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Facts
The assessee, a civil contractor, had cash deposits of Rs. 24,81,000 during the demonetization period. The Assessing Officer (AO) and CIT(A) confirmed an addition under section 69A, doubting the source of these deposits as the assessee's prior year returns did not adequately reflect such cash in hand.
Held
The Tribunal observed that the assessee had a substantial opening cash balance from AY 2016-17, which was disclosed and taxed. The AO and CIT(A) had not conducted independent investigations and had ignored the assessee's cash system of accounting. Considering these facts, the Tribunal found an ad-hoc disallowance of 10% of the addition sufficient to avoid revenue leakage.
Key Issues
Whether the addition of unexplained cash deposits during demonetization is justified when the assessee has a disclosed opening cash balance and follows a cash system of accounting, and if not, what is the appropriate relief?
Sections Cited
69A, 143(3), 44AD
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Income Tax Appellate Tribunal, SMC BENCH MUMBAI
Before: HON’BLE SHRI SANDEEP GOSAIN
Date of Hearing 28.10.2025 Date of Pronouncement 02.02.2026 आदेश / ORDER
PER SANDEEP GOSAIN, JM:
The present appeal has been filed by the assessee challenging the impugned order 16.06.2025 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi (NFAC) for the assessment year 2014-15. The following grounds are reproduced below:
“1. In the facts and circumstances of the case and especially in law, the Ld CIT (A) has erred in confirming the addition of Rs. 24,81,000 under section 69 A, without properly appreciating the prior years IT returns, Bank statements and summaries, documentary evidences and detailed explanations submitted by the appellant and on the basis of assumptions and presumptions of drawings and appellants place of living.
In the facts and circumstances of the case and in law and without prejudice, the Ld CIT (A) has failed to consider that cash deposits during the demonetization period of Rs. 24,81,000/- was entirely sourced from the opening cash balance of ₹24,90,000/- as on 31.03.2016, which was duly disclosed in the return of income for AY 16-17 filed under the presumptive scheme of section 44AD, and on which due taxes had already paid.”
2. All the grounds raised by the assessee are interrelated and interconnected and relates to challenging the order of Ld. CIT(A) in confirming the addition of Rs. 21,81,000/- u/s 69A of the Act. Therefore, I have decided to adjudicate these grounds through the present consolidated order.
I have heard the counsels for both the parties, perused the material placed on record, judgments cited before us and also the orders passed by the revenue authorities. From the records, I noticed that assessee is a civil contractor and the case of the assessee was selected for “limited scrutiny under CASS” on account of “undisclosed income reported by PCIT during the demonetization period”. And thus considering the facts addition of Rs. 24,81,000/- u/s 69A of the Act was made which was also upheld in appeal.
After having heard the parties and analyzing the records, I found that the assessee is the Proprietor of M/s Clamar Interiors since many years & had filed his return of income for FY 2015-16 (Asst Year 2016-17) declaring his Gross Civil Contract Receipts at Rs. 52.11 lakhs and Net Profit of 23.6 lakhs and also declared Business cash balance as on 31-03-2016 of Rs. 24.90 lakhs in his return of income. The assessee had been filing his returns since the last more than 10 years. The firms business current account (Vijaya Bank) of assessee during FY 2015-16 (Asst Year 2016-17) clearly shows cheque deposits of Rs. 51.91 lakhs and cash withdrawal of Rs. 53.82 lakhs leading to a cash balance of Rs. 24.90 lakhs as on 31-03-2016. The return for AY: 16-17 was accepted & neither reopened nor subject to scrutiny assessment u/s 143(3), hence the cash in hand as on 31- 316 stands accepted. However during FY 2016-17 (Asst Year 2017-18) the assessee deposited Rs. 24.81 lakhs cash in his firm Vijaya Bank account, post demonetization i.e after 08-11-2016, and also withdrew cash of Rs 7.20 lakhs post demonetization i.e. after 08-11- 2016 till 31-03-2017.
Whereas AO made additions u/s 69A by ignoring the fact that the assessee followed cash system of accounting and offered the Gross Civil Contract charges for tax, in the year of receipt and paid the taxes accordingly. The contract invoices for FY 2015-16 are at PB Pg Nos. 24 to 42. In FY 2016-17 (A.Y: 2017-18), the assessee did not do any contract work on account of his deteriorating health conditions. Hence Nil Income was recorded in AY 2017-18.
On appeal Ld. CIT(A) also while ignoring the facts upheld the additions by holding that the assessee did not have house hold drawings during the year under consideration.
Whereas on the contrary, as per the facts of the present case, the assessee had withdrawn Rs. 7.20 lakhs cash from his Proprietary firms Vijaya Bank a/c for his household expenses etc. As per assessee From 01-04-2016 to 08-11-2016 his expenses were bare minimum which were taken care by him and his wife from their personal savings accumulated in the past many years, as the assessee as a tenant, stays in an old rent system (Pagadi) small room at Baba Nagar, Bandra west, the rent for which place was not more than Rs. 1,000 per month. The personal household expenses of the Appellant aged 65 years would not be more than Rs 15,000 per month.)
In this regard reliance was also placed upon the decision in the case of Sureshbhai Bhiukhabhai Patel Vs. ITO in the operative portion is reproduced herein below:
8. I find that during the year under consideration, assessee has made total cash deposit of Rs.46,32,500/- out of which Rs.27,14,000/- was deposited in the form SBN which was doubted by Assessing Office. The Assessing Officer as well as Ld. CIT(A) doubted the source of cash deposits by taking view that assessee has not shown cash-in-hand in the ITR for assessment years 2015- 16 and 2016-17. Before me Ld. AR for the assessee vehemently argued that assessee is an agriculturist and having substantial agricultural income in every year and having substantial cash available. The assessee also filed ITR Form- 4 showing cash-in-hand of Rs.9,67,166 in assessment year 2012-13 and Rs.8,25,082/- in assessment year 2013-14. The Ld. AR of the assessee by referring the aforesaid fact has submitted that Assessing Officer was not justify in rejecting the cash book, when in earlier two assessment years as the assessee has disclosed net agricultural income of Rs.2,87,660/- and Rs.6,57,42/- in assessment years 2016-17 and 2015-16 respectively. And that the Assessing Officer has not doubted cash deposit of Rs.19,15,500/- out of total cash deposits.
9. Considering the overall facts and circumstances of the case, and the facts that no independent investigation of fact was carried out about agricultural holding nor discarded / rejected the receipt of agricultural produce. Thus, in my view, in order to avoid the possibility of revenue leakage at reasonable disallowance would be sufficient to avoid the possibility of revenue leakage. Thus, considering the various heads of income of assessee, I find that ad hoc disallowance @ 10% of addition of Rs.27,14,000/- would be sufficient to avoid the possibility of revenue leakage. In the result, ground No.1 of appeal is partly allowed.
Therefore considering the overall facts and circumstances, I found that no independent investigation of the fact was carried out. Thus, in my view, in order to avoid the possibility of revenue leakage reasonable disallowance would be sufficient. Thus, considering the various heads of income of assessee, I find that ad hoc disallowance @ 10% of addition of Rs. 24,81,000/- would be sufficient to avoid the possibility of revenue leakage. In the result, this grounds of appeal is partly allowed.
In the result, the appeal filed by the assessee stands allowed.
Order pronounced in the open court on 02.02.2026