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Facts
The assessee, engaged in wholesale trading, made substantial cash deposits in an undisclosed bank account, which were not reported in the original return. Upon reopening of assessment, the assessee claimed these deposits were business receipts from cash sales, utilized for purchases, and offered a gross profit of 2.65% on the suppressed turnover. The Assessing Officer (AO) treated the entire deposits as unexplained income under section 69A, which was confirmed by the CIT(A).
Held
The Tribunal held that since the assessee was engaged solely in wholesale trading and the cash deposits were followed by payments for purchases, with a clear trail of business transactions, they represented business receipts, not unexplained income. The Tribunal further stated that taxing the entire sale proceeds would amount to double taxation, and only the profit element embedded in the suppressed turnover should be taxed.
Key Issues
Whether the cash deposits in an undisclosed bank account, purportedly from cash sales and used for purchases, can be treated as unexplained income under Section 69A, or if only the profit element on such transactions is taxable.
Sections Cited
69A, 115BBE, 148, 147, 234A, 234B
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Income Tax Appellate Tribunal, ‘A’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The present appeal filed, at the instance of the assessee, is directed against the order under section 250 of the Income Tax Act (hereafter the Act) by the learned Commissioner of Income Tax (Appeals) (hereafter the learned CIT(A)) at National Faceless Appeal Centre-NFAC, vide order dated 25th July 2025 for A.Y. 2014-15, bearing DIN: ITBA/NFAC/S/250/2025-26/1078910242(1).
The assessee has raised several grounds running into multiple pages which are numbered as Ground Nos. 1 to 9. Hence, for the sake of brevity and convenience, we are not inclined to produce the grounds of appeal here.
3. First, we proceed to adjudicate the issue raised by the assessee through Ground No. 7 i.e. the revenue authority erred in making the addition under section 69A of the Act for Rs. 6,58,27,954/- by treating the cash deposit as unexplained.
The necessary facts are that the assessee, an individual, is into the business through proprietary concern in the name of Jain Traders. The assessee for the year under consideration filed return under section 139(1) of the Act. As per the original return, the assessee declared total turnover of Rs. 7,57,34,465/-, gross profit of Rs. 20,04,755 (being 2.65% of Sales) and net profit of Rs. 4,22,420/- (being 0.55 % of sales). The return was processed under section 143(1) of the Act.
4.1 Subsequently, the AO received information that assessee has made deposit of Rs. 6,58,27,957/- into the bank account held with Shri Gurubasava Urban Credit Souhardha Co-op Ltd Bijapur and same is not recorded in the books of account. Accordingly, the assessment was reopened by issuing notice issued under section 148 of the Act dated 31st March 2021.
4.2 The assessee in response to the notice issued under section 148 of the Act filed return of income wherein additional income of Rs. 17,91,926/- (being 2.72% of cash deposit of Rs. 6,58,27,957/-) was offered to tax. The assessee during the assessment proceedings submitted that the impugned undisclosed bank account was utilised for . making purchases of stock and in support furnished copy of purchase bills. The assessee submitted that since the sale and purchases both are suppressed only the gross profit needs to be taxed.
4.3 However, the AO observed that the assessee had deposited a large amount of cash of Rs. 6,58,27,954/- in an undisclosed bank account, which was not reported in the original return of income. The assessee failed to satisfactorily explain why this bank account was not disclosed earlier. The assessee also admitted that the account was not disclosed to the auditors. Hence, the claim that the bank account was used for business purposes was not substantiated. The assessee also failed to furnish supporting sale bills or documentary evidence establishing the genuineness of the so-called transactions reflected therein as business transactions.
4.4 The AO further noted that the assessee initially attempted to conceal the deposits and, only after issuance of notice under section 148 of the Act, offered a small portion of the deposits (2.65%) as tax. The assessee failed to discharge the primary onus cast upon him to explain the nature and source of the cash deposits with proper evidence. Therefore, the entire cash deposits were liable to be considered as income from undisclosed sources. Accordingly, the AO treated the entire cash deposits of Rs. 6,58,27,954/- as unexplained money under section 69A of the Act and added the same to the total income of the assessee.
