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Facts
A search under Section 132 of the Income Tax Act was conducted on the assessee, an individual engaged in private civil contracts. During the search, cash of Rs. 32.2 Lakhs was found. Subsequently, assessment proceedings under Section 153A were initiated. The AO noted cash deposits totaling Rs. 72 Lakhs, after adjusting a Rs. 5 Lakh withdrawal, and added Rs. 67 Lakhs as unexplained money.
Held
The Tribunal held that the cash deposits were explained by the assessee's business receipts and accumulated cash from earlier years, which were accepted by the Department in prior assessment years. The AO's addition of Rs. 67 Lakhs under Section 69A and the application of Section 115BBE were deemed unsustainable.
Key Issues
Whether cash deposits made by an individual engaged in civil contracts can be treated as unexplained income under Section 69A when the assessee has consistently shown business activity and availability of cash, with prior years' returns accepted by the department.
Sections Cited
132, 153A, 44AD, 69A, 115BBE
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN K
PER WASEEM AHMED, ACCOUNTANT MEMBER:
These appeals are filed by the assessee against the order of the ld. CIT(A)–11, Bengaluru vide order dated 12/06/2025 for the assessment years 2015-16 to 2017-18. an appeal by the assessee for A.Y. 2015-16 as lead case.
The interconnected issue raised by the assessee through ground Nos. 1 to 11 are that the Revenue authorities erred in making the addition of Rs. 67 Lakhs under section 69A r.w.s. 115BBE of the Act. The ITA No.1593-1595/Bang/2025
Page 2 of 12 learned CIT(A) further erred in confirming the same in ex prate order without considering the detailed submission made by the assessee in the proceedings before him.
The facts in brief are that the assessee is an individual and claimed to be engaged in the business of Private Civil Contracts by way of construction of individual residential house. The assessee was subject to search proceedings under section 132 of the Act dated 3rd December 2016. During the search proceedings, the cash amounting to Rs. 32.2 Lakh was found and seized by the search team.
In consequence to search proceedings, the assessment proceedings under section 153A of the Act for the year under consideration was initiated. The assessee filed return of income under section 153A of the Act declaring income at Rs. 3,14,080/- only. As such the assessee declared presumptive income as per section 44AD of the Act being 8% of the gross receipt of Rs. 39,26,030/- from the business of the civil contract. The assessee in support has furnished copy of the balance sheets for the A.Ys. 2011-12 to 2017-18. In the balance sheet for A.Y. 2014-15 and 2015-16 (year under consideration) the assessee has disclosed following figures:
Particular Opening (A.Y.2014-15) Closing (A.Y. 2015-16 Capital Rs. 24,44,190/- Rs. 27,58,273/- Unsecured Loan 0 Rs. 18,00,000/- Sundry Creditor Rs. 28,56,521/- Rs. 17,30,930/- Liability Total Rs. 53,00,7111/- Rs. 68,89,243 .
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Page 3 of 12 Loan and Advances 0 Rs. 60,00,000/- Cash in hand Rs. 53,00,656/- Rs. 2,82,459/- Bank Balance Rs. 55/- Rs. 6,778/- Assets Total Rs. 53,00,7111/- Rs. 68,89,243 Profit Rs. 7,02,869/- Rs. 3,14,083/-
However, the AO observed that the assessee has filed returns for the year under consideration as well as for earlier years only after the search. During the search, in the statement recorded on 03.12.2016 under section 132(4) of the Act, the assessee clearly stated that his income came only from agriculture and sale of jaggery products. He specifically mentioned that his jaggery business had started very recently and he had never filed income tax returns earlier. There was no reference to any civil contract business. The AO therefore held that the claim of civil contract business was made later only to explain the cash deposits.
Furthermore, the balance sheets produced for A.Y. 2011-12 to 2017-18 were prepared only at later stage to justify the source of cash. The AO found that these balance sheets showed huge capital and cash in hand without any supporting proof. No books of account were maintained. No bills, vouchers, wage register or work order copies were furnished. Even the name of the clients was not provided except one person. There was no site-wise data or details of any construction work. Hence, the AO concluded that there was no real business activity of civil contracting of the assessee.
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Thus, the AO held that the figures of capital and cash balance were created only to justify the seized cash and bank deposits. The assessee showed sundry creditors of Rs. 17,30,970/-, but even in petty civil contract business, payments to workers and material suppliers are made quickly and not kept outstanding for long periods. Hence, the existence of large sundry creditors was held to be unrealistic and only a device to inflate the capital.
6.1 The AO further found that during the year the assessee has made deposits of Rs. 72 Lakh. The AO after adjusting Rs. 5 Lakh withdrawal form bank held that the assessee failed to explain the sources of the cash deposit to the extent of Rs, 67 lakh. As such, the AO has rejected the assessee’s explanation of private civil contracts business being carried out by the assessee and availability of opening cash balances as claimed.
