Loading judgment…
Facts
The assessee, engaged in trading food grains, did not file an income tax return for AY 2016-17. Information revealed significant cash deposits in bank accounts, totaling Rs. 1,17,77,600. The Assessing Officer reopened the case, and after non-compliance from the assessee, assessed total income at Rs. 1,22,41,170, treating cash deposits as unexplained income.
Held
The Tribunal found that the First Appellate Authority's sustenance of 10% of the addition (Rs. 12,92,151) was based on an estimate to safeguard revenue without disproving the assessee's explanation. Therefore, the Tribunal set aside the order and directed the deletion of the entire addition.
Key Issues
Whether the cash deposits in the assessee's bank accounts were correctly treated as unexplained income, and if the estimation by the appellate authority was justified without disproving the assessee's explanation.
Sections Cited
148, 142(1), 144, 69A, 147, 144B, 115BBE, 271F, 271(1)(b), 271(1)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, SMC BENCH, LUCKNOW
Before: SHRI. SUDHANSHU SRIVASTAVA
Assessment Year: 2016-17 Saryu Prasad v. The Income Tax Officer 5(4) Bhanpur Barabanki Mahulara, Ramsamethi Ghat Barbanki (U.P) TAN/PAN: (Appellant) (Respondent) Appellant by: Shri Samrat Chandra, C.A. Respondent by: Shri R.R.N. Shukla, D.R. O R D E R
This appeal has been preferred by the Assessee against the order dated 24.05.2025, passed by the National Faceless Appeal Centre, Delhi (NFAC) for Assessment Year 2016-17.
2.0 The brief facts of the case are that the assessee was engaged in the business of trading in food grains and their allied products. The assessee had not filed the return of income for the year under consideration. The Income Tax Department was in possession of information that the assessee had made cash deposits of Rs.80,99,400/- in his bank account No.031130110000011 maintained with Gramin Bank of Aryavart, Rs.19,37,600/- in his bank account No.38840100003654 maintained with Bank of Baroda and Rs.17,40,600/- in his bank account No. 38840200000024 maintained with Bank of Baroda, totaling to Rs.1,17,77,600/-. The Assessing Officer (AO) reopened the case of the assessee after issuing notice under section 148 of the Income Tax Act, 1961 (hereinafter called “the Act’). In response to the notice under section 148 of the Act, the assessee filed his return of income for the year under consideration on 27.03.2023, declaring business income of Rs.4,17,300/- and commission income of Rs.43,800/-. During the course of assessment proceedings, the AO issued notices under section 142(1) of the Act, requiring the assessee to furnish various details of the transactions entered into by the assessee during the year under consideration. However, the assessee did not respond to the notices issued by the AO. Since there was no compliance from the side of the assessee to various notices issued by the AO, he proceeded to complete the assessment under section 144 of the Act, after issuing show cause notice to the assessee. The AO treated the cash deposits of Rs.1,17,77,600/- in the aforementioned bank accounts of the assessee during the year under consideration as unexplained money and added the same to the total income of the assessee under section 69A of the Act. The AO completed the assessment under section 147 read with 144 and 144B of the Act, assessing the total income of the assessee at Rs.1,22,41,170/-.
2.1 The AO also invoked the provisions of section 115BBE of the Act and initiated penalty proceedings under sections 271F, 271(1)(b) and 271(1)(c) of the Act, separately.
2.2 Aggrieved, the Assessee preferred an appeal before the NFAC. The NFAC partly allowed the appeal of the assessee by holding that to safeguard the interests of the Revenue, 10% of the total cash credits of Rs.1,29,21,515/-, which came to Rs.12,92,151/-, would be treated as the income of the assessee from undisclosed sources and, accordingly, sustained the addition to that extent.
2.3 Now, the assessee has approached this Tribunal challenging the order of the NFAC, by raising the following grounds of appeal:
1. Because, on the facts and in the circumstances of the case, the learned CIT(A) has erred in sustaining an addition of ₹12,92,152/- under Section 69A of the Income-tax Act, 1961, even though it was clearly explained that the cash deposits were out of business receipts from trading in food grains and related commission income.
2. Because on the facts and in the circumstances of the case the appeal order passed by the Ld. CIT(A) is bad in law and deserves to be quashed being illegal. 3. Because on the facts and in the circumstances of the case the appeal order is bad in law and being passed by the Ld. CIT(A) without assuming proper jurisdiction.
4. Because on the facts and in the circumstances of the case the appeal order is bad in law and being passed by the Ld. CIT(A) without considering the type of business industry and the business segment in which he carried out his principal revenue generating activities during the relevant assessment year.
5. Because on the facts and in the circumstances of the case the appeal order is bad in law and being passed by the Ld. CIT(A) without considering the nature and source of cash earned and deposited by the appellant during the relevant assessment year under consideration.
6. Because on the facts and in the circumstances of the case the appeal order is passed by the Ld. CIT(A) without considering the bank statements, cash summary and other relevant supporting documents submitted during the appeal proceedings.
