DEPUTY COMMISSIONER OF INCOME TAX, MADURAI vs. SUBBIAH NADAR JEGATHEESAN, TIRUNELVELI

For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the Order of Ld. CIT (Appeals) may be set aside and that of Assessing Officer may be restored.

The brief facts of the case are that the assessee is an individual, who is a partner in various firms comprising the M/s.V.V.Minerals Group of Concerns, and is also independently engaged in the proprietorship business of operating a ‘Rice Mill’. For the AY 2017-18, the assessee filed his return of income on 20.03.2018, declaring a total income of Rs.1,69,08,010/-. The said return was selected for scrutiny under CASS, and accordingly, a notice u/s.143(2) of the Act was issued on 16.08.2018. The case was selected for scrutiny based on the following parameters: i. Large cash deposits in bank accounts of the assessee during the year; ii. High value cash withdrawals during the year; and iii. Large agricultural income shown in ITR 4. Subsequently, a search and seizure operation u/s.132 of the Act was conducted in October 2018 in the case of the assessee and other entities forming

During the course of assessment proceedings, based on the AIR data, the AO observed that the assessee had made aggregate cash deposits amounting to Rs.4,75,43,171/- in various savings bank accounts during the relevant previous year, which included deposits of Rs.1,86,55,314/- made during the demonetization period. The bank-wise break-up of the said deposits, as taken note of by the AO, is as under:

In response, the assessee submitted that he was engaged in the proprietorship business of running a rice mill, and that the cash deposits, were out of the cash balance available in the rice mill and earlier withdrawals from bank accounts. With respect to the agricultural income, the assessee furnished land revenue records in support of his claim. As regards the omission of salary income, the assessee submitted that the same was an inadvertent error and clarified that the salary income had been duly reported in the original return of income and that the corresponding taxes had already been paid along with the original return of income. Since there is no dispute regarding the omission of salary income in the present appeal, the same is not discussed upon further.

The AO, however, was not convinced with the explanation furnished by the assessee relating to agricultural income and cash deposits. According to the AO, the assessee failed to substantiate the agricultural income of Rs.5,12,000/- with credible documentary evidence. Accordingly, the said amount was treated as unexplained cash credit u/s.68 of the Act and added to the total income. With respect to the aggregate cash deposits of Rs.4,75,43,171/-, the AO noted that the assessee had not satisfactorily explained the source of such deposits, particularly those made outside the demonetization window. The AO further observed that the figures disclosed in the return of income filed relating to the rice mill business for the relevant previous year were not commensurate with the volume of cash deposits,

Being aggrieved by the assessment order, the assessee preferred an appeal before the ld.CIT(A).

Before the ld.CIT(A), the assessee submitted that an amount of Rs.20,00,000/- was erroneously included twice in the assessment order due to the duplication of bank account number 883888045 (Indian Bank, Tisayanvillai). This, according to the assessee, resulted in a double addition and constituted an apparent error on the face of the record. The assessee further explained that as on 01.04.2016, he held an opening balance of Rs.3,31,42,358.85 in his Federal Bank account. Substantial cash withdrawals were made from this account during the year with the intention of making investments. However, due to the unexpected announcement of demonetization on 08.11.2016, the withdrawn funds were redeposited into various bank accounts, including a sum of Rs.1.32 crores redeposited into the same Federal Bank account. In support of this claim, the assessee furnished relevant bank statements, cash withdrawal details, and a reconciliation statement. The remaining amount of Rs.75,85,607/-, the assessee explained that it represented business receipts from his proprietorship concerns ‘VV Rice Mill’ and ‘King Royal Palace’ as well as capital withdrawals from partnership firms in which he was a partner. Accordingly, the assessee contended that the :-6-: ITA. No:603/Chny/2025 addition made by the AO u/s.69A of the Act was unwarranted and ought to be deleted.

The assessee submitted land revenue records before the ld.CIT(A) in support of the claim of agricultural income. It was contended that the assessee has been consistently reporting agricultural income in previous assessment years, which has been duly accepted by the Department. Further, there has been no material deviation in the quantum or nature of agricultural income during the assessment year under consideration. Accordingly, the assessee submitted that the AO erred in treating the agricultural income of Rs.5,12,000/- as unexplained cash credit u/s.68 of the Act, and requested that the addition be deleted.

Considering the submissions made by the assessee during the appellate proceedings, the ld.CIT(A) by the impugned order dated 16.12.2024 deleted the additions made by the AO, treating agricultural income of Rs.5,12,000/- as unexplained cash credit u/s.68 of the Act and cash deposits of Rs.4,75,43,171/- as unexplained money u/s.69A of the Act.

