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Facts
During the demonetization period (Nov-Dec 2016), the assessee deposited Rs. 25,50,000/- in cash into their bank account. The Assessing Officer (AO) treated this deposit as unexplained money under Section 69A of the Income Tax Act, 1961, and added it to the assessee's income. The CIT(A) confirmed the AO's action.
Held
The Tribunal held that a mere cash book does not constitute complete books of accounts, and the assessee failed to provide corroborative evidence for the opening balance and entries. The Tribunal also noted that quoting a wrong section does not invalidate an assessment order if the AO had the necessary jurisdiction. However, it observed that the assessment order was framed in haste without proper inquiry and that the principle of natural justice might have been violated.
Key Issues
Whether the cash deposit made during demonetization is unexplained income under Section 69A, and if the assessment order is vitiated due to lack of proper inquiry and violation of natural justice.
Sections Cited
69A, 143(3), 250, 133(6), 142(1), 44AD, 271AAC
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC”
Before: DR. ARJUN LAL SAINI
आदेश/Order Per, Dr. Arjun Lal Saini, A.M:
Captioned appeal filed by the assessee, pertaining to Assessment Year 2017- 18, is directed against the order passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) by National Faceless Appeal Centre (NFAC), Delhi/Commissioner of Income-tax (Appeals), dated 19.05.2025, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Act, on 26.11.2019.
1. The Assessing Officer has erred on facts and in law in making addition of Rs.25,50,000/- by treating cash deposited in bank account as unexplained money u/s.69A of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals), NFAC, has erred on facts and in law in confirming the same.
The relevant material facts, as culled out from the material on record, are as follows. In the assessee`s case, there was information with the Department from the SFT filed by banks that during the course of demonetization period, that is, from 09- 11-2016 to 31-12-2016, the assessee deposited cash to the tune of Rs.25,50,000/-, in his Bank Account No. 0424104000035121 of IDBI Bank Ltd, Porbandar. The assessee has e-filed his return of income for assessment year (A.Y.) 2017-18, u/s 139 of the Income-tax Act, 1961, on 31.08.2017, showing income from other sources of Rs. 2,42,790/-. (Land Brokerage Income + Sub- Contract Work Income + Bank S.B. Interest Income). The assessee`s case was selected through CASS, Limited Scrutiny for A.Y. 2017-18, hence a notice u/s 143(2) was issued to the assessee by the Income-tax Officer, Ward 2(4), Porbandar on 21.09.2018, through ITBA and accordingly duly sent to the assessee on e-filing account of the assessee. A physical copy of this notice was also served through notice server of this office, but, no any compliance was received from the assessee. Accordingly, a notice u/s 142(1) of the Income-tax Act was issued to the assessee on 31.01.2019, by the Income-tax Officer, Ward 2(4), Porbandar through ITBA and sent to the assessee on e-filing account of the assessee. A physical copy of this notice was also served through Notice Server of assessing officer, which was duly served upon the assessee on 21.10.2019, but, no any compliance was received from the assessee in response to the above said notice. Further, as the territorial jurisdiction over the case lies with Income-tax Officer, Ward 2(3), Porbandar, the case was transferred on 15.02.2019.
Thereafter, during the course of assessment proceedings, notices u/s 133(6) of the Income-tax Act, 1961 was issued to IDBI Bank Ltd, by the Income tax Officer, Ward-2(3) Porbandar on 30.05.2019, to give details of cash deposits in old demonetized currency of Rs. 1000/- and Rs.500/-, statement of accounts and KYC details which were duly submitted by IDBI Bank Ltd., Porbandar on 03.06.2019, the amount of cash deposit of Rs. 25,50,000/-, was made on 16.11.2016, which was verified from the bank statement. However, even after lapse of considerable time, there was no compliance to any notices issued to the assessee. Therefore, a show cause notice was issued to the assessee by the assessing officer, on 09.11.2019 through ITBA and sent to the assessee on e-filing account of the assessee. A physical copy of this notice was also sent through Notice Server on 13.11.2019.
