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Facts
The assessee, engaged in agricultural and ginger trading activities, declared business income and agricultural income. During the assessment year, significant cash deposits were made in bank accounts. The AO treated these deposits as unexplained and made an addition to the assessee's total income.
Held
The Tribunal held that the lower authorities' approach suffered from partial appreciation of evidence and that the cash flow theory should be applied. The Tribunal directed the AO to give credit for opening cash balance, agricultural income, business income, and cash withdrawn by the assessee's brother.
Key Issues
Whether cash deposits in bank accounts can be treated as unexplained without considering legitimate sources of income, opening balance, and withdrawals by close relatives.
Sections Cited
69A
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Income Tax Appellate Tribunal, ‘A’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the NFAC Delhi vide order dated 20/05/2025 in DIN No. ITBA/NFAC/ S/250/2025-26/1076308640(1) for the assessment year 2011-12.
2. The only effective issue raised by the assessee is that the ld. CIT- A erred in confirming the addition made by the AO for Rs. 42,71,000/- representing cash deposits in bank, treating as unexplained.
The facts in brief are that the assessee, an individual, claimed to be engaged in the agricultural activity and also deriving business income from the trading of “Ginger”. For the year under consideration the assessee has declared business income of Rs. 2,15,647/- and agricultural income of Rs. 4.5 lakh. The case of the assessee was selected for scrutiny under the CASS.
The AO during the assessment proceedings found that assessee during the year has deposited cash of Rs. 61,71,910/- in his saving bank account maintained with Karur Vasya Bank and Canara Bank on different dates. The AO found that the assessee has not explained the source of the cash deposit. Hence, the AO added the entire cash deposit of Rs. 61,71,910/- to the total income of the assessee.
The aggrieved assessee preferred an appeal before the learned CIT(A).
The assessee before the learned CIT(A) submitted that the AO during the assessment proceeding never asked for or inquired about the sources of cash deposit. The AO inquired about the cheque/payment made to various persons and required detail regarding the same were duly provided with. If an inquiry would have been made regarding the source of cash deposit, then the same would have been duly explained.
The assessee claimed that he holds 23.2 acers of agricultural land in his own name as well as 18 acers in the name of wife. The detail of agricultural land holding was already submitted before the AO. Accordingly, the assessee contended that he got sufficient cash flow .
Page 3 of 8 from the agricultural activities. Furthermore, the assessee furnished a chart showing availability of cash utilized for making deposit. In addition, the assessee submitted that the actual cash deposit stand at Rs. 61,61,000/- only but the AO wrongly include the credit of bank interest of Rs. 10,910/- into the aggregate of cash deposit. Through the impugned chart, the assessee claimed that there was availability of cash of Rs. 62,06,957/- with him and out of which a sum of Rs. 61,61,000/- was utilized for making deposit which are detailed as under: - Opening cash balance of Rs. 1,46,707/- verifiable from statement of affair as on 31st March 2010. - Cash withdrawals of Rs. 23.5 lakh from Karur Vasya Bank (Rs. 6 lakh self and 17.5 lakh through brother). - Cash withdrawals of Rs. 18.5 Lakh from Canara Bank - Income from trading of Ginger for Rs. 2,89,250/- - Sale proceeds of coffee for Rs. 15.71 lakh
Thus, the assessee claimed that that the entire cash deposits are from explained sources and requested the learned CIT(A) to delete the addition made by the AO.
The learned CIT(A) after considering the facts has not accepted the claim of the assessee for opening cash balance utilized for making deposits during the year. The learned CIT(A) found that the assessee has not provided any basis for arriving the opening cash balance of Rs. 1,46,707/- only.
Similarly, the assessee’s claim for the receipt of cash from sale proceeds of coffee/agricultural produce was also rejected by the learned CIT(A). As such the learned CIT(A) found that the assessee has not . furnished any evidence showing cash was generated from agricultural activity. It was also observed that the details such as crop grown, expenditure incurred on growing of such crop and the parties to whom crop was sold were not furnished by the assessee.
Likewise, the claim of the assessee that cash amounting to Rs. 17.5 lakh, withdrawn by his brother from his account through cheque and utilized for redepositing was also not accepted by the learned CIT(A). As such the contention that he was busy with the work of agriculture activity and therefore his brother has withdrawn cash on his behalf and handed over to him was not believed. In this regard, the learned CIT(A) observed that the assessee stays at Sakaleshpura whereas his brother resides in Bangalore which is 220 KM away. Thus, it was found that the assessee failed to submit satisfactory explanation for issuing cheque in the name of brother for withdrawing cash at Bangalore and later on hand over to the assessee at Sakaleshpura. Hence, the learned CIT(A) held that the claim of the assessee is against the logic, common sense and normal human behaviour. Hence, the learned CIT(A), referring the principles of human probability as laid down by the Hon’ble Supreme Court in the case of CIT vs Durga Prasad More reported in 82 ITR 540, rejected the assessee’s claim.
