SANGEETA YADAV,K V RANGA REDDY vs. ITO., WARD-8(1), HYDERABAD

Aggrieved by the assessment order, the assessee carried the matter in appeal before the Ld. CIT(A) but could not succeed.

The Ld. CIT(A), vide their order dated 26.08.2025, for the reasons stated therein, dismissed the appeal filed by the assessee and upheld the additions made by the A.O. towards cash deposits under Section 69A of the Act, unsecured loan under Section 68 of the Act, and unexplained opening capital under Section 68 of the Income Tax Act, 1961.

Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.

The first issue that came up for our consideration from Ground No. 2 of the assessee’s appeal is the addition of Rs.19,25,000/- under Section 69A of the Act, towards cash deposits made during the demonetization period. The A.O. made an addition of Rs.19,25,000/- under Section 69A of the Act on the ground that, 4 Sangeeta Yadav the assessee could not file any documentary evidences regarding the source of the cash deposits made during the demonetization period.

The learned counsel for the assessee, Shri A.V. Raghuram, Advocate, submitted that, the assessee is a graduate in Arts and she was earning income right from 1995 by running tuition classes, and the source of the cash deposits into the bank account during the demonetization period was out of her accumulated savings from past several years. Although the assessee has explained the source for the cash deposits, but both the Ld. A.O. and the Ld. CIT(A) rejected the explanation of the assessee and sustained the addition made by the A.O. Therefore, he submitted, that the addition made by the A.O. should be deleted.

The learned Senior A.R. for the Revenue, Dr. Sachin Kumar, on the other hand, supporting the order of the Ld. CIT(A), submitted that, the arguments of the assessee that she had earned income from running tuition classes is not substantiated with any evidence. Further, the assessee has not filed any return of income up to the A.Y. 2016-17, and for the first time, she has filed a return of income declaring meagre income of Rs.1,96,230/-.

We have heard both parties, perused the material available on record, and had gone through the orders of the authorities below. There is no dispute with regard to the amount of cash deposited into the bank account during the demonetization period. In fact, the assessee had deposited a sum of Rs.19,25,000/- into her bank account during the demonetization period. The assessee explained that, the source for the cash deposits was out of accumulated income from past several years and the same has been earned out of her business activity of running tuition classes. In support of her argument, the assessee furnished a cash flow statement, including statement of affairs and as per the details submitted by the assessee, she claimed an opening capital of Rs. 26,35,565/-. The assessee also furnished relevant certificates to substantiate her qualification for conducting coaching and tuition classes. Upon verification of the relevant 6 Sangeeta Yadav submissions, we find that the explanation offered by the assessee with regard to the source of the cash deposits is vague without any supporting evidences to prove her claim of earning income from profession being conducting tuition classes and accumulating income from past several years. Further, the assessee claims to have kept the earning in the form of cash and the same has been deposited into the bank account during the demonetization period, is contrary to the theory of human preponderances going by the claim of the assessee that, she was earning right from A.Y. 1995-96 and up to A.Y. 2017-18. Since the assessee could not explain the source for cash deposit with known source of income and also with relevant supporting evidences, in our considered view, the arguments of the counsel for the assessee in light of statement of affairs filed for the year under consideration to explain the source out of opening balance of capital account cannot be accepted. Further, the opening capital or opening balance may be in the form of various assets, including cash, bank balance or any other assets. Unless, the assessee proves the availability of cash represented by the opening balance, in our considered view, the vague explanation given by 7 Sangeeta Yadav the assessee for source of cash deposit into bank account cannot be accepted. Therefore, in our considered view, there is no error in the reasons given by the A.O. and the Ld. CIT(A) to make addition towards cash deposit of Rs.19,25,000/- u/s 69A of the Act. Thus, we are inclined to uphold the findings of the Ld. CIT(A) and reject the grounds taken by the assessee.

The next issue that came up for our consideration from Ground No. 3 of the assessee’s appeal is the addition of Rs.26,35,565/- under Section 68 of the Act towards opening capital.

The assessee explained the source of cash deposits into the bank account out of her income earned in the previous financial years by filing a statement of affairs and cash flow statement wherein she had claimed an opening capital of Rs.26,35,565/-. The A.O. made the addition towards opening capital or balance on the ground that, the assessee had not filed any return of income for the earlier financial years except for filing the return of income for the A.Y. 2017-18. Therefore, the opening capital is not substantiated with relevant evidence.

It was the argument of the learned counsel for the assessee that, the assessee was in the business of running tuition classes and out of her business activity, she earned income from last several years right from the A.Y. 1995-96, and out of her accumulated business savings from coaching activity over the years, she had created assets of Rs.26,35,565/- which includes cash balance and other receivables.