6.2 On checking the bank accounts, the AO observed that the transactions did not relate to any civil contract business. He found that apart from the cash deposits, the assessee also gave and received huge loans from certain persons without any proper explanation or necessity. The assessee failed to provide any evidence to prove how the money was earned or for what purpose such payments and receipts were made. The AO held that the assessee attempted to show the cash deposits as business income so that it would fall within presumptive taxation under section 44AD of the Act. However, as the assessee did not prove the existence of any business, the AO rejected the explanation and held that the cash deposits were unexplained. Therefore, the AO treated the .
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Page 5 of 12 amount of Rs. 67,00,000/- as unexplained money under section 69A of the Act. The AO applied tax at special rates under section 115BBE of the Act. Further, the AO also noted that the assessee failed to file the return of income voluntarily earlier despite having taxable income. Hence, penalty proceedings were also initiated.
The aggrieved assessee preferred an appeal before the learned CIT(A) who confirmed the addition made by the AO by observing that the assessee has not furnished any submission or explanation in support of the ground of appeal raised.
Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
Before us the learned AR submitted that the additions made by the AO under section 69A of the Act are unjustified and against the facts on record. The assessee is genuinely engaged in the business of private civil construction contracts. The assessee had filed Income Tax Returns declaring business income under section 44AD of the Act for all the relevant assessment years. These returns were filed in response to notices issued under section 153A of the Act. The Assessing Officer has accepted the existence of business in earlier years which were subject to assessment proceedings under section 153A of the Act. Once the AO has accepted business activity, the cash deposits must be treated as business receipts and not as unexplained money without having any cogent materials.
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Page 6 of 12 9.1 The learned AR submitted that the cash deposits in the bank accounts pertain to receipts from civil contract works carried out during A.Ys 2015-16 and 2016-17. The assessee also deposited seized cash relating to A.Y. 2017-18, which was already recorded in the books. All the required details including bank statements, books of accounts and other materials were submitted during the assessment proceedings. These documents support the availability of cash and its utilization in the business.
9.2 The AO has not disproved any of the explanations and documents furnished by the assessee. Without any verification or rebuttal, the AO treated the entire amount of Rs. 67,00,000/- as unexplained income. This approach is contrary to law. Section 69A applies only when no explanation is given or the explanation is found unsatisfactory. In the present case, the explanation is valid, reasonable, and supported by documents. Hence, Section 69A cannot be invoked.
9.3 The learned AR further states that even if the cash deposits are considered as arising from business, only the net profit component can be taxed. It is a settled legal position that in business cases, only income after allowing reasonable expenses should be brought to tax. The AO has committed a serious error in taxing the entire deposit as income. Courts have repeatedly held that cash deposits representing business turnover cannot be treated as unexplained income. Reliance is placed on the decisions in CIT v. Smt. P.K. Noorjahan 237 ITR 570 and CIT v. Shanta Devi 208 ITR 87, where it is held that only net income is taxable.
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Page 7 of 12 9.4 The learned AR submits that the assessee has declared turnover higher than the cash deposits in the return, and tax has already been paid under presumptive scheme at the rate prescribed under section 44AD of the Act. Therefore, there is no undisclosed income. Without reducing the business expenditure or applying a reasonable profit percentage, the AO’s action of taxing the full amount is arbitrary and unsustainable.
9.5 The learned AR further submitted that the application of section 115BBE is also wrong. This section applies only when income is assessed under deeming provisions after rejecting the explanation of the assessee. Here, the assessee has provided proper explanation which has not been disproved. Hence, higher rate of tax cannot be applied.
9.6 In the alternative, and without prejudice to the main submission, if the Hon’ble Tribunal still considers any part of the deposit as income, then only profit margin of 8% as per section 44AD of the Act may be taxed. The nature of business is such that reasonable profit has to be estimated, not the gross receipts.
9.7 The learned AR also submits that the ld. CIT(A) passed an ex- parte order without considering written submissions filed by the assessee. This is a clear violation of the principles of natural justice. On this ground also, the additions require to be deleted.
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Page 8 of 12 9.8 In light of the above submissions and settled legal principles, the learned AR prays that the additions made under section 69A read with section 115BBE of the Act be deleted in full. The learned AR further prays that appropriate relief be granted in the interests of justice and equity.
On the other hand, the learned DR before us reiterating the findings contained in the order of the authorities below.
We have heard the rival contentions of both the parties and carefully considered the materials placed on record. The undisputed facts reveal that a search under section 132 of the Act was conducted on 3rd December 2016, pursuant to which assessments under section 153A of the Act were initiated for assessment years 2011-12 to 2016-17 and for assessment proceeding for A.Y 2017-18 being search year. The assessee, in response to the notices issued under section 153A of the Act, filed returns of income for all these assessment years declaring presumptive income under section 44AD of the Act. The AO accepted the returns for A.Ys. 2011-12 to 2014-15 without making any additions. However, for A.Y. 2015-16 onwards, the AO made additions under section 69A of the Act treating the cash deposits into the bank as unexplained money.
