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Facts
The assessee, engaged in coffee plantation, filed its ROI declaring ₹3,35,120.00. The case was selected for scrutiny to verify cash deposits during the demonetisation period. The assessee claimed the deposits were from agricultural income, supported by a closing cash balance of ₹18,29,500.00. The AO, however, accepted only ₹7,00,000 as closing balance and added ₹8,93,500 as unexplained investment.
Held
The Tribunal held that the assessee had satisfactorily explained the source of cash deposits, as the total deposits were within the available cash balance as per the books. The AO's ad hoc restriction of the cash balance to ₹7 Lakhs lacked legal or factual foundation. The Tribunal also relied on judicial precedent stating that if an investment outside books is not proved, the assessee cannot be asked to prove its source.
Key Issues
Whether the addition of ₹8,93,500 as unexplained investment under Section 69 of the Income Tax Act is sustainable when the assessee has demonstrated sufficient cash balance from agricultural income to cover the deposits.
Sections Cited
69, 250
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Income Tax Appellate Tribunal, ‘SMC’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The present appeal has been filed by the assessee against the order passed by the Ld. CIT(A) u/s 250 of the Act dated 05.08.2025 for the AY 2017-18.
The assessee, in its memorandum of appeal, has raised as many as 11 grounds. However, for the sake of brevity and convenience, we are not inclined to reproduce the same here.
The grounds of appeal raised by the assessee are interconnected and pertains to the addition made u/s 69 of the Act to the extent of ₹8,93,500/- on account of alleged unexplained investments.
The brief facts of the case are that the assessee, a HUF, is engaged in coffee plantation activities. The assessee filed its ROI declaring a total income of ₹3,35,120.00 only. The case was selected for scrutiny under CASS primarily to verify the cash deposits made during the demonetisation period.
In response to the notices issued by the AO, the assessee submitted that its primary source of income was from coffee plantation which constitutes agricultural income and is exempt from tax under the Act. It was further submitted that the agricultural produce was sold to traders and agents and the receipts from such sales were largely received in cash. According to the assessee, the customers had deposited the sale proceeds directly into the bank account of the assessee.
5.1 As per the bank statement, the total cash deposited during the demonetisation period was ₹15,93,500.00 only. The assessee explained that as per its cash book the closing cash balance as on 08.11.2016 was ₹18,29,500.00 only. Therefore, the assessee contended that there was sufficient cash available out of agricultural receipts which could have been deposited in the bank during the demonetisation period.
5.2 However, the AO did not accept the explanation of the assessee. According to the AO, the sale receipts were primarily received through . banking channels such as RTGS and not in cash. Therefore, the AO accepted only ₹7,00,000 as the closing cash balance as on 08.11.2016 and treated the balance cash deposit of ₹8,93,500 as unexplained investment u/s 69 of the Act and added the same to the returned income.
Aggrieved, the assessee preferred an appeal before the Ld. CIT(A).
Before the Ld. CIT(A), the assessee furnished bank statements, cash book, cash flow statements and invoices relating to the sale of coffee in order to explain the source of cash deposits made during the demonetisation period.
7.1 However, the Ld. CIT(A) rejected the submissions of the assessee and held that the assessee failed to furnish sufficient corroborative evidence to substantiate the claim of availability of cash. According to the Ld. CIT(A), the assessee failed to discharge the burden of proof required to explain the source of the cash deposits and therefore the addition made by the AO was confirmed.
Being aggrieved by the order of the ld. CIT-A, the assessee preferred an appeal before us.
The Ld. AR before us has filed a paper book running from pages 1 to 38, containing written submissions, bank statements, submission made before the lower authorities along with the order of the same, agricultural sales bill, cash in hand workings etc.
9.1 The Ld. AR submitted that the authorities below failed to appreciate the nature of the assessee’s activity. The assessee is a coffee planter and the receipts from the sale of coffee beans constitute agricultural income which is exempt under the provisions of the Act. It was submitted that in plantation activities, agricultural produce is frequently sold to traders and local buyers where payments are often received in cash.
9.2 The ld. AR further submitted that the assessee had maintained proper cash records and the cash book clearly reflected a closing cash balance of ₹18,29,500 as on 08.11.2016. The total cash deposited during the demonetisation period was only ₹15,93,500, which was well within the available cash balance. Therefore, the deposits were fully supported by the cash book and cash flow statement.
9.3 The Ld. AR also submitted that the AO arbitrarily restricted the closing cash balance to ₹7 Lakhs without pointing out any specific defect in the books of account maintained by the assessee. It was argued that once the books of account were not rejected, the AO was not justified in disregarding the cash balance shown in the books.
