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Facts
The assessee deposited Rs. 19.59 lakh cash during the demonetization period (AY 2017-18), which the AO added back under Section 69A as unexplained. The assessee claimed the cash originated from a Rs. 25 lakh loan received from his sister in 2015, held due to rural background and distrust in banks. Both the AO and CIT(A) rejected this explanation, citing a lack of proper documentary evidence and confirmation.
Held
The Tribunal observed that while the lower authorities failed to adequately verify the assessee's submissions, the assessee also failed to present cogent documentary evidence before the ITAT. Consequently, the case is remanded to the Assessing Officer for a de novo adjudication, with directions to verify all evidence submitted or to be submitted afresh, and grant a reasonable opportunity of hearing to the assessee.
Key Issues
Whether cash deposits made during demonetization, claimed as a prior loan from a sister, constitute unexplained money under Section 69A, and whether the lower authorities conducted proper verification of the evidence presented by the assessee.
Sections Cited
250, 69A, 143(3), 143(2), 142(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Asstt.Year : 2017-18 Naresh Amarnath Barot ITO, Ward-3(3)(3) C/o. Neela J. Rao Vs. Ahmedabad. 5, Ratanadeep Bungalow Nr.Sun-in Step Club Thaltej Ahmedabad 380054. PAN : AAXPB 0044 N (Applicant) (Responent) : Assessee by Shri S.N. Divetia, and Shri Samir Vora, ARs. Revenue by : Shri Umesh Kumar Agrawal, Sr.DR सुनवाई क� तारीख/Date of Hearing : 24/07/2025 घोषणा क� तारीख /Date of Pronouncement: 29/07/2025 आदेश आदेश/O R D E R आदेश आदेश PER MAKARAND V.MAHADEOKAR, AM: This appeal by the assessee is directed against the order passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] dated 14.02.2025, under section 250 of the Income-tax Act, 1961[hereinafter referred to as “the Act”], for the A.Y. 2017–18, confirming the addition of Rs.19,59,000/- made by the Assessing Officer under section 69A on account of cash deposits made during the demonetization period as per the order dated 09.12.2019 passed under section 143(3) of the Act.
Facts in Brief 2.1 The assessee filed his return of income on 12.01.2018 declaring income of Rs.1,05,150/- and agricultural income of Rs.1,38,240/-. The case was selected for limited scrutiny under CASS for the reason “Cash deposits during demonetization period.” The Assessing Officer (AO) issued notices u/s 143(2) and several notices u/s 142(1), to which the assessee filed responses dated 22.05.2019, 03.08.2019, and 14.11.2019. The AO noticed that the assessee had deposited Rs. 19,59,000/- in cash during the demonetization window in three accounts, primarily in State Bank of India (Rs. 18,50,000/-) and two accounts at Dena Bank, Rupal Branch.
2.2 The assessee explained that the cash deposit originated from a loan of Rs.25,00,000/- received from his sister Mrs. Nila J. Rao on 04.02.2015, withdrawn in tranches and held in cash due to rural-agriculture-related exigencies and distrust in the formal banking system. In support, he claimed to have submitted:
• ITR Acknowledgments of the lender for A.Ys. 2013–14 to 2015–16,
• Confirmation of the loan, • Passbook extract evidencing transaction,
• Form 7/12 extracts and landholding evidence, and • Written submissions rebutting the show cause notice.
2.3 However, the AO rejected the explanation, holding that the claim of absence of banks in the village was incorrect, there was no reasonable cause for keeping Rs.19.59 lakh in cash for 21 months and the cash deposit was unsubstantiated and treated as unexplained under section 69A.
2.4 The assessee preferred appeal before the CIT(A) who upheld the addition. Though the assessee reiterated the source of loan, submitted that the lender had substantial exempt income and was a tax filer for over 25 years, the CIT(A) observed that no confirmation from the lender or her bank statement was produced, and hence the explanation lacked evidentiary support. The appeal was dismissed.