The aggrieved assessee preferred an appeal before the learned CIT(A).
Before the learned CIT(A), the assessee submitted that the provisions of section 69A of the Act applies only where the assessee is found to be the owner of money, bullion, jewellery or other valuable article which is not recorded in the books of account and the assessee either offers no explanation about the nature and source thereof or the explanation offered is not satisfactory. The assessee claimed that in the present case, the nature and source of the cash deposits has been duly explained.
6.1 The appellant assessee submitted he filed the return of income in response to notice issued under section 148 on 29.09.2021 and declared additional sales turnover of Rs. 6,76,19,880/- only. Against such additional sales, the purchases of Rs. 6,58,27,954/- were declared and the gross profit of Rs. 17,91,927/- at 2.65% was offered to tax. Thus, the entire transaction relating to cash sales was brought on record and the corresponding profit was voluntarily declared.
6.2 The assessee further submitted that due to the nature of business, he has carried out cash sales to various retailers. The cash so generated was deposited into the bank account maintained with Sri Gurubasava Urban Credit Souharda Co-operative Bank. Immediately thereafter, payments were made to suppliers towards purchase of goods. The AO himself has accepted in the assessment order that the cash deposits were followed by immediate transfer of funds to various parties and that the debits in the bank account were out of the credits in the same account. Therefore, the source and utilization of the cash stand clearly explained.
6.3 It was submitted that mere cash deposit in a bank account does not automatically lead to the conclusion that it represents unexplained income. The deposits were part of business turnover. When sales are not doubted, the entire sale proceeds cannot be treated as income. Only the profit element embedded in such sales can be brought to tax. If Rs. 100 represents unaccounted sales and the same amount is used to purchase stock which is later sold for Rs. 120, only the profit of Rs. 20 can be taxed. The entire gross amount of Rs. 100 cannot again be taxed as income.
6.4 The assessee claimed that he has furnished vendor-wise details of purchases and bank statements showing payments to suppliers. Copies of purchase invoices and ledger extracts have also been produced to establish the genuineness of the purchases. This clearly demonstrates that the cash deposits were business receipts and not unexplained money.
6.5 To buttress his argument the appellant assessee places reliance on judicial precedents wherein it has been held that when sales are accepted, 100% addition of purchases or deposits is not justified and only the gross profit can be added. Courts have consistently held that addition should be restricted to the profit element and not the entire amount. In similar cases of other assessees having accounts with the same bank and having made similar declarations under section 148 of the Act, the department has accepted the gross profit addition, and no further addition was made. Copies of such assessment orders have been furnished.
6.6 In view of the above facts and settled legal position, the cash deposits in the bank account cannot be treated as unexplained money under section 69A of the Act. Without prejudice, even if any addition is considered, it should be restricted only to the gross profit already offered and not the entire amount of deposits. The action of the Assessing Officer in adding Rs. 6,58,27,954/- under section 69A of the Act and invoking section 115BBE of the Act is therefore unjustified and liable to be deleted.
However, the learned CIT(A) dismissed the assessee’s submission and confirmed the addition made by the AO. The learned CIT(A), while confirming the addition of Rs. 6,58,27,954/- under section 69A read with section 115BBE of the Act, observed that the assessee had deposited a substantial amount of cash in his bank account with Shri Gurubasava Urban Credit Souhardha Co-operative Bank during the relevant year, but failed to properly disclose the same in the original return of income. The ld. CIT(A) noted that the assessee had not shown this bank account in the original return and disclosed it only after issuance of notice under section 148 of the Act. According to the ld. CIT(A), this clearly indicated that the disclosure was an afterthought.
