Loading judgment…
Facts
The assessee filed an ITR for AY 2017-18, and his case was selected for 'limited scrutiny' regarding cash deposits during demonetization. The AO treated Rs. 30,79,000/- in cash deposits as unexplained money under Section 69A, rejecting the assessee's explanation that the source was agricultural land sale proceeds due to a discrepancy in the sale consideration. The CIT(A) upheld this order, and the assessee further contended that the AO wrongly included a pre-demonetization deposit of Rs. 10,00,000/-, thereby exceeding the scope of limited scrutiny.
Held
The Tribunal vacated the addition of Rs. 20.79 lacs made under Section 69A, finding that the revenue's inconsistent stance was unjustified given that the 'agreement to sell' for agricultural land, which funded a gift to the assessee's wife, was accepted in her assessment. It concluded that the assessee had sufficient explained funds (Rs. 65 lacs from land sale less Rs. 22 lacs gifted) to cover the demonetization deposits. Additionally, the Tribunal struck down the Rs. 10 lacs pre-demonetization addition, ruling that the AO exceeded the scope of 'limited scrutiny' by making this addition without following the prescribed CBDT procedures.
Key Issues
1. Whether cash deposits could be explained by agricultural land sale proceeds, especially when the revenue adopted an inconsistent stand in a connected assessment. 2. Whether the Assessing Officer exceeded the scope of 'limited scrutiny' by including a pre-demonetization deposit without following prescribed CBDT procedures.
Sections Cited
143(3), 69A, 2(14), 115BBE, 294
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘SMC’ Bench, Hyderabad
करदाताका""त"न"ध"व/ : Sri Sashank Dundu, Advocate Assessee Represented by राज"वका""त"न"ध"व/ : Sri V. Ravish Bhatt, Sr. AR Department Represented by सुनवाईसमा"तहोनेक""त"थ/ : 30/10/2025 Date of Conclusion of Hearing घोषणा क" तार"ख/ : 07/11/2025 Date of Pronouncement ORDER PER RAVISH SOOD, JM:
The present appeal filed by the assessee is directed against the order passed by the Addl/JCIT (A)/NFAC, Panchkula, dated 01/08/2025, which in turn arises from the assessment order passed by the AO under section 143(3) of the Income-tax Act, 1961 (for short, 2 Jagadishwar Barma vs ITO “Act”) dated 19.12.2019 for the Assessment Year 2017–18. The assessee has assailed the impugned order on the following grounds of appeal before us:
“1. On the facts and in the circumstances of the case, the order passed by the Learned Commissioner of Income Tax (Appeals), dated 01.08.2025, confirming the assessment order u/s 143(3) is erroneous, contrary to law, and unsustainable.
2. The Learned CIT(A) erred in upholding the action of the Assessing Officer in treating cash deposits of Rs. 30,79,000/- as unexplained money u/s 69A of the Act, despite sufficient and proper evidence being furnished regarding the source of such deposits.
3. The Learned CIT(A) failed to appreciate that the deposits were made out of the sale proceeds of agricultural land, which is not a capital asset u/s 2(14) of the Act, and therefore, the proceeds are not taxable.
The authorities below erred in ignoring that the case was selected for limited scrutiny only to verify cash deposits during the demonetization period (08.11.2016 to 30.12.2016). Hence, inclusion of deposits made prior to demonetization (Rs. 10,00,000/- on 06.09.2016) is beyond jurisdiction, contrary to CBDT Instruction No. 5/2016 and Circular dated 28.11.2018, and thus the orders passed by the lower authorities are bad in law.
5. The Learned CIT(A) failed to appreciate that the deposits made during demonetization were only Rs. 20,79,000/- and, therefore, the addition of Rs. 30,79,000/- is factually and legally untenable.
The Learned CIT(A) erred in disregarding the Agreement of Sale dated 07.10.2016, supported by contemporaneous receipt of advance, merely on the ground that it was unregistered, without appreciating that such agreements are valid and admissible in law.
7. The Learned CIT(A) erred in sustaining the addition under section 69A of the Act when the appellant had duly discharged the burden of proving the source of deposits. The onus shifted on the Assessing Officer to disprove the explanation, which was not discharged.
8. The Learned CIT(A) failed to consider judicial precedents, including the ruling of ITAT Cochin in ITO v. Koshy George (317 ITR (AT) 116) and ITO v. Abraham Varghese Charuvil (ITA No. 30/Coch/2017), wherein surplus from sale of agricultural land was held to partake the character of agricultural income.
9. The authorities below erred in invoking section 115BBE of the Act even after the appellant had explained the source of deposits. The provisions of section 115BBE have no application when source of income is explained.