With regard to the issue of agricultural income, the ld.CIT(A) observed that the assessee and his family have a longstanding history of agricultural activities and have consistently reported agricultural income in their tax returns, which has been accepted by the Department in previous assessment years. In the current assessment year, the AO questioned the genuineness of the declared agricultural income without furnishing any substantive evidence or offering valid reasons for disregarding the land revenue records submitted by the assessee. The ld.CIT(A) held that the submission of land revenue records sufficiently established both ownership of the agricultural land and the continuity of agricultural operations.

The ld.DR, Ms.E.Pavuna Sundari, CIT, vehemently opposed the findings rendered by the ld.CIT(A) in deleting the additions made by the AO. It was submitted that the assessee failed to discharge the burden of proof in respect of the agricultural income claimed, as no credible or contemporaneous documentary evidence was furnished to substantiate the same. The ld. DR contended that in the absence of verifiable and corroborative material on record, the action of the ld.CIT(A) in accepting the assessee’s claim is unsustainable in law.

Drawing reference to page 10 of the assessment order, the ld.DR submitted that the assessee’s declared turnover from the rice mill business during the assessment year 2017-18 was Rs.1,99,52,856/-, which, according to her, does not :-12-: ITA. No:603/Chny/2025 reconcile with or substantiate the magnitude of the cash deposits made by the assessee in his bank accounts during the relevant period.

With respect to the explanation offered by the assessee regarding the redeposit of previously withdrawn cash, the ld.DR submitted that such a proposition is inherently implausible, as no prudent individual would retain substantial cash in hand over an extended period, thereby foregoing potential interest income and exposing the funds to risks. In the absence of any contemporaneous evidence demonstrating the necessity or intention to retain such large sums in cash, the assessee’s explanation deserves to be rejected.

Placing substantial reliance on the reasoning set forth by the AO in the assessment order, the ld.DR submitted that the ld.CIT(A) erred in accepting the assessee’s explanation without appreciating the case of the AO. The ld.DR therefore urged that the impugned order of the ld.CIT(A) be reversed and the additions made by the AO be restored by allowing the appeal of the Revenue.

Per contra, the ld.AR for the assessee, Shri R.Venkata Raman, Chartered Accountant, supported the findings of the ld.CIT(A) and submitted that the agricultural income of Rs.5,12,000/- declared by the assessee for the impugned assessment year is consistent with the assessee’s past pattern of disclosures and does not reflect any abnormal increase warranting suspicion. The ld. AR submitted that for the immediately preceding and succeeding assessment years, i.e., A.Ys. 2016-17 and 2018-19, the assessee had declared similar amounts under agricultural income, which were duly accepted by the Department in the course of the respective assessment proceedings. In support of this contention, the ld.AR placed reliance on copies of the assessment orders passed for the said assessment years. It was :-13-: ITA. No:603/Chny/2025 further contended that, having accepted similar declarations of agricultural income in the earlier and subsequent years, the AO was not justified in isolating the income declared in the impugned year as unexplained cash credit, without bringing on record any contrary evidence to disprove the genuineness of the claim. Referring to the reasoning recorded by the ld.CIT(A), the ld. AR submitted that the findings are well-reasoned and in accordance with law, based on appreciation of facts and supporting material. The ld.AR, therefore, prayed that the decision of the ld.CIT(A) in deleting the addition of Rs.5,12,000/- made towards agricultural income requires to be upheld.

The ld.AR for the assessee drew our attention to paragraph 6.4.3 of the impugned order of the ld.CIT(A) and submitted that the addition of Rs.20,00,000/- made on account of cash deposits was erroneously made on the basis of a duplicate entry. It was pointed out that the Indian Bank account bearing A/c No. 883888045 had been inadvertently considered twice by the AO in the computation of total deposits, resulting in a duplication and consequent overstatement. The ld.AR contended that this constituted a mistake apparent on the face of the record, warranting deletion which the ld.CIT(A) has rightly deleted.