In response to the Show- Cause notice dated 18.11.2019, the assessee has submitted his reply on 21.11.2019. The same was gone through by the assessing officer, and the assessing officer did not find merit in this reply because of the reason that in the bank statement, wherever there was cash withdrawal, the bank was writing the remark as "Self”, however the instance is mentioned in Show - Cause notice, the name of the person was mentioned in the remarks. The assessee, did not explain the name of person mentioned in the remarks. Therefore, assessing officer noticed that in spite of having huge Cash Deposited of Rs. 25,50,000/- in the IDBI Bank Ltd., Porbandar Account No. 0424104000035121, the assessee has not reported the above cash deposit in his return of income filed for A.Y. 2017-18, the assessee's contention appears to be malafide, and accordingly the cash book found defective and the same was rejected. Since the Cash Book is rejected the source of cash deposit of Rs. 25,50,000/- remains unexplained within Mavani Nilesh Harishbhai HUF vs. ITO the meaning of section 69A of the I.T. Act. In the assessee`s case, the scrutiny assessment was initiated u/s 143(3) of the Income-tax Act, 1961 to verify the sources of substantial cash deposited in IDBI Bank Ltd, Porbandar Account No. 0424104000035121 during the demonetization period, that is, from 09-11-2016 to 31-12-2016. From the SFT filed by IDBI Bank Ltd., Porbandar, it was noticed by the assessing officer that assessee made an aggregate cash deposits of Rs.25,50,000/- in old demonetized currency of Rs. 1000/- and Rs.500/- in IDBI Bank Ltd, Porbandar Account No. 0424104000035121. This fact was confirmed by the IDBI Bank Ltd., Porbandar in response to the notice issued u/s 133(6) of the Income-tax Act, 1961.Since the cash deposit made by the assessee was remained unexplained with regard to sources of such cash deposits, therefore, a sum of Rs. 25,50,000/- was brought to the tax in view of the provisions of the section 69A of the Income-tax Act, 1961, and the same was added as unexplained money u/s 69A of the I.T. Act.
Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has confirmed the action of the assessing officer observing as under:
“Through Ground No.1 and 2, the appellant has contested that the Assessing Officer has erred on facts and in law in making addition of Rs. 25,50,000/- u/s 69A of the Income Tax Act, 1961 and in invoking provisions of section 69A of the Income Tax Act. 1961. 6.2.1 It is seen from the assessment order the A.O had issued notice u/s 133(6) of the Income-tax Act, 1961 to IDBI Bank Ltd., Porbandar branch to give details of cash deposits in old demonetized currency of Rs.1000/- and Rs.500/-, statement of accounts and KYC details and on receipt of the reply from the bank it was verified that the appellant had made cash deposit of Rs. 25,50,000/- on 16.11.2016 in his bank account No. 0424104000035121.The A.O did not accept the appellant's submission because of the reason that in the bank statement, wherever there was cash withdrawal, the bank was writing the remark as "Self however the instance as mentioned in Show Cause notice, the name of the person was mentioned in the remarks. In spite of having huge cash deposited of Rs. 25,50,000/-, the appellant had not reported the above cash deposit in his return of Mavani Nilesh Harishbhai HUF vs. ITO income filed for A.Y. 2017-18. Accordingly the cash book was found to be defective by the A.O and the same was rejected. Since the cash book was rejected, the source of cash deposit of Rs. 25,50,000/- remained unexplained within the meaning of section 69A of the I.T. Act and hence the same was added to the total income of assessee u/s 69A of the Act. 6.2.2 During the appellate proceedings, the appellant has submitted copy of his cash book for the period 01-04-2016 upto 31-03-2017. Further, he has submitted copies of numerous case laws but has not explained how the ratio of the judgments is applicable to the facts of his case for the year under consideration. On perusal of the said cash book, it is seen that the opening balance as on 01-04-2016 is Rs 16,49,370/-. However, there is no corroborative evidence to prove the veracity of the opening balance in the cash book. Further, the appellant has not provided any supporting evidences to prove the authenticity of the various entries of the cash receipts and payments seen in the cash book, Hence, the cash book submitted by the appellant cannot be relied upon to explain the source of the cash deposit of Rs 25,50,000/-. The A.O has clearly mentioned in the assessment order that the cash book has been found to be defective and the appellant has not brought any evidence to refute the finding of the A.O. 6.2.3 I have gone through the facts and circumstances of the case, the findings of the Assessing Officer and submissions of the appellant and I am of the considered view that the claims of the appellant have not been backed by sufficient documentary evidence. The appellant has only submitted its cash book and has placed reliance on a number of judicial precedents in support of its claims. However, he has not placed on record any evidence to establish the source of the cash deposited or to show that the appellant was indeed in receipt of cash from the business activities of sub-contract work and real estate brokering which contributed to sufficient cash-in-hand from time to time in the books. Further, the appellant has explained in the statement of facts that source of cash deposited during demonetization period was earlier withdrawal from bank account and that he used to send his staff or known person to bank for withdrawal of cash. As per banks practice they were writing name of the person who came for withdrawal of money. However, these are merely bald statements without any concrete evidence or explanation. The appellant was given ample opportunity to bring forth details/documents to corroborate his contentions however, the appellant has failed to do so with adequate material evidence. Thus, as the appellant has failed to controvert the findings of the A.O, I find no infirmity in the action of the A.O and in consequence, these grounds are dismissed. 6.3 Through Ground No.3, the appellant has pleaded that the Assessing Officer has erred on facts and in law in initiating penalty u/s 271AAC of the Income Tax Act. 1961. This ground is premature at this stage as no such penalty has been levied and if levied the appellant is required to file a separate appeal against the penalty. Thus this ground is dismissed.”