3 Jagadishwar Barma vs ITO 10. Without prejudice this to the above, Assessing Officer erred in invoking the amended provisions of section 115BBE of the Act to apply tax rate of 60% overlooking the fact that the new provisions were introduced in Statute book on 15.12.2016, upon obtaining the assent of the Honourable President of India and thus in terms of provisions of section 294 of the Act, only earlier rate i.e., 30% is chargeable even if the alleged addition is maintainable.
11. The Appellant craves leave to add, amend, alter or delete any of the above grounds of appeal. For these and other grounds that may be urged at the time of hearing Hon’ble ITAT may be pleased to delete the arbitrary additions deciding appeal in favour of the Appellant.”
Succinctly stated, the assessee had filed his return of income for AY 2017-18 on 25-05-2018, declaring an income of Rs. 3,71,720/-. Subsequently, the case of the assessee was selected under CASS for “Limited scrutiny” for verifying the “Cash Deposits (Demonetization)”.
During the course of the assessment proceedings, the AO observed that the assessee had, during the subject year, made cash deposits in his bank account aggregating to Rs. 30,79,000/-. On being queried, it was the assessee’s claim that the source of the subject cash deposits were the proceeds of agricultural land sold by him along with his son (co-owner) on 07-11-2016 for a total sale consideration of Rs. 1,40,00,000/-. The assessee claimed that his share in the subject sale transaction was Rs. 70,00,000/-, out of which he had gifted an amount to his wife and deposited the balance sum in his bank account on different dates (including deposits during the demonetisation window). However, the AO did not find favour with the said explanation of the assessee. It was observed by the AO that as the registered sale deed 4 Jagadishwar Barma vs ITO recorded the sale consideration at Rs. 15,42,000/-, therefore, the claim of the assessee of having received a higher amount of sale consideration on the sale of the subject property did not merit acceptance. Consequently, the AO rejected the assessee’s explanation and held the entire amount of cash deposits of Rs. 30,79,000/- as having been sourced out of the assessee’s unexplained money under Section 69A of the Act.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals), wherein he assailed the order of assessment on muti- facet grounds, viz. (i) that the AO despite sufficient evidence had erred in treating the cash deposits as unexplained under section 69A of the Act; (ii) that the AO had exceeded the scope of limited scrutiny assessment and wrongly added the deposits made during the pre- demonetization period; and (iii) that the agreement of sale proved the source of the cash deposits. However, the CIT(A) did not find favour with the contentions of the assessee and upheld the assessment order and dismissed the appeal.
The assessee aggrieved with the CIT(A) order has carried the matter in appeal before us.
5 Jagadishwar Barma vs ITO 6. We have heard the Ld. Authorised representatives of both parties, perused the orders of the lower authorities and the material available on record.
Shri. Shashank Dundu, Advocate, the Ld. Authorised Representative (for short, “Ld. AR”) of the assessee, at the threshold of hearing of appeal, submitted that though the case of the assessee was selected for “limited scrutiny” for verifying the cash deposits made in his bank account during the demonetization period, but the AO had grossly erred in traversing beyond the scope of his jurisdiction and drawing adverse inferences regarding the cash deposits made by the assessee during the pre-demonetization period. Apart from that, the Ld. AR submitted that the AO had, while considering the assessee’s explanation regarding the source of the cash gift which he had during the subject year given to his wife out of the sale proceeds of the agricultural land, had though accepted the subject “agreement to sell”, but had thereafter adopted an inconsistent approach and diametrically drawn an inconsistent approach and doubted the veracity of the same “agreement to sell” and discarded the same while rejecting his explanation regarding the source of the cash deposits made in his bank account during the year under consideration. Elaborating on his contention, the Ld. AR submitted that the assessee had, during the year under consideration, out of his share of sale proceeds of Rs. 70 lacs 6 Jagadishwar Barma vs ITO received on the sale of agricultural land, given a cash gift of Rs. 22 lacs to his wife Smt. Shakuntla Barma. The Ld. AR submitted that the Tribunal, while disposing of the appeal in the case of Smt. Shakuntla Barma, for AY 2017-18, had directed the AO to verify the source of the cash deposit made in her bank account. The Ld. AR submitted that in the course of the set-aside proceedings in the case of Smt. Shakuntla Barma, it was, inter alia, claimed by her that the cash deposit of Rs. 22 lac in her bank account with Union Bank of India (erstwhile Andhra Bank) was the cash gift received by her from her husband, i.e., the assessee before us. The Ld. AR submitted that in the course of the set aside proceedings in the case of Smt. Shakuntla Barma (supra) the confirmation of the assessee of having given a cash gift of Rs. 22 lacs along with a copy of the “agreement to sell”, wherein it was reported that he along with his son Mr. Srikanth Barma had agreed to sell Acre 15 - 20 Guntas of agricultural land situated at Village: Avancha, Narsapur Mandal, District: Medak (erstwhile) for an agreed sale price of Rs. 9,10,000/- per acre were placed on record. The Ld. AR submitted that a copy of the registered sale deed No. 2610/2016, dated 07.11.2016, wherein it was stated that the assessee, along