Referring to paragraph 6.4.2 of the CIT(A)’s order, the ld.AR submitted that the assessee had an opening bank balance in Federal Bank, Tisayanvillai Branch (A/c No. 11910100058848) of Rs.3,31,42,358/- as on the first day of the relevant assessment year. The ld. AR further submitted that this fact was supported by the bank account statement, which was duly furnished before the AO and not disputed. According to the ld.AR, a substantial portion of the said bank balance was withdrawn in cash during the months of September and October 2016 and later redeposited into

The ld. AR also made additional submissions to the effect that the assessee had been subjected to a search and seizure action under the provisions of the Act. However, during the course of such proceedings, no incriminating material was unearthed which would suggest that the cash deposits amounting to Rs.4,75,43,171/- represented undisclosed income of the assessee. It was further submitted that the Revenue had neither alleged nor demonstrated that the earlier cash withdrawals had been diverted or utilised for any purpose other than for redeposit into the assessee’s own bank accounts. In the absence of any material evidence to the contrary, the Revenue's presumption that the funds were not available with the assessee was purely speculative.

We have carefully considered the rival submissions advanced by both sides and have perused the material available on record, including the assessment order and the submissions filed by the assessee during the course of appellate proceedings.

We note that the assessee has furnished documentary evidence in support of ownership of agricultural land, including certified copies of land revenue records issued by the competent revenue authorities. These records remain unchallenged by the AO. Furthermore, we find that the assessee has consistently declared agricultural income in preceding as well as subsequent assessment years, and such returns have been accepted by the Department without any adverse findings. This consistent treatment lends substantial credibility to the assessee’s claim for the relevant assessment year. The principle of consistency, as laid down in various judicial precedents, mandates that in the absence of any material change in facts or circumstances, the Department ought not to take a divergent view in subsequent years. Under Section 68 of the Act, the initial onus lies upon the assessee to offer an explanation regarding the nature and source of any credit found in the books of accounts. In the present case, the assessee has discharged this burden by stating that the sum in question represents agricultural income derived from self-owned agricultural land and by furnishing corroborative documentary evidence in support thereof. Once the assessee has provided a plausible explanation supported by credible evidence, the onus shifts to the Revenue to disprove the same. However,

Coming to the issue of cash deposits of Rs.4,75,43,171/- treated as unexplained money u/s.69A of the Act, we note that the AO made the addition in respect of the following cash deposits made in the bank accounts during the impugned assessment year: Bank Account No Bank Name Total cash deposits during the year (Rs.) 0883888045 Indian Bank 20,00,000 Tisayanvillai 194801000000371 IOB, Tisayanvillai 1,30,63,000 194801000023371 IOB, Tisayanvillai 81,59,571 11910100058848 Federal Bank, 1,60,20,600 Sankarankoil 883888045 Indian Bank 83,00,000 Tisayanvillai Total 4,75,43,171 28. It is evident from the foregoing facts and the records on file that the AO, while computing the aggregate cash deposits amounting to Rs.4,75,43,171/-, has inadvertently considered the Indian Bank, Tisayanvillai Branch (Account No: 883888045), on two separate occasions, thereby resulting in a duplication of entries. Upon meticulous examination, the ld.CIT(A) has categorically observed that the sum

It is an undisputed fact that the assessee had the following cash withdrawals during the impugned assessment year from Federal Bank, Tisayanvillai Branch (A/c No:11910100058848):-

It is pertinent to note that no incriminating material or evidence was found during the course of the search proceedings which could suggest that the above cash withdrawals were expended or otherwise utilized by the assessee for any alternate investments. Further, there is no material on record indicating that the cash deposits made into the bank accounts during the relevant assessment year represent income constituted undisclosed income of the assessee.

We note that the assessee has sufficiently discharged the initial burden of proof by furnishing a plausible explanation supported by corresponding entries in the bank accounts, thereby establishing a direct nexus between the earlier withdrawals and the subsequent deposits. It is a well-settled proposition of law that while an assessee is obligated to prove affirmative facts, he cannot be called upon to prove the negative that is, to demonstrate conclusively that the cash withdrawn was not utilized elsewhere. In such a situation, the burden of proof shifts to the AO to rebut the assessee’s explanation by adducing material evidence to establish that the cash withdrawals were, in fact, applied for a different purpose or were otherwise unavailable for redeposit. In the absence of any such positive finding or contrary

The Hon’ble Karnataka High Court in S.R.Venkata Ratnam v. CIT [1981] 127 ITR 807 (Kar) has held as under: “….once the petitioner-assessee disclosed the source as having come from the withdrawal made on a given date from a given bank, it was not for respondents Nos. 1 and 2 to concern themselves with what the assessee did with that money, i.e., whether he had kept the same in his house or utilised the services of a bank by depositing the same. The ITO had only two choices before him. One was to reject the explanation as not believable for the reason that on his investigation no such pigmy deposit was ever made in the bank. In the alternative he ought to have called upon the assessee-petitioner to substantiate his claim by documentary evidence. Having exercised neither of the choices, it was not open to the ITO to merely surmise that it would not be probable for the assessee to keep Rs.15,000 unutilised for a period of two years. The ITO should have given an opportunity to the assessee to substantiate his assertion as to the source of his capital outlay.”