7.Aggrieved by the order of the Ld. CIT(A), assessee is in further appeal before this Tribunal. 5 Mavani Nilesh Harishbhai HUF vs. ITO 8.Learned Counsel for the assessee, argued that the assessee, maintains cash book, therefore, assessing officer cannot make addition under section 69A of the Act, as the assessing officer has made addition under wrong Section, namely, Section 69A of the Act, in respect of the cash deposited during the demonetization period, therefore, addition may be deleted on this score only. The learned Counsel further stated that the assessee maintains cashbook, which is books of accounts of the assessee and if the assessee maintains the books of accounts and the amount is recorded in the books of accounts of the assessee, then the provisions of Section 69A of the Act does not apply. For that, Ld. Counsel for the assessee took me through the provisions of Section 69A of the Act, which reads as under:
“69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.”
Therefore, Ld. Counsel for the assessee submitted that considering these facts the assessment order should be quashed.
9.On merit, Ld. Counsel for the assessee, submitted that the amount has been deposited by the assessee during the demonetization period out of the opening cash balance, as on 1st April, 2016 and part amount was deposited from the amount withdrawn earlier from the said bank account, therefore, the addition made by the assessing officer should be deleted.
Mavani Nilesh Harishbhai HUF vs. ITO 10. On the other hand, Ld. DR for the Revenue submitted that first of all, alone cash book submitted by the assessee, is not a complete books of accounts. The assessee has not submitted, profit and loss account, balance sheet, ledger account, cash flow statement etc. The assessee prepared only a fabricated cash book, to explain the unaccounted money deposited during the demonetization period. Besides, no closing balance in the income tax return (ITR) for the A.Y. 2016-17, has been shown by the assessee, before the assessing officer, about the cash balance. Next year cash book was also not submitted by the assessee to corroborate the cash balance. Therefore, the opening cash balance shown by the assessee in the cash book, is merely a cooked story. In the income tax return (ITR) filed by the assessee for assessment year 2017–18, the assessee has shown total income to the tune of Rs. 2,42,790/-, which is, below the maximum amount which is not charging to tax. The assessee has shown the income only up to the exempted amount, which is Rs. 2,50,000/- and not paid any taxes. The assessee has deposited cash in the demonetization period to the extent of Rs. 25,50,000/-, which is not getting reflected in the return of income filed by the assessee for assessment year 2017–18. The Ld. DR also pointed out that the assessee filed the income tax return (ITR), on August 31st, 2017, for assessment year 2017–18 and the ITR filed by the assessee is not in the category of business income tax return (ITR). It is simply an income tax return (ITR) in case of an individual, who does not maintain books that is, for small assessee. Moreover, there is no verification of closing balance of the cash books, therefore, opening balance of the cash in fabricated cash book should not be relied.
Mavani Nilesh Harishbhai HUF vs. ITO 11. The Ld. DR for the Revenue further submitted that the assessee did not file the income tax return prior to demonetization scheme. However, whatever, the income tax return, so filed by the assessee, does not contain any details of books of accounts, which were maintained by the assessee. The assessee has not filed the income tax return in business ITR where the assessee needs to show the books of accounts maintained by him. Since, in the income tax return (‘ITR’) filed by the assessee, does not mention or does not show, books of accounts which are maintained by the assessee. Therefore, addition may be made in the hands of the assessee.
The Ld. DR for the Revenue also submitted that assessing officer rejected the fabricated cash book, then after he made the addition under section 69A of the Act, hence, the assessing officer did not make addition under wrong Section. Moreover, to maintain cashbook only, does not mean that assessee is maintaining complete books of accounts. The assessing officer made the addition based on the facts narrated in the assessment order, and just to quote wrong section, in the assessment order, does not mean that the addition made by the assessing officer, is wrong. The mistake of the Section may be corrected by the appellate authorities. However, the addition should be assessed based on the material available on record. The Ld. DR for the Revenue submitted that the provisions of Section 44AD of the Act, vis-à-vis Section 69A of the Act, these are conflicting issues and, therefore, since the books of accounts of the assessee are not audited and hence, this self- made cash book should not be relied on. Moreover, assessee, under consideration is very small, assessee, who has shown total income to the tune of Rs. 2,42,790/-, (and not paid any taxes) which is below the maximum amount, which is not chargeable to tax, cannot be believed to maintain books of accounts. Therefore, addition made by the assessing officer may be sustained.
