RAMASAMY SIVASANKAR,TIRUPUR vs. ITO, WARD 1(4), TIRUPUR, TIRUPUR

ITA 1831/CHNY/2025Status: DisposedITAT Chennai08 October 2026AY 2017-189 pages
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What did the Tribunal hold?

The Tribunal found that the Assessing Officer had not afforded a reasonable opportunity to the appellant to explain the circumstances under which cash payments were made before invoking section 40A(3). Furthermore, the AO was not justified in treating the difference between the profit and loss account turnover and bank credits as business turnover without establishing a nexus between the cash deposits and the appellant's business. To meet the ends of justice, the Tribunal decided that the matter requires remand to the Assessing Officer for de novo assessment after providing an opportunity of being heard to the appellant. The Tribunal did not decide the specific additions on merits but remanded the case for fresh consideration. The issue of non-provision of satisfaction note under section 151 was not explicitly decided.

What were the facts?

The assessee, Ramasamy Sivasankar, is an individual engaged in the business of manufacturing and sale of hosiery garments. For Assessment Year 2017-18, no regular return was filed. The Assessing Officer (AO) issued a notice under section 148 for income escaping assessment, based on information of cash deposits and withdrawals. The assessee did not comply. Subsequently, the AO disallowed Rs. 30,39,900/- under section 40A(3) for cash payments to M/s. K.P.R. Mills and added Rs. 70,09,871/- as unexplained cash deposits. The Commissioner of Income Tax (Appeals) [NFAC] confirmed these additions. The assessee filed an appeal before the ITAT, Chennai Bench, with a delay of 23 days, which was condoned.

What were the issues?

1. Whether the disallowance of Rs. 30,39,900/- under section 40A(3) for cash payments made to M/s. K.P.R. Mills is justified, given that the payments were made due to business exigencies and the genuineness of the expenditure is not in question? The assessee argued that the AO and CIT(A) were not justified in sustaining the disallowance, as the payment was a genuine business transaction and the AO did not deny this fact. The assessee relied on judicial pronouncements stating that section 40A(3) has no application if the genuineness of expenditure is not in question, citing the case of Thomson Granites Pvt. Ltd. Vs. ACIT. The revenue contended that the assessee failed to substantiate that the cash payment was covered by exceptions under Rule 6DD and did not provide documentary evidence. 2. Whether the addition of Rs. 70,09,871/- as unexplained cash deposits is justified, and if the 'Peak Credit' concept should be adopted? The assessee argued that the difference between total cash deposits and turnover should not be treated as income, as earlier cash withdrawals were used for subsequent deposits. Therefore, the AO should have adopted the 'Peak Credit' concept, which would result in an addition of only Rs. 5,70,132/-. The revenue argued that the assessee did not provide documentary evidence to correlate withdrawals and deposits, thus the peak credit theory does not arise, relying on CIT vs. Ashok Kumar.

Which sections of the Income-tax Act were involved?

Section 40A(3),Section 69,Section 151,Section 148,Section 139,Section 142(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, CHENNAI BENCHES,

Before: SHRI INTURI RAMA RAO & SHRI MANU KUMAR GIRI

Pronounced: 08.10.2026

PER INTURI RAMA RAO, ACCOUNTANT MEMBER :

This is an appeal filed by the Assessee directed against the order passed by learned Commissioner of Income Tax(Appeal)[NFAC] dated 07.03.2025 passed u/s.250 of the Income Tax Act, 1961 for the Assessment Year 2017-18. 1 RAMASAMY SIVASANKAR

2.

The Assessee raised the following grounds of appeal :

“1. On the facts and circumstances of the case the order of first appellate authority dated 07.03.2025 in dismissing the appeal of the ap

The order continues below.

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