in his regular books. At the outset, it needs to be observed that the assessee has never sought to explain the impugned deposits by reference to cash sales. His consistent explanation is that the source was the cash withdrawn from his own bank accounts during the preceding months. Therefore, the repeated reference by the Assessing Officer and the learned CIT(A) to the comparatively insignificant cash sales does not address the explanation actually furnished by the assessee and proceeds on an altogether different premise.

10.

The documentary position, as emerging from the records, also assumes considerable significance. The paper-book index records that the assessee had furnished before the authorities below not only the relevant bank statements but also the audited financial statements, tax audit report, cash book, month-wise statement of withdrawals and deposits, purchase

8 ITA No.5450/Mum/2026 Jagdish Naraindas Chandan and sales registers, and supporting invoices. The index further carries a categorical certificate that these documents were filed before both the Assessing Officer and the learned CIT(A). This is at variance with the observation in the appellate order that the assessee had produced only the bank statements and had failed to produce the cash book, sales register and purchase register. Neither the Assessing Officer nor the learned CIT(A) has identified any particular entry in the cash book as false or unreliable, nor has any defect been found in the audited books of account.

11.

The month-wise movement of cash, in so far as relevant to the period preceding and immediately following demonetisation, can be summarised as under:

Particulars Amount Cash withdrawn from April to ₹86,23,700 October 2016 Cash deposited from April to ₹10,10,800 October 2016 Net cash generated from ₹76,12,900 disclosed bank withdrawals up to October 2016 Cash deposited during ₹59,91,500 November and December 2016 Excess of net preceding ₹16,21,400 withdrawals over November– December deposits

9 ITA No.5450/Mum/2026 Jagdish Naraindas Chandan 12. The aforesaid figures demonstrate that the net cash withdrawn from the disclosed bank accounts before the announcement of demonetisation was more than sufficient to meet the cash deposited during November and December 2016. The withdrawals are not disputed by the Revenue and stand corroborated by the bank statements. The corresponding movement is stated to have been recorded in the cash book by way of contra entries. Significantly, no material has been brought on record to establish that the cash so withdrawn was subsequently expended, invested, advanced or otherwise utilised before its redeposit. The rejection of the explanation rests substantially upon the perception that it was commercially improbable for the assessee to retain such a large amount in cash when normal banking facilities were available.

13.

In our considered view, the acceptability of an explanation under section 69A has to be tested with reference to the evidence brought on record and not merely by substituting the commercial judgment of the authority for that of the assessee. An assessee may adopt a course which, viewed retrospectively, may appear commercially imprudent or unusual; but that circumstance, by itself, does not establish that the recorded withdrawals ceased to remain available or that the subsequent deposits necessarily emanated from an undisclosed source. Once substantial withdrawals from

10 ITA No.5450/Mum/2026 Jagdish Naraindas Chandan disclosed bank accounts are established and the cash account reflects continued availability of funds, the explanation cannot be rejected merely because the assessee retained the cash for a period of time. For drawing an adverse inference, there must be some material demonstrating that the withdrawn amount had been exhausted or deployed elsewhere. No such material has been brought on record in the present case.

14.

The insistence of the learned CIT(A) upon a precise one- to-one linkage between every withdrawal and every subsequent deposit also overlooks the fungible character of cash. The assessee cannot reasonably be required to establish that the very same currency notes withdrawn on particular dates were deposited subsequently. What is required to be examined is whether the withdrawals were genuine, whether they were reflected in the books, whether adequate cash remained available on the dates of deposit and whether there is any material indicating its intervening utilisation. On all these material aspects, the documentary evidence supports the explanation of the assessee, whereas the conclusion of the authorities below does not emanate from any positive evidence of alternate utilisation or generation of unaccounted cash.

11 ITA No.5450/Mum/2026 Jagdish Naraindas Chandan 15. There is also an apparent variation in the different figures appearing in the record. While the Assessing Officer adopted deposits of ₹73,70,300, the month-wise statement reflects aggregate deposits of ₹73,82,300, and the written submission refers to ₹63,71,500 as the amount deposited during the relevant period. However, this variation does not sustain the impugned addition because the Assessing Officer has treated the deposits made during the entire year as unexplained, whereas the same month-wise statement reflects total cash withdrawals of ₹1,43,96,000 during the year. Even for the period preceding demonetisation, the net withdrawals available up to October 2016 were ₹76,12,900, which exceeded the deposits made during November and December 2016. Whichever of the figures is taken as representing the precise amount deposited during the specified period, the disclosed and recorded withdrawals were sufficient to explain it. The numerical variation may call for a consequential arithmetical reconciliation, but it cannot convert an otherwise explained and recorded movement of funds into unexplained money under section 69A.

16.

Section 69A applies where the assessee is found to be the owner of money which is not recorded in the books of account, if any, maintained by him, and the assessee either offers no explanation regarding its nature and source or the explanation offered is found unsatisfactory. In the present

12 ITA No.5450/Mum/2026 Jagdish Naraindas Chandan case, the source has been specifically identified as the earlier withdrawals from the assessee’s own disclosed bank accounts; the transactions are supported by the bank statements; and the withdrawals and deposits are reflected in the regular cash book as contra entries. No defect has been pointed out in those entries and the books have not been rejected. Thus, the foundational facts necessary for invoking section 69A have not been established. The conclusion that the deposits represented unexplained money is, therefore, unsupported by the documentary record.

17.

Accordingly, we hold that the assessee had satisfactorily explained the nature and source of the cash deposited in the bank accounts and the addition of ₹73,70,300 made under section 69A cannot be sustained. The same is directed to be deleted. Consequently, the application of section 115BBE in respect of the said addition also does not survive. The grounds raised by the assessee on this issue are accordingly allowed.

18.

In so far as the ground challenging initiation of penalty proceedings under section 271AAC is concerned, the same is premature at this stage and does not call for any separate adjudication. In any event, in view of deletion of the underlying addition, the matter would necessarily be governed by the consequential effect of this order. Charging of

13 ITA No.5450/Mum/2026 Jagdish Naraindas Chandan interest under sections 234A, 234B and 234C is also consequential and the Assessing Officer shall recompute the same, if any, while giving effect to this order.

19.

In the result, the appeal of the assessee is allowed.

Order pronounced on 23rd September, 2026.

Sd/- Sd/- (MAKARAND VASANT (AMIT SHUKLA) MAHADEOKAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 23/09/2026 KARUNA, sr.ps

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy//

BY ORDER,

(Asstt. Registrar) ITAT, Mumbai

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