with his son, had transferred the title of the subject agricultural land admeasuring 17 – 20 Guntas was also filed with the AO in the course of the set aside proceedings in the case of Smt. Shakuntla Barma (supra). The Ld. AR submitted that the AO, in the course of the set aside proceedings in the 7 Jagadishwar Barma vs ITO case of Smt. Shakuntla Barma (supra), had specifically observed that the sources of the cash gift of Rs. 22 lacs given by the assessee to Smt. Shakuntala Barma (supra) was found to be fully explained. Rather, it was observed by the AO that no infirmity was found regarding the source of the subject cash gift of Rs. 22 lac that was given by the assessee to his wife. Elaborating further on his contention, the Ld. AR submitted that in view of acceptance of the “agreement to sell” dated 07-10-2016 in the assessee’s wife case, the addition in the case of the assessee is unjustified. Further, it was submitted by him that as the case of the assessee was selected for “limited scrutiny” for verifying the cash deposits made in the assessee’s bank account during the demonetization period, therefore, the AO could not have without following the prescribed procedure contemplated in the CBDT Instruction No.5/2016 and Circular dated 28-11-2018 travelled beyond the scope of his jurisdiction and made additions on issues other than those for which the case was selected for “limited scrutiny”.
Per Contra, the Ld. Departmental Representative (for short, “DR”) relied on the orders of the authorities below.
We have heard the Ld. Authorised Representatives of both parties, perused the orders of the lower authorities and the material available on record.
8 Jagadishwar Barma vs ITO 10. It would be apposite to observe that during the course of assessment proceedings, it emerged that in the assessment of the assessee’s wife, viz. Smt. Shakuntala Barma, the revenue, had accepted the cash gift and had acted upon the “agreement to sell” that was placed on his record. We are of the firm conviction that, in view of acceptance, of the documentary evidence, i.e., the “agreement to sell”, dated 07-10-2016 in the wife’s case, there could be no justification for the AO to have adopted an inconsistent approach and discarded the same while considering his explanation regarding the source of cash deposit in his bank account during the subject year. In our view, when the AO while framing the wife's assessment, had, while accepting the gift transaction, acted upon the “agreement to sell”, thereafter he could not have drawn an inconsistent view regarding the authenticity of the said “agreement to sell” while considering the explanation of the assessee regarding the source of the cash deposits in his bank account. It is a settled law that the revenue should act consistently across related. In the wife’s assessment, the revenue, while verifying the assessee’s claim of having given a cash gift of Rs. 22 lacs to her, had examined the “agreement to sell” and acted upon the same. In our considered view, the acceptance of the “agreement to sell” in the case of the assessee’s wife is material and probative regarding the genuineness of the underlying transaction. Although each case must be decided on its own evidence, but the revenue cannot lightly take 9 Jagadishwar Barma vs ITO diametrically opposite stands in two connected cases where the same document and facts are involved, unless fresh and positive contradictory material is placed on record. As the AO in the case of the assessee had not produced any independent corroborative material which would irrefutably dislodge the authenticity of the “agreement to sell” that had been accepted and acted upon by the revenue while framing the assessment in the case of the assessee’s wife, viz. Smt. Shakuntla Barma, therefore, there could be no justification on his part to have summarily rejected his explanation that the subject cash deposits made in his bank account during the demonetisation period was sourced out of the cash sale proceeds of agricultural land as was evidenced by the said “agreement to sell. Apart from that, the mere fact that the “agreement to sell” relied upon by assessee is unregistered or that party-names differ (without verifying the purchasers or evidencing positive contradictions) in our view is an insufficient ground to draw an adverse inference when the revenue in the other case has itself accepted the said transaction. We thus, in terms of our aforesaid observations, are of the considered view that as the assessee had received his share of cash sale consideration of Rs. 65 lacs on the sale of the subject agriculture land, viz. (i). cash advance that was available with him on the date of “agreement to sell”, dated 07/10/2016: Rs. 25 lacs; and (ii). balance share of cash sale consideration (received over and above the amount of Rs. 5 lacs received through cheque at the 10 Jagadishwar Barma vs ITO time of executing the registered sale deed on 07/11/2016): Rs. 40 lacs, therefore, the same after considering the cash gift given by him to his wife was sufficiently available with him to source the cash deposit of Rs. 20.79 lac made in his bank account during the demonetisation period, viz. (i). cash deposit in bank account on November, 2016: Rs. 20 lacs; and (ii). cash deposit in bank account in December, 2016: Rs. 79,000/-. Accordingly, we find substance in the Ld. AR’s contention that as the cash deposit of Rs. 20.79 lac made by the assessee in his bank account during the demonetisation period was made from his explained sources, therefore, there was no justification for the AO to have made an addition to the said extent under Section 69A of the Act. We, thus, direct the AO to vacate the addition of Rs. 20.79 lacs (supra) made by him u/s 69A of the Act.
