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Facts
The assessee, a milk co-operative society, received payments from a District Milk Union and withdrew cash to distribute to its members. The Assessing Officer treated cash withdrawals of Rs. 26,17,000/- as unexplained expenditure under Section 69C and added Rs. 10,107/- as undisclosed interest income. The CIT(A) dismissed the appeal ex-parte.
Held
The Tribunal held that once the source of funds in the bank account is undisputed, additions cannot be made solely on the ground of cash withdrawals, especially when they are for business distribution. The Tribunal condoned the delay in filing the appeal due to the assessee's rural nature and lack of technical expertise. The addition under Section 69C was deleted, but the interest income ground was dismissed as not pressed.
Key Issues
Whether cash withdrawals from an explained bank balance can be treated as unexplained expenditure? Whether the CIT(A) erred in passing an ex-parte order without affording a meaningful opportunity of hearing?
Sections Cited
69C, 115BBE, 147, 142(1), 148, 250(6), 270A, 272A(1)(d), 234A, 234B, 234F
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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI NARENDRA PRASAD SINHA
O R D E R
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 16.12.2024 passed for A.Y. 2019-20.
The assessee has taken the following grounds of appeal:
“1.0 The learned Commissioner of Income Tax (Appeals), NFAC has erred in law and on facts in passing the appellate order ex-parte, without ensuring that a real and meaningful opportunity of hearing was afforded to the appellant, especially considering the peculiar circumstances and genuine limitations faced by the appellant in effectively participating in the proceedings. 2.0 The learned Commissioner of Income Tax (Appeals), NFAC has erred in law and on facts in confirming the addition of Rs.26,17,000/- on account of cash withdrawals from the bank account treating the same as undisclosed income made by invoking the provisions of section 69C rws 115BBE of the I T Act, 1961, without The Simaliya Dudh Utpadak Sahakari Mandli Ltd. vs. ITO Asst. Year –2019-20 - 2– adjudicating the appeal on merits and without considering the appellant's inability to respond to the hearing notices due to genuine constraints. 3.0 The learned Commissioner of Income Tax (Appeals), NFAC has erred in law and on facts in confirming the addition of Rs.10,107/- on account of interest income, without adjudicating the appeal on merits and without considering the appellant's inability to respond to the hearing notices due to genuine constraints. 4.0 The learned Commissioner of Income Tax (Appeals), NFAC has erred in law and on facts in confirming the additions made by the Assessing Officer ex-parte in violation of the mandate under section 250(6) of the Act, which requires the Commissioner (Appeals) to dispose of the appeal through a reasoned order on each ground of appeal, irrespective of the appellant's absence or non-compliance. 5.0 The learned Commissioner of Income Tax (Appeals), NFAC failed to appreciate that non-appearance of the appellant does not empower the Commissioner (Appeals) to dismiss or decide appeal on merits without real hearing. 6.0 The learned Commissioner of Income Tax (Appeals), NFAC has erred in law and on facts in confirming the initiation of penalty proceedings under section 270A and 272A(1)(d) of the Income Tax Act, 1961.
The learned Commissioner of Income Tax (Appeals), NFAC erred in law and on facts has confirmed the charging interest under section 234A, 234B and 234F of the Income Tax Act, 1961.
The appellant craves leave to add to, alter, delete or modify any of the above grounds of appeal either before or at the time of hearing of this appeal.”
3. The brief facts of the case are that the assessee is a primary milk co- operative society engaged in collecting milk from village members and supplying the same to the District Milk Co-operative Union. The case was reopened under section 147 of the Act based on information received through the Insight Portal that the assessee had made cash withdrawals of Rs.26,17,000/- and cash deposits of Rs. 73,000/- in its bank account during the relevant financial year and had also earned interest income of Rs. 10,107/- which remained undisclosed as no return of income was filed. During the course of assessment proceedings, the Assessing Officer issued notices under sections 142(1) and 148 of the Act calling upon the assessee The Simaliya Dudh Utpadak Sahakari Mandli Ltd. vs. ITO Asst. Year –2019-20 - 3– to explain the nature and source of cash withdrawals and deposits as well as the interest income. Though the assessee furnished certain submissions stating that it is a milk co-operative society receiving payments from the Panchmahal District Co-operative Milk Producers Union Ltd. through banking channels and that such receipts are withdrawn in cash and distributed to member farmers, the Assessing Officer was not satisfied with the explanation on the ground that no proper documentary evidence was furnished to establish the utilization of cash withdrawals or payments to members. The Assessing Officer further observed that the withdrawals were made in the name of one individual and not directly to multiple members, thereby casting doubt on the genuineness of the claim. Accordingly, the Assessing Officer treated the cash withdrawals of Rs. 26,17,000/- as unexplained expenditure under section 69C of the Act and also added interest income of Rs. 10,107/- under the head “Income from Other Sources”, determining the total income at Rs. 26,27,107/-.
Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(Appeals). However, during the appellate proceedings, despite several notices issued fixing the case for hearing, the assessee failed to make any compliance or furnish any submissions or evidence in support of its grounds of appeal. The CIT(Appeals) observed that adequate opportunities were granted to the assessee but no response was received and therefore inferred that the assessee had nothing to substantiate its case. In the absence of any rebuttal or supporting material from the assessee, the CIT(Appeals) upheld the action of the Assessing Officer in treating the The Simaliya Dudh Utpadak Sahakari Mandli Ltd. vs. ITO Asst. Year –2019-20 - 4– cash withdrawals as unexplained expenditure and confirming the addition of interest income, and accordingly dismissed all the grounds of appeal.
The assessee is in appeal before us against the order passed by the CIT(Appeals) dismissing the appeal of the assessee.
We have heard the rival submissions and perused the material available on record. At the outset, we note that there is a delay of 284 days in filing the present appeal before the Tribunal. The assessee has filed an application for condonation of delay supported by an affidavit explaining that the assessee being a rural milk co-operative society was not well- equipped to handle electronic communications and the appellate order remained unnoticed due to non-access of registered email account. Considering the bona fide reasons explained and in the interest of substantial justice, the delay in filing the appeal is condoned.
Coming to the merits of the case, the primary issue relates to the addition of Rs.26,17,000/- made by the Assessing Officer under section 69C of the Act on account of cash withdrawals treated as unexplained expenditure. We find from the record that the Assessing Officer has not doubted the source of funds credited in the bank account of the assessee. It is an undisputed fact that the assessee is receiving payments from the Panchmahal District Co-operative Milk Producers Union Ltd. through banking channels for supply of milk, which has also been evidenced by the milk bills and bank statements. These receipts constitute the primary source of funds and have not been disputed by the Revenue authorities.
The Simaliya Dudh Utpadak Sahakari Mandli Ltd. vs. ITO Asst. Year –2019-20 - 5– 8. The Assessing Officer has made the addition merely on the ground that the assessee could not satisfactorily explain the utilization of the withdrawals and the fact that withdrawals were made through one individual. However, in our considered view, once the source of deposits in the bank account is accepted and not doubted, no addition can be made merely on account of cash withdrawals from such explained sources. The addition under section 69C of the Act cannot be sustained when the primary source of funds itself is not in dispute.
We find support from the decision of the Coordinate Bench of the Tribunal in the case of Timba Muvadi Dudh Mandali vs. ITO, (A.Y. 2019-20), order dated 11.03.2026, wherein under identical facts it was held that where the milk co-operative society receives payments from the District Milk Union through banking channels and withdraws the same for distribution to its members, no addition can be made on account of such withdrawals. The Tribunal categorically held that when the source of receipts is established and withdrawals are part of business operations, the addition is unsustainable.
In the present case also, the business model of the assessee as a primary milk co-operative society inherently involves receipt of funds from the milk union and subsequent distribution to member farmers. This fundamental aspect has not been disputed by the Assessing Officer. Therefore, the addition made merely on account of alleged unexplained withdrawals is not justified.
Accordingly, the addition of Rs.26,17,000/- made under section 69C of the Act is directed to be deleted.
As regards Ground No. 3 relating to interest income of Rs.10,107/-, the learned counsel for the assessee has fairly submitted that the same is not pressed.
Accordingly, Ground No. 3 is dismissed as not pressed.
In the result, the appeal of the assessee is partly allowed. This Order is pronounced in the Open Court on 09/04/2026