PALANIYAPPAN PALANIVEL,NAMAKKAL vs. DCIT, CIRCLE-1,, ERODE

ITA 1543/CHNY/2026Status: DisposedITAT Chennai05 October 2026AY 2017-1812 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal condoned the delay of 110 days in filing the appeal, finding that the assessee had provided a reasonable and sufficient cause, and a liberal interpretation of 'sufficient cause' was warranted to advance substantial justice. On the merits, the Tribunal held that the addition of Rs.1,03,22,956/- was not sustainable. The Tribunal reasoned that the AO had accepted the books of account for determining the opening cash balance and was therefore required to examine subsequent cash inflows and corresponding business transactions. Since the AO had not rejected the books of account or brought on record material to establish that the sales transactions were fictitious or that the deposits represented amounts from undisclosed sources, the explanation furnished by the assessee could not be rejected solely because the deposits were made in SBNs during demonetization. The Tribunal relied on the principles laid down in the case of TASMAC, emphasizing that the nature and source of deposits should be explained with reference to regular business transactions. The Tribunal found that the assessee had satisfactorily explained the source of deposits as arising from cash sales and realization of trade receivables, duly recorded in the books. Consequently, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition of Rs.1,03,22,956/-. The alternative contention regarding the enhanced rate of tax became academic and was left undecided.

What were the facts?

The assessee, Palaniyappan Palanivel, filed an appeal before the ITAT, Chennai, against the order of the CIT(A), NFAC, Delhi, for Assessment Year 2017-18. The appeal was filed with a delay of 110 days. The Assessing Officer (AO) treated a sum of Rs.1,03,22,956/-, representing cash deposited in Specified Bank Notes (SBNs) during demonetization, as unexplained cash credit under Section 68 of the Income-tax Act, 1961. The AO had accepted an opening cash balance of Rs.63,08,544/- but was not satisfied with the explanation for the remaining deposits. The CIT(A) deleted an ad hoc disallowance of Rs.10,00,000/- on growing charges but sustained the addition of Rs.1,03,22,956/-.

What were the issues?

1. Whether the delay of 110 days in filing the appeal by the assessee should be condoned, considering the explanation provided for the delay? (Question of procedure) 2. Whether the addition of Rs.1,03,22,956/- as unexplained cash credit under Section 68 of the Income-tax Act, 1961, is sustainable, when the assessee claims the deposits represent realization of cash sales and outstanding trade receivables duly recorded in the books of account? (Question of law and fact) Assessee's Contentions: - The cash deposited was generated from regular business activities, including cash sales and realization of trade receivables, which were recorded in the books of account. - The AO had not rejected the assessee's books of account, and therefore, the subsequent realization of sales proceeds could not be treated as unexplained cash credit. - Treating the deposits as unexplained would lead to taxing the same business receipts twice. Revenue's Contentions: - The judgment does not explicitly record the revenue's contentions regarding the addition of Rs.1,03,22,956/-. However, it is implied that the revenue supported the AO's action of treating the deposits as unexplained cash credit.

Which sections of the Income-tax Act were involved?

Section 68,Section 143(3)

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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI

Before: SHRI MANU KUMAR GIRI & SHRI S. R. RAGHUNATHA

Hearing: 15.07.2026Pronounced: 05.10.2026

PER S. R. RAGHUNATHA, AM : The present appeal of the assessee is directed against the order dated 18.09.2025 of the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi (hereinafter referred to as the “Ld.CIT(A)”), arising out of the assessment order dated 29.12.2019 passed u/s.143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) by the Assistant Commissioner of Income

The order continues below.

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