Aggrieved by the order of CIT(A), the assessee is in appeal before us raising following grounds of appeal:
1.1 The order passed u/s. 250 on 14.02.2025 by NFAC CIT(A) DELHI [for short CIT(A)] confirming the addition of cash deposits of RS. 19,59,000/-made in bank account during the demonetization period made by ITO, Ward3(3)(3), A'bad in his order u/s 143(3) passed on 09- 12-2019 for A.Y.2017-18 is wholly illegal, unlawful and against the principles of natural justice. 1.2 The Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the explanations furnished and the evidence produced by the appellant. The AO has passed the impugned order on flimsy grounds and total disregard to the settled principles of law and facts, evidence on record. 2.1 The Ld. CIT(A) ought to have allowed further opportunity of hearing after last notice issued u/s 250 on 28.09.2022 which was responded on 14.10.2022 by detailed written submission which is totally ignored by the CIT(A). The Ld. CIT(A) has grievously erred in law and or on facts in upholding the cash deposits in bank accounts of Rs. 19,59,000/- during demonetization period as unexplained and thereby making addition of RS. 19,59,000/-: 2.2 That in the facts and circumstances of the case as well as in law, the Ld. CIT(A) has grievously erred in upholding the cash deposits in bank account of Rs.19,59,000/ during demonetization period as unexplained and thereby making addition of Rs.19,59,000/- It is therefore prayed that the addition of Rs.19,59,000/-made by the FAO and upheld by CIT(A) should be deleted.
The learned Authorised Representative (AR) submitted that all relevant documents were in fact submitted during the assessment proceedings in response to notices under section 142(1), including the letter dated 04.09.2019 and detailed reply dated 14.11.2019. He drew attention to copies of these replies placed in the paper book, showing specific references to ITRs, bank passbook, income details, and Form 7/12 extracts. It was argued that the AO neither called for any further inquiry nor rejected the documents after proper verification, but merely brushed aside the explanation based on presumption. The AR also pointed out that the CIT(A)’s finding that no evidence was submitted during assessment or appellate stage is factually incorrect. It was also submitted that the assessee’s agricultural background, withdrawal of funds from the bank, and rural usage pattern justified holding cash. Though no separate confirmation was produced from the sister, the available documents established the source.
4.1 The learned Departmental Representative (DR) supported the orders of the lower authorities. He referred to para 4.2 of the AO’s order, contending that the assessee’s version was illogical in light of government initiatives like Jan Dhan Yojana, and existence of bank branches in the village. It was submitted that no conclusive nexus between the loan claimed and cash deposits was established, and therefore, the addition under section 69A was rightly made.
We have carefully considered the rival submissions and perused the orders of the lower authorities. The assessee’s primary contention is that the source of the cash deposits amounting to Rs.19,59,000/- during the demonetisation period was a loan of Rs.25,00,000/- received from his sister, Smt. Nila J. Rao, in February 2015, which was later deposited in the bank. The assessee claims to have submitted supporting documents during the course of assessment. It is evident from the assessment record that the assessee had made replies dated 04.09.2019 and 14.11.2019 specifically enclosing or referring to Income-tax returns of the sister (Mrs. Nila J. Rao), Copy of bank passbook, Confirmation of loan, Agricultural records including Form 7/12. However, from the assessment order, it appears that the AO has not dealt with or verified the said documents. There is no finding as to whether the bank passbook was examined or whether the ITRs established creditworthiness of the lender. The rejection is primarily based on general observations and presumptions about time gap, bank availability, and distrust in public sector banks. We further note that the CIT(A), in para 4.3 of the impugned order, held that the assessee had not furnished any evidence before the AO or during appellate proceedings. This appears factually inaccurate, at least to the extent that replies and claimed enclosures were filed during the assessment stage, even if they were not re- submitted during the appellate proceedings.
5.1 That said, it is also important to place on record that even before us, the assessee has not placed on record any documentary evidence in support of the loan transaction, except for a simple confirmation letter from the lender, Mrs. Nila J. Rao. The paper book does not contain the bank passbook, ITRs, or Form 7/12 extracts. It is also observed that the letter of reply dated 22.05.2019 as recorded by the Assessing Officer in her order was also not available in the paper book. Thus, we are not in a position to adjudicate the genuineness of the claim based on documents which are not available on record and crucial for establishing the genuineness.
5.2 We also note that the AR had placed reliance on coordinate bench decisions, but in those cases the cash deposits were supported by direct evidence of earlier withdrawals, which is not conclusively proved in the present case. Hence, those decisions are distinguishable on facts.
5.3 In these circumstances, where the authorities below have failed to verify the assessee’s claim properly, and the assessee too has failed to substantiate the claim before us with cogent documentary evidence, we are of the considered view that the matter requires fresh examination and verification at the end of the Assessing Officer. We therefore deem it just and proper to set aside the orders of the CIT(A) as well as the Assessing Officer, and restore the matter to the file of the AO for de novo adjudication. The matter is restored to the file of the Assessing Officer with a direction to verify the documentary evidence already submitted or to be submitted afresh, grant reasonable opportunity of hearing to the assessee, pass a speaking and reasoned order, in accordance with law. The assessee is directed to extend full cooperation in the remand proceedings.
In the result, the appeal is allowed for statistical purposes. Order pronounced in the Court on 29th July, 2025 at Ahmedabad.