JALAPPA PARVATHI DEVI,BANGALORE vs. ITO, WARD 6(3)(4), BANGALORE

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

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 Page 4 of 7

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 Page 5 of 7

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.

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.

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. Page 6 of 7

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.

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.

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 Page 7 of 7

In the result, the appeal of the assessee is hereby allowed.

The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file