7.1 The ld. CIT(A) further observed that although the assessee claimed that the cash deposits represented business receipts and that goods had been purchased against such deposits, he did not furnish any supporting documentary evidence such as proper purchase bills, sale bills, stock records, vendor confirmations or a clear trail linking the deposits to regular business transactions. The assessee merely offered 2.65% gross profit on the total deposits in the return filed in response to . notice issued under section 148 of the Act. However, in the absence of primary evidence to establish that the deposits were related to genuine business activity, such an explanation could not be accepted.
7.2 It was also noted that the assessee failed to explain why the bank account was not disclosed in the original return and even admitted that the account was not shown to the auditors. The ld. CIT(A) held that the initial burden to prove the nature and source of the cash deposits lies on the assessee. In this case, despite being given sufficient opportunities, the assessee did not discharge this burden. There was no credible material placed on record to establish the nexus between the alleged purchases, sales and the cash deposits.
7.3 The ld. CIT(A) also distinguished the decision relied upon by the assessee in another case, observing that in that case the assessee had furnished party-wise break-up of purchases, corresponding cash sales and month-wise transaction details before the AO. In contrast, in the present case, no such detailed evidence was submitted either before the AO or before the NFAC.
7.4 In view of these facts, the ld. CIT(A) concluded that the cash deposits represented unexplained money belonging to the assessee, the source of which remained unverified. Accordingly, the addition under section 69A of the Act was held to be justified, and taxation under section 115BBE of the Act was considered mandatory. The grounds of appeal were therefore dismissed and the addition was confirmed.
Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
The learned AR before us file paper book running from pages 1 to 678, compilation of case laws running from pages 679 to 835 and contended that the assessee is engaged solely in wholesale trading through M/s Jain Traders and has no other source of income. The cash deposits of Rs. 6.58 crores in the undisclosed bank account represented business receipts from cash sales, which were subsequently utilized for making payments to suppliers. The bank statements clearly show that the deposits were immediately followed by corresponding purchase payments, establishing a direct nexus between sales and purchases. The assessee offered additional turnover in the return filed under section 148 and declared gross profit at 2.65%, consistent with past results. It was contended that when sales are accepted, the entire deposits cannot be taxed under section 69A of the Act; only the profit element embedded in such turnover can be brought to tax. The assessee furnished purchase invoices, ledger extracts and bank statements. Hence, the addition of the entire deposits under section 69A read with section 115BBE of the Act was unjustified.
On the other hand, the learned Departmental Representative (ld. DR) supported the orders of the lower authorities and submitted that the assessee had maintained an undisclosed bank account which was neither reported in the original return nor disclosed to the auditors. The disclosure was made only after issuance of notice under section 148 of the Act, clearly indicating an afterthought. The assessee failed to produce complete sale bills, stock records, quantitative reconciliation or . independent confirmations to prove that the cash deposits were genuine business receipts. The primary onus under section 69A of the Act lies on the assessee to satisfactorily explain the nature and source of money found in his possession. Mere rotation of funds through the bank does not establish genuineness of transactions. In the absence of credible documentary evidence linking deposits with actual sales, the explanation remained unsubstantiated. Therefore, the AO rightly treated the entire cash deposits as unexplained money taxable under section 69A read with section 115BBE of the Act.
In the rejoinder, the ld. AR presented a chart that displayed the percentage of gross profit reported by the assessee in both previous and subsequent years. Accordingly, the learned AR contended that the GP declared by the assessee at the rate of 2.65 percent should be adopted for calculating the income of the assessee on the suppressed sale.
We have heard the rival submissions of both the parties and carefully perused the materials available on record. The undisputed fact is that the assessee is engaged only in one line of activity, namely wholesale trading business carried on in the proprietary concern M/s Jain Traders. There is no other source of income brought on record by the Revenue. The turnover declared in the original return is from wholesale trading, and even in the reassessment proceedings the assessee has consistently maintained that the cash deposits represent business receipts arising from such trading activity.
