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Facts
The assessee, an individual engaged in the business of diamonds, filed an income tax return for AY 2017-18, declaring Rs. 83,670. The case was selected for scrutiny as the assessee had deposited Rs. 10 lakhs in old currency notes during the demonetization period and had not filed the return by the due date.
Held
The Tribunal held that the lower authorities failed to objectively consider the material brought on record by the assessee, which established that the assessee had cash in hand, reflected in his books of account for the preceding years, sufficient to cover the deposit made during the demonetization period. Therefore, the addition made under Section 69A was not legally sustainable.
Key Issues
Whether the cash deposits made during the demonetization period are to be treated as unexplained income under Section 69A, when the assessee has provided evidence of sufficient cash in hand from previous years.
Sections Cited
250, 142(1), 139, 144(1)(b), 69A, 115BBE
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Income Tax Appellate Tribunal, MUMBAI BENCH “K (SMC
Before: SHIR OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN
O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is filed by the appellant/assessee against the order of Ld. Commissioner of Income Tax (Appeals) / Addl./JCIT (A)-2 Gurugram [hereinafter referred to as the “CIT(A)”], passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] dated Page | 1
The brief facts as culled out from the proceedings of lower authorities are that the assessee being an individual is carrying business of Rough Cut and Polished the Diamond under the name of M/s. Supra Diamond for the several years. The assessee has filed the Return of Income for AY 2017-18 on 25.06.2019 determining the total Return of Income of Rs 83,670/-. The case was selected for scrutiny and notice u/s. 142(1) of the Act was issued. The assessee was required to furnish the return of income prescribed under Rule 12 of the Income Tax Rules 1962 on or before 31.03.2018. But the assessee has failed to furnish the return of income for AY 2017-18 either u/s 139 on or before 31.03.2018 and also failed to furnish the return of income in response to the notice issued u/s 142(1) of the Act.
The income tax department gathered the list of assessee who had deposited the substantial cash in bank accounts during the demonetization period i.e. 9th November 2016 to 30th December 2016, but have not filed the income tax return for AY 2017-18. It was revealed Bhavangkumar Bharatchandra Shah that the assessee has deposited cash in his bank account during the demonetization period in old currency as per following details:- Sr. No. Name & Address of Bank Account Date of Cash deposit Bank Deposit (Rs.) 1. Bank of India, 4701100005594 17.11.2016 5,00,000/- Walkeshwar, Mumbai 2. -do- -do- 24.11.2016 3,00,000/- 3. -do- -do- 24.11.2016 2,00,000/- 10,00,000/- 4. Thus it is evident that assessee has made cash deposits of Rs. 10 lakhs in between 9th November 2016 to 30th December 2016 during the FY 2016- 17 relevant to AY 2017-18, therefore the source of cash deposits made in old currency remained unexplained. Accordingly the best judgment assessment u/s 144(1)(b) of the Act was carried out. During the said assessment, notice u/s 142(1) of the Act dated 13.03.2018 was issued and proceeding were conducted through e-proceeding and 5 notices were issued to the assessee wherein notice dated 24.05.2019, 23.08.2019 and 13.09.2019 were responded by the assessee. In compliance to the notice dated 13.09.2019, the assessee has e-filed income tax return on 25.06.2019 declaring total income at Rs. 83,670/-.
The assessee has failed to furnish any details relating to business activities undertaken by the assessee, nature of income earned, details of bank accounts, details of cash deposits made in the bank account, Page | 3 Bhavangkumar Bharatchandra Shah sources of cash deposits, details of cash deposits made during the demonetization period and pre & post demonetization period alongwith sources thereof. Since the assessee did not respond to show cause notice dated 13.03.2019 and further the case was finally fixed on 20.09.2019, the AO proceeded to complete the best judgment assessment on the basis of material /evidences gathered during the assessment proceedings. On the basis of information gathered from the concerned banks where the cash was deposited by the assessee, it was noticed that the assessee has received credit entries and made cash deposits, but has not filed the income tax return and not offered income from its activities and not paid taxes due on.
As per the details provided by the assessee, the assessee had deposited cash in old currency notes of denomination of Rs. 500/- and Rs. 1000/- valued to Rs. 10 lakhs which were withdrawn. The sources of deposits of old currency notes (SBNs) were not explained. The AO observed that the cash deposits made in the bank accounts during FY 2016-17 relevant to AY 2017-18, especially during demonetization period are unexplained and from undisclosed sources and the same was not offered for taxation purposes. Therefore, the provision of section 69A is clearly attracted.
Bhavangkumar Bharatchandra Shah Since the assessee has failed to give any explanation about the nature and source of cash deposits, the value of the cash deposits during the demonetization period was deemed as unexplained money u/s 69A of the Act and sum of Rs. 10 lakhs was added to the total income of the assessee and the income was assessed to be taxed u/s 115BBE of the Act at the rate of 60%.