Following the above judgment, the Hon’ble Karnataka High Court in Smt. P.Padmavathi v. ITO (ITA No. 414/2009, dated 06.10.2020), has held as under: “12. In this case, it is not in dispute that the assessee withdrew a sum of ₹.5,00,000/- on 18.8.2003 and ₹.2,00,000/- on 20.8.2003 from her savings account. She is an agriculturist and she had agricultural income. Once she demonstrated that she was in possession of ₹.7,00,000/- cash plus agricultural income on her hands, if after 40 days, a cash deposit is made to the extent of about ₹.5,20,000/- towards loan account, it cannot be said that the source of the said deposit is not properly explained. Merely because there is a delay of 40 days from the date of withdrawal of the money from the bank account to the date of deposit in the loan account. Once money is shown to be in the account and withdrawn, what the assessee did with that money till it was actually deposited, is not the concern of the Department. As long as the source is explained and established and when the money is withdrawn from a savings bank account and paid to discharge loan by deposit into a loan account, it is not possible to hold that the source is not explained. In that interregnum period, if the very same money is utilised for other purpose and thereafter, :-20-: ITA. No:603/Chny/2025 it is appropriated towards discharge of a loan, that cannot be held against the assessee. In that view of the matter, the finding recorded by the Tribunal is erroneous and requires to be set aside. Therefore, the said substantial question of law is also held against the revenue and in favour of the assessee.”

The Hon’ble Delhi High Court in Jaya Aggarwal v. ITO [2018] 92 taxmann.com 108 (Del) has held as under: “8. We find it difficult to accept the approach and findings recorded for several reasons. The brief order does not examine and consider the entire explanation and material on record as withdrawal of Rs.2,00,000/- in cash was undisputed. Naturally, the huge withdrawal was for a purpose and objective. From the beginning the explanation given was that withdrawal was to pay earnest money for purchase of immovable property, which deal did not fructify. Explanation given was not fanciful and sham story. It was perfectly plausible and should be accepted, unless there was justification and ground to hold to the contrary. Delay of some months in redeposit of part amount is the sole and only reason to disbelieve the appellant. Persons can behave differently even when placed in similar situations. Due regard and latitude to human conduct and behaviour has to be given and accepted when we consider validity and truthfulness of an explanation. One should not consider and reject an explanation as concocted and contrived by applying prudent man's behaviour test. Principle of preponderance of probability as a test is to be applied and is sufficient to discharge onus. Probability means likelihood of anything to be true. Probability refers to appearance of truth or likelihood of being realised which any statement or event bears in light of the present evidence (Murray's English Dictionary). Evidence can be oral and cannot be discarded on this ground. Assessment order and the appellate orders fall foul and have disregarded the preponderance of probability test.”

Therefore, in the present facts and circumstances of the case and the ratio decidendi laid down in the aforementioned judgments is directly applicable to the facts and circumstances of the present case concerning the assessee and hence we are inclined to uphold the findings of the ld.CIT(A) accepting the source for cash deposits to the extent of Rs.4,34,00,000/- made out of previous cash withdrawals from Federal Bank, Tisayanvillai Branch (A/c No:11910100058848).

As for the remaining balance of Rs.21,43,171/-, we are of the considered view that the ld.CIT(A) has rightly held that the sales proceeds of assessee’s proprietorship concerns, namely VV Rice Mills and King Royal Palace, and from :-21-: ITA. No:603/Chny/2025 capital withdrawals from the partnership firms’ business, in which the assessee is a partner constitutes source for the remaining cash deposits.

In light of the foregoing discussion and upon careful consideration of the facts and legal position, we are of the considered opinion that the ld.CIT(A) has correctly appreciated the material on record and has rightly deleted the addition of Rs.4,75,43,171/- on account of cash deposits as unexplained money u/s.69A of the Act made by the AO. We find no cogent reason, nor any substantive ground, to disturb or displace the well-founded findings recorded by the ld.CIT(A). The Revenue has not been able to point out any error, either factual or legal, warranting interference by this appellate forum. Accordingly, we uphold the order of the ld.CIT(A) and dismiss the grounds of appeal filed by the Revenue as devoid of merit.

In the result, appeal filed by the Revenue stands dismissed.