11.1 It is a matter on record that the assessee, in all the assessment years starting from A.Y. 2011-12 to A.Y. 2017-18, has consistently shown cash receipts, cash expenses, and closing cash in hand. The AO himself has reproduced the relevant balance sheets in the assessment .
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Page 9 of 12 orders of respective years. From the balance sheets, it is seen that the assessee had disclosed closing cash balances of ₹7,99,524/- in A.Y. 2011-12, ₹19,61,494/- in A.Y. 2012-13, ₹19,83,363/- in A.Y. 2013-14, and ₹53,00,656/- in A.Y. 2014-15. The return of income filed for these years was accepted by the AO. Once such returns were accepted without any adverse inference, the availability of the closing cash balance of ₹53,00,656/- as on 31.03.2015 stands duly established and cannot be disregarded while framing assessment for A.Y. 2015-16.
11.2 It is further noted that the cash deposits made during the year under consideration are well within the cash availability disclosed in the balance sheet of the earlier year. Therefore, when the assessee has shown a consistent pattern of cash flow, and the same has been accepted by the Department in the preceding years, the AO cannot selectively treat the cash deposits of a later year as unexplained without first disturbing the acceptance of earlier years’ results. The approach adopted by the AO lacks consistency and is contrary to the settled principle that once a particular state of affairs has been accepted in earlier years, the same cannot be arbitrarily rejected in subsequent years without any fresh material.
11.3 The contention of the AO that the balance sheets were prepared only after the search cannot be accepted in isolation. The returns were filed in response to statutory notices under section 153A, and therefore, the assessee was legally entitled to prepare statements of affairs for explaining his business income. It is also pertinent to note that for A.Y. 2011-12 to 2014-15, the Department, after due verification, has .
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Page 10 of 12 accepted the income declared under section 44AD of the Act, which itself presumes that the assessee is engaged in business activity. Once the existence of business and the availability of cash flow has been accepted in the earlier years, there is no reason to doubt the same merely because cash deposits are made in the subsequent year.
11.4 We find merit in the submission of the learned AR that the cash deposits represent business receipts or utilization of cash accumulated from earlier years. In such circumstances, the addition made under section 69A of the Act cannot be sustained. The provision of section 69A of the Act applies only when the assessee is found to be the owner of money for which no explanation is offered or the explanation offered is found unsatisfactory. In the present case, the explanation furnished by the assessee is supported by the balance sheets and consistent financial pattern accepted in preceding assessments years. Hence, the invocation of section 69A of the Act in the given facts and circumstances is unjustified.
11.5 We also find that the AO has taxed the entire amount of cash deposit as income, which is against the settled law. When an assessee is carrying on business and deposits cash generated from business activities into the bank, only the profit element is taxable and not the gross deposits. Various courts, including in CIT v. Smt. P.K. Noorjahan (237 ITR 570) and CIT v. Shanta Devi (208 ITR 87), have held that additions under deeming provisions cannot be made merely on conjecture and that a reasonable and realistic approach must be adopted. Moreover, once the income has already been declared on a .
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Page 11 of 12 presumptive basis under section 44AD and the same has been accepted in the earlier year, there remains no scope for further addition on the same turnover.
11.6 The ls. CIT(A) also erred in confirming the addition without considering the assessee’s submissions. The order of the learned CIT(A) is ex parte and passed without affording adequate opportunity of hearing, which is in violation of the principles of natural justice. Such an order cannot be sustained in law.
11.7 In view of the above factual and legal position, we hold that the addition of ₹67,00,000/- made under section 69A of the Act and the application of section 115BBE of the Act are unsustainable. The cash deposits stand fully explained by the assessee through his regular business receipts and accumulated cash balances from earlier years, which have been accepted by the Department. Accordingly, the addition made by the AO and confirmed by the CIT(A) is directed to be deleted in full. Hence the ground of appeal of the assessee is hereby allowed.
In the result appeal of the assessee is hereby allowed.
& 1595/Bang/2025, appeals by the assessee for A.Ys. 2016-17 and 2017-18
At the outset, we note that the issues raised by the assessee in its grounds of appeal for the AY 2016-17 and 2017-18 are identical to the issue raised by the assessee in for the .
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Page 12 of 12 assessment year 2015-16. Therefore, the findings given in shall also be applicable for the assessment years 2016- 17 & 2017-18. The appeal of the Assessee for the A.Y. 2015-16 has been decided by us vide paragraph Nos. 11 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2015-16 shall also be applied for the assessment years 2016-17 & 2017-18. Hence, the ground of appeal filed by the Assessee for A.Y. 2016-17 & 2017-18 are hereby allowed.
In the result, the appeals of the assessee for A.Y. 2016-17 & 2017-18 are hereby allowed.
In the combined result, all the three appeal of the assessee for A.Y. 2015-16 to 2017-18 are here by allowed.