Being aggrieved, the assessee preferred the appeal before Ld. CIT(A) who in turn confirmed the order of AO and dismissed the appeal of the assessee.
Aggrieved by the impugned order, the assessee preferred the appeal before us raising the following grounds:-
The Ld. AO and the Hon’ble CIT(A) failed to appreciate the fact that the appellant had deposited the cash during demonetization period, out of his own cash in hand.
2. The Ld. AO erred in making the addition and the Hon’ble CIT(A) erred in confirming the addition of Rs. 10,00,000/- without appreciating the facts and circumstances of the case.
The appellant craves leave to add, alter or amend the above grounds of appeal, as the occasion may demand or circumstances may require.
Relief claimed
We have heard Ld. AR and Ld. DR and examined the record. At the very outset, Ld. AR submitted on behalf of the assessee that the assessee has filed 2 paper books i.e. Paper Book 1 and Paper Book 2. Paper book 1 is filed on 27.05.2025 containing pages 1 to 25 and the same has been filed containing the ITR of previous assessment year to establish that the cash in hand was available in the previous year which was deposited in the relevant assessment year during the demonetization period. Paper book 2 is filed on 13.03.2025 containing 117 pages and it has been filed to show the entire details and sources of cash deposit during the demonetization period alongwith sources of expenditure made by the assessee during the assessment year for his personal and household items /goods in order to justify the cash in hand was available for depositing the same during the demonetization period on account of SBN required to be deposited as the same ceased to be valid legal tender /currency.
Ld. AR brought to our notice at page 11 of the Paper book 1, containing ITR for AY 2014-15 filed on 30.07.2014 and also referred to Bhavangkumar Bharatchandra Shah page no. 15 of the Paper Book 1 wherein the statement attached to and the balance sheet as on 31.03.2014 showing the cash in hand of Rs. 10,18,379.92/-. Similarly for the AY 2015-16, Ld. AR referred at page no. 5 of the Paper book 1 which is balance sheet as on 31.03.2015 and in page 6, the cash in hand is shown at Rs. 10,15,880/-. As per the balance sheet as on 31.03.2015 which is at page no. 10 of the Paper book 1, the further cash in hand is shown at Rs. 4,81,985.15/- in assessee’s individual account.
With respect to AY 2016-17, Ld. AR has referred to page 79 of the Paper book 2 wherein the statement attached to and forming part of balance sheet as on 31.03.2016 showing cash in hand at Rs. 10,15,879.92/- in the name of M/s Supra Diamonds. Ld AR also referred at page 39 of the Paper book 2, showing the ITR for AY 2016-17 and page no. 73 of Paper book 2 containing statement attached to and forming part of balance sheet as on 31.03.2016 in respect of capital accounts of the assessee showing the personal expenditure has been made from the mentioned sources and the cash in hand for the relevant assessment year was available which was deposited during the demonetization period. Ld. AR also referred page 37 to 38 of the Paper book 2 containing the reply to Bhavangkumar Bharatchandra Shah the AO stating therein the copy of return filed for AY 2016-17, copy of balance sheet, bank account statement for the period 01.04.2015 to 31.03.2018 and explanation to the details of cash deposited. With regard to explanation to the details of cash deposited, the Ld. AR relied on the explanation of the assessee that “We usually require cash in hand to for undertaking clearing and forwarding's (including transportation) and other local transactions which are made hand to hand, also due to ill health (being a heart patient) of my father Mr. Bharat chandra Shah, we always find it safe to keep a enough cash in hand. As per the Balance sheet of Supra Diamond for the year ended 31 March 2016 the cash in hand was Rs. 10,15,879/-.”
Ld. AR further referred a table at page no. 1 of paper book 1 showing cash in hand with M/s Supra Diamonds and with assessee for the AY 2013-14 to 2016-17 which is extracted below:-
Bhavangkumar Bharatchandra Shah 13. Ld. AR vehemently argued that assessee has brought before the revenue authorities, sufficient material to justify the deposit of cash during the demonetization period and the said cash was available, duly mentioned in the books of account of the assessee as well as M/s Supra Diamond and the same was lawful and legally deposited as per the scheme of RBI. Therefore, Ld. AR submitted that there is no justified reason for making addition of Rs. 10 lakhs, deposited on account of SBNs as unexplained money u/s 69A of the Act and requested to delete the same and allow the appeal of the assessee.
Ld. DR on the other hand submitted that the assessee has failed to file the ITR for the relevant assessment year as the same was filed after the alleged deposit of cash during demonetization period, therefore Ld DR relied upon the order of AO as well as Ld. CIT(A) and prayed for dismissal of the appeal stating that assessee has failed to establish the sources of SBN deposited during the demonetization period.
