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Facts
The assessee, an individual and senior citizen from a rural background, deposited ₹10,24,000 in her bank account during the demonetization period. She did not file her return of income or respond to notices, leading the AO to treat the deposits as unexplained income under section 69A. The CIT(A) upheld the addition.
Held
The Tribunal held that the assessee had provided evidence of prior withdrawals from her bank account, which constituted a valid source for the cash deposits. The lower authorities erred in mechanically confirming the addition without considering the evidence and the principles of natural justice.
Key Issues
Whether cash deposits made by the assessee during demonetization, allegedly from agricultural income and prior withdrawals, can be treated as unexplained income under Section 69A when evidence of such source was provided.
Sections Cited
69A, 142(1), 133(6), 144
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘SMC’ 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 14-02-2025 for the assessment year 2017-18.
The issue raised by the assessee is that the learned CIT(A) erred in confirming the addition made by the AO for ₹10,24,000 on account of cash deposits under section 69A of the Act.
The relevant facts are that the assessee is an individual. The assessee did not file her return of income for the A.Y. 2017-18 within the due date. The Revenue had the information that there was substantial cash deposit made by the assessee in her bank. Thus, the AO issued a notice under section 142(1) of the Act on 09.03.2018, requiring her to furnish the return by 08.04.2018. However, there was no response. Further reminders were issued on 12.09.2019 and 20.09.2019, but still no compliance was made. In the last reminder, the assessee was informed that if no reply was given, the entire cash deposits found in her bank account would be treated as her income. Despite this, no explanation or return was filed.
Thereafter, the AO called for information from the bank under section 133(6) of the Act. From this, it was noticed that the assessee had made cash deposits of ₹10,24,000/- during the year in her Axis Bank account at Doddaballapur Branch, Bangalore Rural. Since the assessee failed to file her return and failed to explain the source of these deposits, the AO held that she is the owner of this money and that it was not recorded in any books of account. The AO concluded that the cash deposits of ₹10,24,000 represented unexplained money and brought the same to tax under the provisions of section 69A of the Act. The assessment was completed under section 144 of the Act.
The aggrieved assessee preferred an appeal before the learned CIT(A) which was dismissed by him (the learned CIT(A)) by observing as under: 1. The ground of appeal object to addition of Rs.1024000/- being unexplained cash deposits in the bank a/c. In the absence of any Return of Income nor any explanation regarding the sources of cash deposits made in the bank accounts, .
Page 3 of 7 the AO was constrained to conclude the assessment on the basis of information available on records as under: - Information called for from the bank U/s. 133(6) of the Income-tax Act, 1961 revealed that the assessee has made the following cash deposits in the bank account: XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXX Thus, it is clear that the assessee is found to be the owner of the above money and the same is not recorded in the books of accounts and no explanation has been offered regarding the nature and sources for the acquisition of the above money and the same is brought to tax U/s.69A of the Income-tax, 1961. The AO rightly added Rs.1024000 u/s.69A of the I. T. Act and the same is confirmed.
Being aggrieved by the order of the learned CIT(A), the assessee is appeal before us.
The learned AR before us submitted that the assessee, Smt. Jalappa Parvathi Devi, is a senior citizen belonging to a rural background and engaged in agriculture throughout her life. Her income was derived solely from agriculture, mostly received in cash, as is common in rural areas where banking transactions are not a regular practice. During the Assessment Year 2017-18, the assessee deposited ₹10,24,000/- in her bank account with Axis Bank during the demonetisation period. The learned AR explained that these deposits were nothing but agricultural receipts and cash already available with her, and therefore, the addition under section 69A was unjustified.
The learned AR further argued that the AO issued notices under section 142(1) of the Act, but the assessee never received them. This fact is supported by the records of the Income-tax e-filing portal, where no such notices were reflected. Since the assessee had no opportunity to respond, the order passed by the AO was in violation of the principles of . natural justice. The AO hurriedly treated the entire cash deposits as unexplained income without examining the source or considering the facts properly.
