SHARANAM AGARWAL,HYDERABAD vs. INCOME TAX OFFICER, WARD-4(1), HYDERABAD

During the course of the assessment proceedings, the AO observed that the assessee had during the period of demonetization 3 Sharanam Agarwal vs. ITO made cash deposits of Rs. 13.50 lacs in his bank account No. 915010022723808 with Axis Bank, Khairatabad Branch, Hyderabad. On being queried, it was the claim of the assessee that the subject cash deposit in his bank account were sourced out of the income earned by him from imparting tuitions and the interest received on the loans/advances given by him. Elaborating further, it was the assesee’s claim that the aforesaid incomes were duly offered by him for tax in his return of income for the subject year and also the preceding years.

Ostensibly, we find that the AO observed that though the assessee had initially related the source of the subject cash deposits to his aforesaid two streams of income, viz., (i) tuition income; and (ii) interest received on loans and advances, but he had thereafter taken a shift and claimed that the said amount was sourced out of the tuition income only. The AO did not find favour with the explanation of the assessee regarding the source of the cash deposits in his bank account. Accordingly, the AO holding a conviction that the assessee out of his income for the subject year would be in possession of cash in hand of Rs. 1,49,275/- only, thus, held the balance amount of cash deposits of Rs. 12,00,725/- (Rs. 13,50,000 – Rs. 1,49,275) as having been sourced out of his unexplained money U/s. 69A of the Act.

The assessee being aggrieved by the order of the CIT(A) has carried the matter in appeal before us.

Smt. S. Sandhya, Advocate, the learned Authorized Representative (for short, “Ld.AR”) for the assessee, at the threshold of hearing of the appeal, submitted that the present appeal involved a delay of 58 days. Elaborating on the reasons leading to the delay, the Ld. AR submitted 7 Sharanam Agarwal vs. ITO that the same had crept in for the reason that the assessee had learnt about the order of the CIT(A) only when the penalty notice U/s. 271AAC(1) of the Act was uploaded in his case on 22/07/2025. The Ld. AR submitted that the assessee had thereafter immediately approached his Chartered Accountant and after collecting the requisite documents filed the present appeal which by the time involved a delay of 58 days. The Ld. AR to buttress her above contention has taken us through the application filed by the assessee seeking condonation of the delay along with an “affidavit”, dated 22/09/2025 supporting the same. Carrying her contentions further, the Ld. AR submitted that though the assessee had in the Memorandum of Appeal i.e., “Form-35” specifically opted out of the receipt of the notices/communication from the CIT(A)’s office through email, but no physical/hard copy of the order of the CIT(A) was ever served upon him. The Ld. AR to support her aforesaid claim had taken us through “Form-35”. The Ld. AR submitted that considering the totality of the facts involved in the present appeal the delay therein involved may in all fairness be condoned.

Per contra, the Learned Departmental Representative (for short, “Ld. DR”) objected to the seeking of the condonation of the delay involved in filing of the present appeal by the assessee.

Apropos, the merits of the case, the Ld. AR submitted that as the assessee was deriving income from imparting tuitions for the last few years, and the subject cash deposits made in his bank account during the demonetisation period were sourced from the accumulated funds lying available with him from the said source of income, therefore, the AO was not justified to have held any portion of the same as having been sourced out of his unexplained money U/s. 69A of the Act. The Ld. AR to buttress her aforesaid claim had taken us through the returns of income filed by the assessee for the year under consideration and that of the immediately two preceding years. The Ld. AR submitted that as the assessee was having sufficient cash in hand available with him to source the cash deposits from his accumulated savings, which in turn was sourced from his aforesaid source of income, therefore, the impugned addition of Rs. 12,00,725/- made by the AO U/s. 69A of the Act cannot be sustained and is liable to be vacated.

We have heard the Ld. Authorised Representatives of both the parties, perused the orders of the lower authorities and the material available on record.

Admittedly, it is a matter of fact discernible from the record that the assessee during the subject year had made cash deposits of Rs. 13.50 lacs (supra) during the demonetization period i.e., 09/11/2016 to 30/12/2016 in his bank account No. 915010022723808 with Axis Bank, Khairatabad Branch, Hyderabad. Although, it is a matter of fact borne 10 Sharanam Agarwal vs. ITO from the record that the assessee had filed his return of income for the year under consideration and the immediately two preceding years i.e., AY 2015-16 and AY 2016-17, wherein he had claimed to be in receipt of income from imparting tuitions, but we find that he had neither in the course of the assessment proceedings nor before us able to substantiate his claim regarding the availability of sufficient cash in hand with him to source the subject cash deposits made in his bank accounts during the demonetization period. However, as the A.O while framing the assessment had observed that the assessee at the time of making the subject cash deposits would be in possession of cash in hand of Rs. 1,49,275/- out of his returned income of Rs. 4,95,000/-, therefore, he had accepted the assessee’s claim of having earned income from imparting tuitions.

The Ld. AR in the course of the hearing of the appeal on being queried about the details of the students to whom tuition was being imparted by the assessee along with the tuition fees structure based on which fees was being charged by the assessee, had failed to come forth with any explanation.

We have deliberated at length on the facts involved in the present case and are unbale to fully concur with the claim of the Ld. AR.

Be that as it may, we are of a firm conviction that now when the A.O had impliedly accepted the assessee’s returned income and worked out the cash in hand that as per him would be available with him on the date of making the cash deposits out of his current years income, therefore, there was no justification for the A.O to have rejected the availability of cash in hand of Rs. 4,49,000/- with the assessee on 12 Sharanam Agarwal vs. ITO 01.04.2016 (as per the statement of affairs as on 31/03/2016). We, thus, are of the considered view, that in the backdrop of the aforesaid set of admitted facts, the assessee can safely be held to be in possession of a further amount of cash in hand of Rs. 4 lacs (out of opening Cash in hand of Rs. 4.49 lacs) on the date of making the subject cash deposits in his bank account during the demonetization period. Accordingly, we herein scale down the addition of Rs. 12,00,725/- to an amount of Rs. 8,00,725/-.

Resultantly, the appeal filed by the assessee is partly allowed in terms of our aforesaid observations.

The Principal Commissioner of Income Tax, Hyderabad.