12.1 It is not in dispute that cash amounting to Rs. 6,58,27,954/ was deposited in the bank account maintained with Shri Gurubasava Urban .
Credit Souhardha Co-operative Bank. It is also evident from the assessment order itself that immediately after such deposits, payments were made to various parties. The AO has recorded that the debits in the bank account were out of the credits in the same account. This factual position supports the explanation of the assessee that the cash deposits were utilized for making payments towards purchases of stock. Thus, there is a clear trail showing that the cash was not retained by the assessee as unexplained money but was circulated through the business channel.
12.2 When an assessee is engaged only in trading business and the deposits are followed by payments to suppliers, the normal inference in the absence of contrary evidence is that the deposits are out of sales proceeds. The Revenue has not brought any material on record to show that the cash deposited was sourced from any activity other than business. There is no finding that the assessee was engaged in any undisclosed activity other than the business or that the deposits were diverted for personal investment, acquisition of assets or any non- business purpose. In such circumstances, treating the entire cash deposit as unexplained money under section 69A of the Act is not justified.
12.3 The provision of section 69A of the Act applies where the assessee is found to be the owner of money and fails to offer a satisfactory explanation about the nature and source thereof. In the present case, the assessee has explained that the source is cash sales from wholesale trading and that the same was used for purchase payments. This explanation is corroborated by the fact that the bank . account shows corresponding outflows to suppliers. Once the cash deposits are linked to business turnover and subsequent utilization for purchases, the character of the deposits changes from unexplained money to business receipts.
12.4 It is well settled that in cases of unaccounted sales, the entire sales cannot be treated as income. Only the profit element embedded in such sales can be brought to tax. If the total sale proceeds are taxed again as income, it would amount to taxing the same amount twice, since purchases and cost of goods sold are integral to trading activity. The correct approach in such cases is to estimate and bring to tax only the gross profit embedded in the suppressed turnover.
12.5 We also note that the assessee has, in the past several assessment years and in subsequent years, declared gross profit in the range of 2% to 3%. In the year under consideration, the assessee has declared gross profit at 2.65% on disclosed sales as well as on the additional turnover represented by cash deposits. There is nothing on record to show that the declared gross profit rate is abnormal or inconsistent with the past history of the assessee. In the absence of any contrary material, the past history of the assessee forms a reliable basis for determining the reasonable profit rate.
12.6 In view of the above facts and circumstances, we are of the considered opinion that the entire cash deposit of Rs. 6,58,27,954/- cannot be treated as unexplained income under section 69A of the Act. The deposits are to be treated as business receipts arising out of wholesale trading activity, and only the gross profit embedded therein . can be brought to tax. Since the assessee has already offered gross profit at 2.65%, which is consistent with his past results, no further addition is warranted. The addition made by the AO and confirmed by the learned CIT(A) is therefore set aside to the extent of treating the entire deposits as income, and the addition is restricted to the gross profit already offered by the assessee. The grounds raised by the assessee are accordingly allowed.
Coming to the issue raised by the assessee through ground of appeal bearing Nos. 1 to 6 on the legality of the notice issued under section 148 and subsequent assessment order u/s 147 of the Act.
13.1 At the outset, we note the learned AR of the assessee before us submitted that if the assessee gets relief on the grounds raised on merit, the technical ground raised be treated as infructuous. Since the assessee got relief on merit of the assessee through Ground No. 7, we are not inclined to adjudicate the other issue raised through Ground 1 to 6 of the appeal. Hence, the same are hereby dismissed as infructuous.
Ground 8 of the assessee’s appeal, which pertains to the levy of interest under sections 234A and 234B of the Act, is considered consequential in nature. Since the levy of such interest is directly dependent on the outcome of the main appeal, these grounds do not warrant separate adjudication. Hence, same is hereby dismissed as infructuous. Similarly, the ground No. 9 of the assessee’s appeal is general ground. Hence, we dismiss the same as infructuous.
In the result, the appeal of the assessee is hereby partly allowed.