The learned Senior A.R. for the Revenue, on the other hand, relied upon the order of the Ld. CIT(A) and submitted that, the assessee had not filed any return of income for the earlier years nor furnished any documentary evidence to substantiate the existence of the opening capital. He therefore argued that the A.O. had rightly invoked Section 68 of the Act and the addition deserves to be sustained.

We have heard both parties and considered the relevant arguments of both the sides in light of additions made by the A.O. towards opening balance under Section 68 of the Act. The assessee explained that, the cash deposits into the bank account were out of the opening capital, which was represented in the form of cash in hand or receivables and it pertains to the earlier 9 Sangeeta Yadav financial years. The A.O. made the addition under Section 68 of the Act towards opening capital on the ground that, the assessee could not substantiate the credit with relevant evidences. We find that, the A.O. did not accept the explanation of the assessee with regard to source for cash deposit out of opening balance and made addition of Rs.19,25,000/- u/s 69A of the Act. Once, the A.O. has not accepted the explanation of the assessee with regard to source for cash deposit and has made addition on cash deposit, then once again he cannot make addition towards opening capital, because, the opening capital is not an asset, but it is only a liability representing in the form of an asset either in the form of cash or cash equivalents or any other movable or immovable assets. Further, the opening capital does not represent income earned for the year under consideration and also does not represent the credit in the books of accounts of the assessee in order to make addition u/s 68 of the Act. Since the A.O. has already made additions towards cash deposit of Rs.19,25,000/- on the ground that, the explanation of the assessee with regard to source out of opening capital is not acceptable, then in our considered view, once again making addition towards opening 10 Sangeeta Yadav balance amounts to double addition. Further, the opening capital does not represent income of the assessee earned for the year under consideration or any credit found in the books of accounts of the assessee, which was not explained to the satisfaction of the A.O. Therefore, in our considered view, the addition made by the A.O. towards opening capital of Rs.26,35,565/- u/s 68 of the Act, cannot be sustained. Thus, we set aside the findings of the Ld. CIT(A) in this regard and direct the A.O. to delete the addition of Rs.26,35,565/- made u/s 68 of the Act.

The next issue that came up for our consideration from Ground No. 4 of the assessee’s appeal is the addition of Rs.19,00,000/- under Section 68 of the Income Tax Act, 1961, towards unsecured loans received from Shri Anil Yadav.

The learned counsel for the assessee submitted that, the assessee had received a sum of Rs.19,00,000/- on three occasions through banking channels from her husband, Shri Anil Yadav. The A.O. made the addition on the ground that, the assessee could not establish the creditworthiness of the loan creditor. It was the explanation of the assessee before the A.O. that, Shri Anil Yadav, husband of the assessee, had sufficient source of income 11 Sangeeta Yadav to extend the loan to the assessee, which is evident from the transfer of funds made through proper banking channels.

The learned Senior A.R. for the Revenue, on the other hand, relied upon the order of the Ld. CIT(A) and submitted that the assessee had failed to establish the creditworthiness of the loan creditor and also failed to explain the source for the cash deposits in the bank account of Shri Anil Yadav. He, therefore, supported the findings of the A.O. and argued that, the addition made under Section 68 of the Act, deserves to be sustained.

We have heard both parties and considered the relevant arguments on both sides and we find that, the A.O. made the addition towards unsecured loan of Rs.19,00,000/- only on the ground that, the loan creditor does not have the creditworthiness to advance the said loan to the assessee. On the other hand, the evidence furnished by the assessee clearly proves that, the loan creditor had sufficient source of income and also proved creditworthiness by filing relevant evidences, including copies of bank statements from where the funds had been transferred to the assessee’s bank account. The assessee had also furnished a confirmation letter from the loan creditor along with his income 12 Sangeeta Yadav tax return filed for the relevant assessment year. From the details furnished by the assessee, there is no dispute with regard to the fact that, the loan has been transferred out of the funds available in his bank account. Although there are cash deposits at the time of transfer to assessee’s bank account, but in the case of the assessee’s husband Shri Anil Yadav, addition has been made towards cash deposit and the same has been challenged before the Tribunal. The Tribunal, in for the A.Y. 2017-18, accepted the explanation of the assessee with regard to the source for cash deposits into the bank account and deleted the additions made by the A.O. Once the source for cash deposits was explained by the loan creditor, then the said cash balance or bank balance was available for the loan creditor to explain the loan given to the assessee. Since the assessee has established the identity of the loan creditor, proved the genuineness of the transaction, and also the creditworthiness of the loan creditor, in our considered view, the addition made by the A.O. under Section 68 of the Act cannot be sustained. The Ld. CIT(A), without appreciating the relevant facts, has simply sustained the addition made by the A.O. Thus, we set aside the order of the Ld. CIT(A)

In the result, the appeal filed by the assessee is partly allowed.