In rejoinder, Ld. Counsel for the assessee submitted that if the Act does not prescribe any particular assessee to maintain the books of accounts and if the assessee maintains, books of accounts, suo- motto, then there is no harm. The assessee in this case is maintaining books of accounts, therefore, the addition made by the assessing officer may be deleted.
I have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. I find merit in the submissions of learned DR for the revenue to the effect that only cash book does not constitute complete books of accounts. Besides, the assessee has never submitted previous year cash book and the subsequent year cash book to corroborate the opening and closing cash balances. Hence, such cashbook should not be relied on.
I also find that addition was made by the assessing officer based on the facts narrated in the assessment order and just to quote the wrong section, if any, does not invalidate, ( does not void ) the assessment order. For that reliance is placed on the judgement of Hon`ble High Court of Madras in the case of Madurai Knitting Co. [1976] 104 ITR 36 (Madras), wherein Hon`ble Court held as follows:
Section 35(1) of the 1922 Act, and section 154 of the 1961 Act, are in pari materia. Both confer jurisdiction on an ITO for rectifying mistakes apparent from the record, the only difference being that an appeal is provided under the 1961 Act, against an order under section 154, but in the old Act, no such provision of appeal was provided, but only revision was competent. In the instant case, the mistake in the original assessment in not setting off the business loss against the capital gains was a mistake apparent from the record within the meaning of section 35 of the 1922 Act. The revenue was right in contending that once the ITO had jurisdiction to make the order under section 35 of the 1922 Act the rectification order should be deemed to be referable to the exercise of the power under that provision, though the ITO purported to exercise his jurisdiction under section 154 of the 1961 Act. The reference to section 154 should, therefore, be treated as quoting a wrong provision of law, which would not 9 16.Per Chagla CJ,.Navinchandra Mafatlal v CIT [1955] 27 ITR 245, 261, affirmed, [1961] 42 ITR 53 (SC), states as follows: “If an order is made by an income-tax Officer and even though he may state that he has not made it under any particular section of the income-tax Act, or even if he may state that he has made it under a particular section, it is for us to decide which is the proper provision of the law under which such an order should have been made.
Therefore, mistake in quoting the section in the assessment order, may be corrected by the higher authorities/ judicial authorities. Based on the above facts, the arguments advanced by the learned Counsel for the assessee to the effect that since the assessing officer quoted wrong section, (section 69A) therefore, entire assessment order may be quashed, is not acceptable.
I also find that assessee has filed a lot of additional evidences before the Bench, such as, copy of income tax return for assessment year 2013–14, Copy of income tax return for assessment year 2014 15, Copy of income tax return for assessment year 2016–17, chart showing details of deposit and withdrawal from the bank, which were not submitted before the lower authorities.
I also find that assessment order was framed by the assessing officer in haste and in hurry, without conducting proper enquiry, as the assessee did not co-operate during the assessment proceedings and did not file the required documents and detail details before the assessing officer. Only at the fag end of the assessment proceedings, the assessee submitted a reply before the assessing officer, this is evident from the facts narrated in this order, vide para nos. 3 , 4 and 5 of this order.
Mavani Nilesh Harishbhai HUF vs. ITO The assessee submitted its reply before the assessing officer on 21.11.2019, and assessing officer completed the assessment, after four days, on 26.11.2019. The following query of the assessing officer remains unanswered, which is reproduced below, for ready reference:
“……in the bank statement, wherever there was cash withdrawal, the bank was writing the remark as "Self”, however the instance is mentioned in Show -Cause notice, the name of the person was mentioned in the remarks. The assessee, did not explain the name of person mentioned in the remarks. ..”
The assessee was required to submit the confirmation letters of all the parties (staff/ known persons) whose name is reflected in bank statement, however, the assessee has failed to do so. Therefore, I note that assessing officer did not get an opportunity to examine the entire facts of the assessee`s case, hence it is violation of principle of natural justice. We note that the Hon’ble Supreme Court in M.S.Gill vs The Chief Election Commission 1978 AIR SC 851 held “The dichotomy between administrative and quasi-judicial function vis-à-vis the doctrine of natural justice is presumably obsolescent after Kraipak (A.K. Kraipak vs UOI AIR 1970 SC 150) which makes the water-shed in the application of natural justice to administrative proceedings. The rules of natural justice are rooted in all legal systems and are not any new theology. They are manifested in the twin principles of nemo judex in parte sua (no person shall be a judge in his own case) and audi alterem partem (the right to be heard). It has been pointed out that the aim of natural justice is to secure justice.
Mavani Nilesh Harishbhai HUF vs. ITO Considering the above facts and circumstances of the case, I deem it fit and proper to set aside the order of the ld. CIT(A) and remit the matter back to the file of the assessing officer to adjudicate the issue afresh on merits. For statistical purposes, the appeal of the assessee is treated as allowed.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 27/11/2025.