Because on the facts and in the circumstances of the case the Ld. CIT(A) erred in confirming the action of the Assessing Officer in estimating the profit of the business as a percentage of total cash deposits in the bank accounts, without properly considering the detailed cash summary and other records submitted by the appellant.
Because on the facts and in the circumstances of the case the Ld. CIT(A) has passed the appeal order without any specific evidence indicating and is not supported by any scientific or factual analysis that the alleged cash deposits were of an income nature for relevant assessment year. The Ld. CIT(A) did not employ any scientific or statistical approach to determine the profit margin or assess the nature of business receipts. There were better and more reliable methods to estimate income, such as tracking sales, analyzing invoices, or using business profit margins, none of which was considered in the present case.
9. Because on the facts and in the circumstances of the case the Ld. CIT(A) did not consider the pattern of cash deposits over the course of time and without analyzing the time and nature of deposits rather than simply taking a percentage of the total cash amount for determining income of the appellant for relevant assessment year.
10. Because on the facts and in the circumstance of the case, the Ld. CIT(A) has failed to follow the principles of fairness and transparency in the tax assessment process by not granting the appellant an adequate opportunity to explain or clarify the alleged issue for the relevant assessment year.
11. Because on the facts and in the circumstance of the case, the appeal order passed by the Ld. CIT(A) is in absolute violation of the principles of Natural Justice, without providing adequate opportunity of being heard and therefore deserves to be declared a nullity.
The appellant craves for leave to add, modify, amend or delete any other and further grounds of appeal with permission. 3.0 The Ld. Authorized Representative for the assessee (Ld. A.R.) submitted that the Ld. First Appellate Authority has sustained 10% of the total addition on an estimate basis which cannot be upheld, as the estimation has been made without any finding with respect to the explanations of the assessee having been proved wrong.
4.0 The Ld. Sr. D.R. submitted that the assessee had not complied during the assessment proceedings. It was further submitted that adequate relief had been granted to the assessee by the Ld. First Appellate Authority. He placed reliance on the observations of the Ld. First Appellate Authority and prayed that the appeal of the assessee be dismissed.
5.0 I have heard both the parties and have also perused the material on record. It would be relevant to reproduce paragraph 6(b) of the impugned order at this juncture:
“6(b). I have carefully considered the facts and circumstances of the case. From the material available on record, it is understood that the assessee had declared a business income of Rs.4,17,300/- on sale of food grains & allied commodities and commission income of Rs.43,800/- on his trading activity of food grains in his Return of Income filed for the AY 2016-17. Appellant submitted that the cash deposits appearing in the bank accounts were from sale of food grains and further assessee contends that, out of his 04 bank accounts, there were multiple transactions where cash was withdrawn from one bank account and deposited in another bank account and quantum of such transactions was around Rs.60,39,000/-, however, the same is not properly verifiable. On perusal of the submissions of appellant and bank account statements, it is observed that total cash credits in the appellant's 04 bank accounts are as follows:
SI. Bank Name of the Quantum of cash No. Bank deposits (Rs.) Account No. 1 31130110000011 Gramin Bank of 87,65,215/- Aryavart 2 31110100022253 6,04,200/- 3 38840100003654 Bank of Baroda 17,43,600/- 4 38840200000024 18,08,500/- Total 1,29,21,515/-
Further, it would be pertinent to mention that it is difficult to verify and correlate all the cash deposits appearing in the appellant's bank accounts to his business activity. The assessee already declared Rs.4,61,100/- as business income from his trading activity in food grains. Even though, there was truth in assessee's contentions, it is not possible to fully accept the same in face value. Therefore, to safeguard the interests of revenue, an amount of Rs.12,92,151/- i.e., 10% of cash deposits appearing in the appellant's bank accounts Rs.1,29,21,515/- would be treated as emanated from undisclosed sources. Therefore, an amount of Rs.12,92,152/-, out of the total cash credits appearing in the appeallant's bank accounts, is treated as unexplained u/s.69A of the Income Tax Act, 1961. Accordingly, the assessee's grounds assessee's appeal is partly allowed. are hereby partly allowed. In the result, the ase’s appeal is partly allowed.”
5.1 A perusal of the impugned order shows that the Ld. First Appellate Authority has deleted 90% of the addition made by the AO and has sustained 10% by observing that to safeguard the interests of revenue, an amount of Rs.12,92,151/-, i.e., 10% of cash deposits appearing in the appellant’s bank accounts would be treated as emanated from undisclosed sources. Thus, apparently, the sustenance of addition by the Ld. First Appellate Authority is only on an estimate and only with a view to safeguard the interest of the revenue. However, the Ld. First Appellate Authority has not recorded any other reason for not accepting the explanation given by the assessee. In such a situation, it is my considered opinion that such sustenance cannot be upheld by me, as there is no finding recorded by the Ld. First Appellate Authority which would effectively disprove the contentions of the assessee. Accordingly, I set aside the order of the Ld. First Appellate Authority and direct the AO to delete the entire addition.
In the final result, the appeal of the assessee stands allowed.
Order pronounced in the open Court on 27/10/2025.