The assessee further submitted that it had also produced agricultural sale bills and other supporting documents before the authorities below to demonstrate that the cash available with the assessee arose out of agricultural sales. These documents were placed in the paper book and were not properly appreciated by the lower authorities.
10.1 It was therefore submitted that the cash deposits made during the demonetisation period were fully explained and represented cash generated from agricultural operations. Hence, the addition made u/s 69 of the Act was liable to be deleted.
The Ld. DR, on the other hand, vehemently supported the orders of the lower authorities and submitted that the assessee failed to satisfactorily explain the source of cash deposits made during the demonetisation period. It was argued that mere claim of agricultural income is not sufficient unless supported by reliable evidence.
11.1 The Ld. DR therefore submitted that the assessee failed to discharge the burden of proof cast upon it under the provisions of the Act. Accordingly, the addition made by the AO and confirmed by the Ld. CIT(A) deserves to be upheld.
We have heard the rival submissions of both the parties and perused the materials available on record. The short issue before us is whether the cash deposit of ₹8,93,500 made during the demonetisation period could be treated as unexplained investment u/s 69 of the Act.
12.1 On careful examination of the facts, we find that the total cash deposits during the relevant period was ₹15,93,500, whereas the assessee has shown closing cash balance of ₹18,29,500 as on 08.11.2016. Thus, prima facie, the cash deposit was within the available cash balance as per books. Once the assessee produces books of account and cash-flow working showing availability of sufficient cash, the burden shifts on the Revenue to point out specific infirmity, falsity or . inconsistency therein. In the present case, neither the AO nor the Ld. CIT(A) has brought any concrete material on record to demonstrate that the cash book maintained by the assessee was fabricated, manipulated or otherwise unreliable. There is no finding that the books of account were rejected. There is also no finding that the agricultural sales bills were false or non-genuine. In the absence of such adverse material, the authorities below were not justified in brushing aside the documentary evidence merely on suspicion.
12.2 The AO was required to make a proper reconciliation of the sale bills, mode of receipt, cash book entries and bank deposits. Instead of doing so, the AO has simply accepted an ad hoc sum of ₹7 Lakhs as available cash balance and treated the balance amount of ₹8,93,500 as unexplained. We are unable to find from the assessment order any rational basis, working or supporting material for restricting the cash balance to ₹7 Lakhs. An addition u/s 69 cannot be sustained on estimate, conjecture or arbitrariness. It must rest on clear material showing that the investment was not recorded or that the explanation offered was unsatisfactory on objective grounds.
12.3 It is also important to note that the addition has been made u/s 69 of the Act on account of unexplained investment. For invoking section 69, the Revenue must first establish that the assessee had made investments which were not recorded in the books of account, if any, maintained by him, and that the explanation regarding nature and source thereof was not satisfactory. In the present case, the subject matter is cash deposit in bank, and the assessee has shown that the same came out of cash already available as per books. Thus, the very .
Page 7 of 8 foundation for invoking section 69 of the Act becomes weak when the source stands reflected in the regular cash records and the Revenue has not disproved the same with cogent material.
12.4 We also find force in the judicial precedent in the case of Ananthakrishna Vasudev Aithal vs. Income-tax Officer reported in [2023] 147 taxmann.com 376 (Bangalore - Trib.)[24-11-2022] wherein it has been held that to invoke provision of section 69, it is sine qua non that assessee must have made investments which are not recorded in books of account; if such an investment outside books is not proved, assessee cannot be called upon to prove source of such a hypothetical investment. The relevant para is reproduced below: “It is thus clear from the order of the NFAC that there is no proper application of the mind. Nevertheless, I am of the view that the Assessing Officer has made the addition u/s 69 of the Act. This section, in turn, provides that : 'Where in the financial year immediately preceding the assessment year the assessee has nude investments which are not recorded in the books of account, it' any, maintained by him for any source of Income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may he deemed to be the income of the assessee of such financial year.' A careful perusal of the provision divulges that in order to invoke this provision, it is sine qua non that the assessee must have made investments which are not recorded in the books of account. The factum of the assesses having made investment should be first proved by the AO, only then the burden shifts on the assessee to prove the source of investment. Such invesment outside the books of account must be positively proved by the AO and not only inferred from the attending facts. If such an investment outside the books is not proved, the assessee cannot be called upon to prove the source of such a hypothetical investment.”
12.5 Accordingly, in the totality of the facts and circumstances of the case, we hold that the assessee has satisfactorily explained the source of cash deposit of ₹15,93,500, including the sum of ₹8,93,500 treated by the AO as unexplained. The ad hoc restriction of cash balance to ₹7L has no legal or factual foundation. Therefore, the addition of ₹8,93,500 . made u/s 69 of the Act is directed to be deleted. Thus, the grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in court on 11th day of March, 2026