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Facts
The assessee, proprietor of M/s. Elegant Fashions, filed a return on presumptive basis. During demonetisation, cash deposits were made, and the Assessing Officer (AO) added Rs. 5 Lakhs as unexplained income under Section 69A, stating the assessee failed to furnish books of accounts. The CIT(A) confirmed this addition.
Held
The Tribunal held that the AO ought to have deleted the addition as the assessee had provided cash flow statements, bank statements, and explained the sources of cash deposits, including gifts and withdrawals for starting a new business. The addition was considered ad-hoc and not based on sound principles.
Key Issues
Whether the addition of Rs. 5 Lakhs as unexplained income under Section 69A was justified when the assessee provided explanations and documents for cash deposits during the demonetisation period.
Sections Cited
69A, 115BBE, 143(1)(a), 143(2), 142(1), 144, 2(12A)
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Income Tax Appellate Tribunal, ‘SMC’ BENCH : BANGALORE
Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN K.
ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the order of the Ld.Addl/JCIT(A), Aurangabad dated 17/03/2025 in respect of the A.Y. 2017-18 and raised the following grounds: “
1. The impugned order of the Learned Commissioner of Income Tax (Appeals) is opposed to law, weight of evidence probabilities, facts and circumstances of the Appellant's case.
2. The appellant denies itself to be liable to be assessed to a total Income of Rs.8,71,100/- as against the total income under the normal computation under the facts and circumstances of the case. The Learned Commissioner of Income Tax (Appeals) is not justified in law in making an addition of Rs. 5,00,000/- to the income.
3. The Learned Commissioner of Income Tax (Appeals) has erred in invoking the provisions of section 69A of the Income Tax Act, 1961, the provisions states '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. Section 69A deals only with items not recorded in the books of accounts. If an item is recorded in the books of accounts, then section 69A is not applicable. As per the meaning of Income in section 69A: the expression 'income' as stood under section 69A has wide meaning and means anything which comes in or results in gain. Therefore, cash gifts on occasion of appellant's marriage and cash withdrawals which was deposited later and the same do not fall in the category of income.
The assessee has explained sources of such cash deposits and the same was accepted by the learned assessing officer and learned commissioner of income tax (Appeals) upto to Rs 13,57,000/- out of Rs 18,57,000/-, remaining Rs 5,00,000/- was added to assesse's total income on the ground stating that the appellant has failed to furnish books of accounts. The "books or books of account" have been defined in section 2(12A) of the Act. The same reads as under: — "2(12A) books or books of account" includes ledgers, day- books, cash books, account-books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro- magnetic data storage device;" In the case of Sheraton Apparels v. Asstt. CIT [2002J 256 ITR 20 (Born HC)
Bombay High Court laid down the following objectives of books of accounts: a. to provide credible data and information to file the tax returns; b. to provide up to date information of assets and liabilities with a view to derive information so as to prepare a profit and loss account and draw a balance-sheet to determine income and source thereof; The appellant has made cash deposits and cash withdrawals which are recorded in the books of accounts i.e., bank statements and the same cannot be held as such cash deposits are not recorded in books of accounts.
5. The Learned Commissioner of Income Tax (Appeals) has erred in ststing that the appellant has failed to prove the source of such cash deposits relying on the decision of Hon’ble Supreme court in the case of Roshan Di Hatti, Sumati Dayai v/s CIT 214-ITR-101, where it has held that the Income tax Authorities can apply test of human probabilities to see whether the transactions could be considered as genuine or not.
6. The Learned Commissioner of Income Tax (Appeals) has erred by making an addition of Rs 5.00,000/- as unexplained income as per section 69A of the Income Tax Act 1961 and by applying the human probability test which constitutes that even though the transactions seem to be explained but the genuineness can be challenged on the ground of human probability. The Learned Commissioner of Income Tax (Appeals) is incorrect in adding such additions without considering the facts and circumstances of the case.
The Learned Commissioner of Income Tax (Appeals) is incorrect by taxing the additions as per the provisions of section 115BBE of the Income Tax Act 1961 as provision of section 115BBE is not attracted when source of income is proved.
8. The appellant craves for leave of this Hon’ble authority, to add, alter, delete, amend of substitute any or all of the above grounds of appeal
as may be necessary at the time of hearing.
9. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.
2. The assessee is the proprietor of M/s. Elegant Fashions and filed her return of income on 30/07/2017. The return was processed u/s. 143(1)(a) of the Act. Subsequently, the case was selected for scrutiny under CASS and notice u/s. 143(2) was issued. Thereafter notices u/s. 142(1) were issued seeking source for the cash deposits during the demonetisation period. The assessee had not responded to the said notices and thereafter a show cause notice was issued u/s. 144 of the Act. At that time only, the assessee had responded and filed her explanations that the cash withdrawn to start a new business was deposited during the demonetisation period. The assessee also submitted that she had cash in hand of Rs. 22,10,000/- and further she had withdrawn from the bank and therefore submitted that there are sources for cash deposits during demonetisation period. The assessee also submitted that she has cash which was received as gifts during her marriage and also filed the cash flow statement in support of her claim that there were sufficient sources for the cash deposits during the demonetisation period. The AO considering the said submissions as well as the documents had treated the sum of Rs. 5 Lakhs, on adhoc basis as the unexplained money u/s. 69A of the Act. As against the said order, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) had not accepted the case of the assessee and confirmed the addition made u/s. 69A of the Act.
As against the said order, the present appeal has been filed before this Tribunal.
4. At the time of hearing, the Ld.AR submitted that the assessee is filing return on presumptive basis and also filed various documents to show that there are sources for depositing cash during the demonetisation period but unfortunately the AO had made an adhoc addition which was later on confirmed by the Ld.CIT(A) and therefore there is no basis for making the said addition of Rs. 5 Lakhs and therefore prayed to allow the appeal.
The Ld.DR relied on the orders of the lower authorities and prayed to dismiss the appeal.
We have heard the arguments of both sides and perused the materials available on record.
7. We have perused the assessment order and the submissions made by the assessee and also the various documents filed by the assessee before the AO to prove that the assessee had sufficient source for cash deposits made during the demonetisation period. We have also perused the finding given by the AO while confirming the addition of Rs. 5 Lakhs. The AO had accepted that the assessee had furnished the cash flow chart, statement of affairs, withdrawals on deposits as per the bank statement and the purchase of M/s. Elegant Fashions in the month of October, 2016 and to start the new business she was holding cash and considered the return of income for previous years, and therefore the AO ought to have deleted the entire addition made u/s. 69A of the Act. Without doing so, the AO had made an adhoc addition of Rs. 5 Lakhs as the unexplained money u/s. 69A of the Act. The adhoc addition made by the AO is not on sound principles but only on assumptions this addition was made. The Ld.CIT(A) also not considered the said facts while deciding the appeal.
In such circumstances, we are inclined to allow the appeal filed by the assessee by considering the entire facts and also the documents submitted by the assessee before the AO. Further, the assessee had also filed her return of income on presumptive basis. Considering the facts, we are of the view that there is no need for adding a portion of the cash deposits made during the demonetisation period as unexplained money u/s. 69A of the Act. We have arrived such a conclusion since the AO had no valid grounds to make an adhoc addition of Rs. 5 Lakhs when everything was explained before him.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 24th November, 2025.