11.1 However, the learned CIT(A) accepted the assessee’s explanation regarding self-withdrawal of cash as a source of redeposit. Accordingly, the learned CIT(A) after considering the cash withdrawal worked out the peak negative balance of cash at Rs. 40,61,000/- only. Further considering the withdrawal for household expenses of Rs. 2,10,000/-, the learned CIT(A) finally held that sources of cash deposit of Rs. .
42,71,000/- was not satisfactory explained by the assessee. Hence, the ld. CIT-A confirmed the addition to that extent.
Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
The learned AR before us reiterated the contentions raised before the learned CIT-A and further submitted that the cash withdrawn by the brother was not utilized anywhere else. As such the cash withdrawal by the brother was utilized for redepositing in the bank account and therefore the same cannot be made subject to the addition.
On the contrary, the learned DR before us submitted that the assessee failed to justify the source of cash deposit in the bank and therefore the same was rightly treated as unexplained cash by the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. The undisputed facts reveal that the assessee is engaged in agricultural activities and also derives business income from trading in ginger. For the year under consideration, the assessee declared business income of ₹2,15,647/- and agricultural income of ₹4.50 lakh. During the year, cash deposits amounting to ₹61,71,910/- were made into savings bank accounts maintained with Karur Vysya Bank and Canara Bank. The AO treated the entire deposits as unexplained under section 69A of the Act, without granting credit for the opening cash balance, agricultural receipts, or withdrawals made during the year.
15.1 On appeal, the learned CIT(A) accepted part of the assessee’s explanation and allowed credit for self-withdrawals, but rejected other contentions such as the utilization of opening cash balance, agricultural income, and withdrawals made by the assessee’s brother. While doing so, the ld. CIT(A) worked out the peak negative cash balance at ₹42,71,000/- and sustained the addition to the extent of ₹42,71,000.00 only.
15.2 After perusal of the facts, we find that the approach adopted by the lower authorities suffers from partial appreciation of evidence. It is a settled principle that when cash deposits and withdrawals are made within a proximate period, the assessee is entitled to the benefit of the cash flow theory and only the peak amount can be taxed. For determining such peak, the opening cash balance of the year, duly verifiable from the earlier year’s statement of affairs, cannot be ignored. The assessee has furnished a statement of affairs for the preceding year showing an opening cash balance of ₹1,46,707/-, which has not been disproved by any contrary evidence. Therefore, we direct the AO to give due credit of the said opening cash balance while working out the peak cash deposits.
15.3 Further, the assessee has shown agricultural income of ₹4.50 lakh and business income of ₹2,15,647, which have been accepted in the assessment. These incomes, being from legitimate and disclosed sources, form part of the assessee’s overall cash availability. Accordingly, the AO is directed to allow set-off of the net agricultural income and . business income to this extent while determining the explained portion of cash deposits.
15.4 As regards the withdrawal of ₹17.50 lakh made by the brother of the assessee, we find that the reasoning of the learned CIT(A) in rejecting the same merely on the ground of distance between Bangalore and Sakaleshpura is not fully convincing. In small family-run agricultural and trading setups, it is common for close relatives to operate and assist in financial transactions, especially when the assessee is engaged in rural agricultural operations. The brother, being a close family member, acted as an authorized person for withdrawal of the amount through banking channels. There is no finding that the withdrawn cash was utilized for any other purpose or that it was redeposited in the brother’s account. In the absence of such adverse material, the withdrawal made by the brother on behalf of the assessee deserves consideration as part of available cash for redeposit. The AO shall therefore allow appropriate credit for this withdrawal while computing the peak cash deposits, after verifying the bank records.
15.5 In view of the above, the issue relating to the addition under section 69A is set aside to the file of the AO with the following directions: 1. To recompute the peak cash deposit after allowing due credit for the opening cash balance of ₹1,46,707/- as per the statement of affairs for the preceding year.
To allow set-off of the net agricultural income of ₹4.50 lakh and business income of ₹2,15,647 as income from accepted sources while determining unexplained deposits.
3. To allow credit for cash withdrawn by the assessee’s brother amounting to ₹17.50 lakh, after verifying that such withdrawals were indeed made on behalf of the assessee and not utilized elsewhere.
15.6 The AO shall provide reasonable opportunity to the assessee to substantiate these claims with supporting evidence and thereafter recompute the addition, if any, strictly in accordance with law. Accordingly, the matter is restored to the file of the AO for fresh adjudication in light of the above directions. The appeal is treated as allowed for statistical purposes.
In the result, this appeal of the assessee is treated as allowed for statistical purposes.