It was also highlighted that the assessee had filed detailed submissions before the NFAC/learned CIT(A) in the appellate stage, along with evidence such as bank statements and a sale deed for agricultural land. These documents clearly showed that the assessee had withdrawn large sums of cash ₹15,00,000/- on 02.11.2016 and ₹4,90,000 on 07.11.2016 from the same bank account, just prior to demonetization. The deposits made later were from these withdrawals. Thus, the source of cash deposits stood fully explained. However, the NFAC failed to examine these submissions and mechanically confirmed the AO’s order without any independent reasoning.
The learned AR relied on judicial precedents to strengthen the case. Reference was made to the decision of the Hon’ble Karnataka High Court in Shaik Madar Amanulla v. ITO reported in 113 taxmann.com 531 where it was held that non-service of statutory notices makes the entire assessment bad in law. Further reliance was placed on earlier rulings including S.R. Venkata Ratnam v. CIT reported in 6 taxman 263 (Kar) and decisions of the Delhi Bench of the ITAT in case of Hardeep Dalal vs. ITO reported in 174 taxmann.com 968, which held that prior withdrawals from bank accounts constitute a valid source for cash deposits.
Finally, the AR submitted that the orders of the AO and the learned NFAC/CIT(A) were both arbitrary, non-speaking, and contrary to . law. Since the source of the deposits was explained and evidenced, the addition under section 69A of the Act ought to be deleted. It was prayed that in the interest of justice, the Tribunal should set aside the orders of the lower authorities and grant appropriate relief to the assessee.
On the other hand, the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. The short issue involved is the addition of ₹10,24,000/- made under section 69A of the Act on account of cash deposits during the demonetization period.
13.1 The AO proceeded ex parte and made the addition merely on the basis of information obtained under section 133(6) of the Act regarding cash deposits in the assessee’s bank account. No explanation was considered, since the assessee did not respond to the notices, and consequently the AO treated the entire amount as unexplained money. The learned CIT(A)/NFAC, in appeal, confirmed the order of the AO without discussing the submissions and evidences filed by the assessee. Thus, the appellate order is also a non-speaking order and suffers from violation of the principles of natural justice.
13.2 The learned AR rightly pointed out that the assessee is a senior citizen, hailing from a rural background and engaged in agricultural activity, deriving her income only from agriculture operation. It is common knowledge that agricultural operations in rural areas are largely conducted in cash and regular use of banking channels is limited.
Therefore, cash availability in the hands of the assessee cannot be ruled out.
13.3 More importantly, the assessee had filed bank statements on the record to demonstrate that she had withdrawn substantial amounts of cash amounting to ₹15,00,000/- on 02.11.2016 and ₹ 4,90,000 on 07.11.2016 just prior to the announcement of demonetisation. These withdrawals themselves constituted a valid source for the subsequent deposits of ₹10,24,000/- only. Once such withdrawals are shown on record, the presumption is that the cash was available with the assessee unless the Department brings any material evidence to show that such cash was utilised elsewhere. In the present case, no such adverse material has been brought on record either by the AO or by the learned CIT(A). Ignoring these withdrawals and confirming the addition mechanically, without independent reasoning, was not justified.
13.4 The reliance placed by the learned AR on judicial precedents also supports the case of the assessee. The Hon’ble Karnataka High Court in S.R. Venkata Ratnam v. CIT (supra) and various benches of the Tribunal including the Delhi Bench in Hardeep Dalal v. ITO (supra) have held that prior withdrawals from the bank are to be treated as a valid source for cash deposits. These principles are squarely applicable to the facts of the present case.
13.5 In view of the above discussion, we are of the considered opinion that the addition of ₹10,24,000/- made by the AO and confirmed by the learned CIT(A)/NFAC cannot be sustained. The assessee had satisfactorily explained the source of the cash deposits by way of prior . withdrawals, and the authorities below erred in ignoring such vital evidence. Accordingly, we hereby set aside the finding of learned CIT(A)/NFAC and direct the AO to delete the addition made under section 69A of the Act. Hence the ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is hereby allowed.