We shall now take up the assesse’s contention that the AO had exceeded the limited scrutiny's scope by making an addition of the pre- demonetisation cash deposit of Rs. 10 lac made in the assessee’s bank account, i.e., on 06.09.2016.
Admittedly, as the case of the assessee was selected for “limited scrutiny” for verifying the cash deposits made in his bank account during the demonetisation period, i.e. 09-11-2016 to 30-12-2016, therefore, the jurisdiction of the AO was confined and circumscribed to the said extent, and he could not travel beyond the same without 11 Jagadishwar Barma vs ITO following the prescribed procedure as provided in the CBDT Instruction No.5/2016, dated 14.07.2016 and Instruction (F. No. 225/402/2018/ITA- III), dated 28-11-2018, as per which, in case an AO intends to expand the scope beyond the “limited scrutiny” issues, then reasons must be recorded, and approval is obtained from the competent authority and intimation about the same is given to the assessee. However, we find that though the AO had held the cash deposits of Rs. 10,00,000/- made by the assessee in his bank account on 06-09-2016 as having been sourced out of the assessee’s unexplained money under Section 69A of the Act, but there is no record of any formal recorded reasons, much the less the approval of the competent authority for expanding the limited scrutiny into complete scrutiny or any intimation to the assessee about such expanding of the scope of scrutiny assessment. We are of firm conviction that the expansion by the AO of the scope of the limited scrutiny into complete scrutiny without following the prescribed procedure is impermissible in the eyes of the law. We, thus, are of the considered view that the AO's addition of the pre-demonetisation cash deposit without following the CBDT Instructions cannot be sustained and is liable to be struck down. Our aforesaid view is supported by the order of a coordinate bench of the Tribunal in the case of M/s Su-Raj Diamond Dealers Pvt. Ltd. Vs. Principal Commissioner of Income-tax -11, Mumbai, dated 05.08.2022, wherein it was held as under:
12 Jagadishwar Barma vs ITO “As observed by us hereinabove, as per the CBDT instruction No. 20/2015, dated 29.12.2015, in a case which had been selected for scrutiny assessment on the basis of Computer Aided Scrutiny Selection ('CASS'), the scrutinising of such case would be confined only to the specific reasons/issues for which the case has been picked up for scrutiny. However, the case may thereafter be taken up for complete scrutiny with the approval of the administrative Principal commissioner of income-tax/Commissioner of income-tax, where it is felt that apart from the CASS information there is potential escapement of income of more than Rs.10,00,000/-. Accordingly, the CBDT had in clear and unequivocal terms clarified that for broadening the scope of a case selected for limited scrutiny as per CASS information the approval of the administrative Principal commissioner of income- tax/Commissioner of income-tax would be required. In the case before us, it is an admitted fact that the case of the assessee was selected for “limited scrutiny” under CASS, for the reasons, viz. (i). Large other expenses claimed in the P&L A/c.; and (ii). Low income in comparison to High Loans/advance /Investment in shares. In fact, it is neither a fact nor the case of the revenue that the said case was thereafter taken up for complete scrutiny with the approval of the administrative commissioner. In the backdrop of the aforesaid facts, we are of the considered view that as the scope of the assessment framed by the A.O under Sec. 143(3), dated 08.12.2016 was circumscribed by the limited reasons for which the case of the assessee was selected for scrutiny assessment, therefore, he was absolutely divested of his powers from traversing on issues which did not fall within the realm of the said limited purpose for which the said case was selected for being scrutinized.” We, thus, are of the considered view that as the AO had exceeded the scope of “limited scrutiny” and had wrongly included the pre- demonetisation cash deposit in the addition without following the procedure laid down by CBDT, therefore, the addition of the cash deposit of Rs. 10 lac made by him u/s 69A of the Act cannot be sustained and is accordingly struck down.
As we have vacated the impugned addition of Rs. 30.79 lac (supra) made by the AO under Section 69A of the Act, therefore, we 13 Jagadishwar Barma vs ITO refrain from adverting to and adjudicating the remaining grounds, which, thus, are left open.
Resultantly, the appeal filed by the assessee is allowed in terms of our aforesaid observations.
Order pronounced in the open court on 07th November, 2025. S (मधुसूदन साव"डया) (रवीश सूद) (MADHUSUDAN SAWDIA) (RAVISH SOOD) लेखासद"य/ACCOUNTANT MEMBER "या"यकसद"य/JUDICIAL MEMBER d/- Hyderabad, dated 07.11.2025. OKK/sps