We have considered the rival submissions and examined the record. In order to understand the issue involved, we are extracting the provision of section 69A of the Act as under:-
Bhavangkumar Bharatchandra Shah Section 69A in The Income Tax Act, 1961 69A. [ Unexplained money]- Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the ] [ Substituted by Act 18 of 1992, Section 35, for Explanation 3 (w.e.f. 1.4.1993).][Assessing Officer] [ Substituted by Act 4 of 1988, Section 2, for " Income-tax Officer" (w.e.f. 1.4.1988).][, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.] [Inserted by Act 5 of 1964, Section 16 (w.e.f. 1.4.1964).]
Thus the following requirements of attracting the provision of section 69A of the Act are summarized as under:-
i) Where the assessee is found to be the owner of any money ii) Such money is not recorded in the books of account, if any, maintained by him for any source of income, iii) The assessee offers no explanation about the nature and source of acquisition of the money, iv) The explanation offered by him is not, in the opinion of the Assessing Officer satisfactory,
We have examined the material available on the record and the explanation given by the assessee as discussed in previous paragraphs of this order. We find that the assessee has succeeded in explaining the source of money and availability of the money for the last 4 financial year till date when the same was deposited as SBN during the demonetization period as the same has ceased to be a legal tender. On perusal of the impugned order, it is noticed that the AO has procceded to make the addition u/s 69A r.w.s. 115BBE of the Act of Rs. 10 lakhs on the ground that assessee has failed to give any explanation about the nature and source of cash deposits. The said observation of the AO, in view of the explanation given in the documents referred by the assessee who has shown the sufficient availability of the money i.e. cash in hand during the previous assessment years, is not legally justified and found contrary to the material submitted before him. We have also perused the order of Ld. CIT(A) wherein Ld. CIT(A) has observed in para 5. 3 of its order that “The cash in question was cash on hand and can be ascertained from the Balance sheet of M/s Supra Diamonds and Ms. Bhavang Shah as on 31.03.2016 and the said
Despite these observations, the Ld. CIT(A) proceeded to upheld the order of AO by following observations in para no. 5.4 to 6 of its order :-
“5.4 The Report in the case of BHAVANGKUMAR BHARATCHANDRA SHAH (AAFPS5973F) for AY 2017-18 with reference to Appeal Number CIT (A) 30, Mumbai/10820/2019-20 was called for vide which Erstwhile CIT(A) remanded the matter back to the AO to re-examine fresh evidence in a holistic manner taking an overall view for A.Y. 2017-18. The Jurisdictional AO submitted its report dated 14.10.2024 vide which he has submitted that assessee's submission and details submitted thereof, i.e. reply letter, Bank Statement and return of income have been considered by the AO and accordingly assessment order has been passed.
5.5 Thus, the appellant failed to substantiate the sources of the cash deposits with any documentary evidence including cash flow statement, ledger of payment of labourers, transportation etc. Consequently, in the absence of supporting documentation of the cash deposits made during the demonetization period, the AO classified the amount of Rs. 10,00,000/- as unexplained money under section 69A of the Act and added it to the appellant's total income.
5.6 During the appellate proceedings, the appellant submitted the bank statement, balance sheet of M/s Supra Diamonds (Proprietorship Firm) and return of income therein shown the cash in hand. As per submission of the appellant, total cash in hand as on 31.03.2016 was Rs. 11,14,865/-. But it is not acceptable that no local payment was made by the appellant since 01.04.2016 to 08.11.2016 and the same was deposited in bank during the demonetization period. If business was running during the year under consideration, payment Page | 12
5.7 Considering the above, it is concluded that the appellant has failed to justify the cash deposits made during the demonetization period; therefore, the AO’s order is upheld.
6.0 In the result, the appeal of the appellant is hereby dismissed.”
In view of the material brought to our notice by assessee as discussed above, the observation of the Ld. CIT(A) extracted above seems to be based on conjecture and surmises and is contrary to the material brought on record by the assessee during the assessment proceedings as well as appellate proceedings before the lower authorities. Both the lower authorities has failed to consider the said material in an objective manner and proceeded to decide the matter subjectively ignoring the sufficient material brought on record establishing that the assessee was having an amount of Rs. 10 lakhs in cash, duly reflected in his books of account for the last 4 consecutive years, which was deposited in the relevant year as SBN during the demonetization period.
For the above discussions, we are of the considered opinion that the requirement of section 69A of the Act was not fulfilled in this case and the impugned order is not legally sustainable in the eyes of law.
Bhavangkumar Bharatchandra Shah Therefore, we set aside the order of Ld. CIT(A) and accordingly direct the AO to delete the addition of Rs. 10 lakhs on account of deposit of SBN during the demonetization period. Hence, the grounds raised by the assessee are allowed.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 18.06.2025.