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Facts
The assessee deposited a significant amount of cash (₹2.01 crores) into their bank account during AY 2015-16. The assessee explained this deposit as an advance received from a buyer for the sale of agricultural land in an earlier assessment year (AY 2012-13).
Held
The Tribunal found that the assessee had sufficiently explained the source of the cash deposits, supported by corroboration from the buyer and disclosure in the earlier return. The Tribunal held that a mere delay in redepositing the cash did not invalidate the explanation.
Key Issues
Whether the cash deposits in the bank account could be treated as unexplained credit under Section 68 when the assessee provided evidence of the source from a prior sale agreement and disclosure.
Sections Cited
68, 131, 69
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Income Tax Appellate Tribunal, C BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI S.R.RAGHUNATHA
आदेश / O R D E R
PER ABY T. VARKEY, JM:
1. This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as “the Ld.CIT(A)”), Delhi, dated 25.08.2025 for the Assessment Year (hereinafter referred to as "AY”) 2015-16.
The main grievance of the assessee is against the action of the Ld.CIT(A) confirming the addition of ₹2.15 Crs. as unexplained credit u/s.68 of the Income Tax Act, 1961 (hereinafter referred to as "the Act”).
The brief facts of the case are that the assessee is a Director of M/s.
Kodai Automobile Ltd. The return of income (RoI) for A.Y 2015-16 was filed on 29.10.2015 declaring income of ₹34,48,350/-. The RoI was selected for scrutiny. The AO noted that in assessee’s savings bank- account, there was large amount of cash deposits of ₹50 lakhs on 22.12.2014 & ₹1,51,00,000/- on 31.12.2014. The AO asked the assessee to explain the nature & source of the cash deposits. The assessee explained the source of cash of Rs 2.01 crores as the advance received from Shri Arunkumar pursuant to sale agreement executed on 01.04.2011 to sell his agricultural land measuring 5.13 acres at Dindigul District for total consideration of Rs 5.25crores. And for transfer of rights to use his agricultural land during the financial year (FY) 2011-12 corresponding to AY 2012-13, Shri Arun took possession of land vide registered deed dated 03.08.2011. Pursuant to such disclosure, the AO summoned Shri Arunkumar u/s.131 of the Act wherein he confirmed that he has entered into sale agreement with the assessee and pursuant to it, gave an advance of ₹46.50 lakhs for transfer of right over the land through Power of Attorney (PoA), and confirmed that during the FY 2011- 12, he gave ₹2.15 Crs. to the assessee. However, according to the AO, the assessee didn’t disclose in his RoI [for AY 2012-13] anything about sale of land as contended supra. According to the AO, it is difficult to believe that assessee would be holding cash of Rs 2 crores idly in his (AY 2015-16) Jayakumar Thomas hands for ‘32’ months until he deposited the same in his bank account in Trichy Branch, considering that assessee is an educated business man [Director in four (4) companies] and has salary from those companies to the tune of ₹42,25,000/-. Therefore, according to the AO, the assessee ought to have utilized the liquid cash available with him rather than kept it idle. Further, according to the AO, the assessee runs proprietary business in trading & fuel and has shown secured loan of ₹1,75,25,940/- in his balance-sheet and incurs interest expenses of ₹25,87,482/- in the P&L a/c for AY 2015-16, which facts according to the AO, shows that the assessee would not have kept idle such huge amount more than ₹2 Crs. in his hand. Instead, according to AO, business man like assessee would have made maximum profit out of the amount in hand. Further, taking note that the assessee incurred interest payment of ₹3,71,936/- for AY 2013-14, ₹6,46,390/- for AY 2014-15 & ₹25,87,482/- for AY 2015-16 qua his proprietary business, Ao was of the view that assessee would not have kept Rs 2.01 crores idle in his hand. Therefore, he was of the view that the assessee couldn’t explain satisfactorily cash deposits of ₹ ₹2.15 Crs (typo error, instead of Rs 2.01 crores) and made addition of the same u/s.68 of the Act.
Aggrieved, the assessee preferred an appeal before the Ld.CIT(A) who concurred with the view of the AO and confirmed the addition of ₹2.01 Crs. [typo error by AO as ₹2.15 Crs.].
Aggrieved, the assessee is in appeal before this Tribunal.
We have heard both the parties and perused the material available on record. The brief facts of the case are that the assessee is a Director of M/s. Kodai Automobile Ltd. The RoI for A.Y 2015-16 was filed on 29.10.2015 declaring income of ₹34,48,350/-. The RoI was selected for scrutiny. During the course of scrutiny proceedings, assessee was asked to explain the nature and source of the cash deposits to the tune of ₹2.01 Crs. in his bank account in the year under consideration. In response, the assessee explained that the source of the same to be part of the sale consideration which he received from execution of sale agreement entered into with one Shri S. Arunkumar on 01.04.2011 [AY 2012-13].
The AO is noted to have subpoenaed Shri S. Arunkumar and recorded his statement u/s 131 wherein he confirmed to have executed the sale agreement with assessee and inter alia to have given Rs 2.15 crores in FY 2011-12. The AO disbelieved the assessee’s explanation about the source of deposit as from the advance given for sale of agricultural land for reasons stated supra which is noted repeated for sake of brevity and added the same u/s 68 of the Act. On appeal, the Ld.CIT(A) is noted to have perused the copy of the agreement for sale and found that the assessee was the owner of 5.73 acres of land, and the right of usage of land was transferred to Shri S. Arunkumar for a total consideration of ₹5.25 Crs. And an amount of ₹46.50 lakhs was received by the assessee (AY 2015-16) Jayakumar Thomas on 31.03.2011 and ₹2.15 Crs. was received during FY 2011-12, which assessee claimed to have kept with him as cash in hand. According to the Ld.CIT(A), the sale agreement acknowledged only an advance of ₹46.50 lakhs and there is no evidence on record to show that the assessee had received cash of ₹2.15 Crs. except assertion of Shri S. Arunkumar before the AO recorded u/s.131 of the Act. According to the Ld.CIT(A), Shri S.
Arunkumar has not explained source of cash deposits of ₹2.15 Crs.
Hence, according to Ld CIT(A), statement of Shri S. Arunkumar [purchaser of agricultural property] doesn’t carry any evidentiary value.
Further, according to the Ld.CIT(A), the assessee has not disclosed the same in his RoI for AY 2012-13; and therefore, he was of the view that the claim of the assessee towards deposit of cash after three (3) years after receipt of the same is unbelievable and hence, he confirmed the action of the AO, but restricted the addition of ₹2.01 Crs. [cash deposit in the year under consideration]. We don’t countenance the action of the Ld.CIT(A). The reason is that during assessment proceedings, when the AO asked the assessee to prove the nature & source of cash deposit of Rs 2.01 crores, the assessee explained the nature and source of the cash deposits as advance of consideration received from execution of the sale agreement on 01.04.2011 of agricultural land measuring 5.13 acres for total consideration of Rs 5.25 crores which fact has been corroborated by the purchaser of the property, Shri S. Arunkumar, when he was (AY 2015-16) Jayakumar Thomas summoned by the AO u/s.131 of the Act. The fact of assessee receiving ₹2.15 Crs. has been disclosed by the assessee in his Income Tax Return (ITR) for AY 2012-13 which fact is discernable from Page No.51 of the Paper Book [refer Page Nos.30-52 of the Paper Book] wherein assessee has kept copy of RoI filed for AY 2012-13. A perusal of the same reveals that the assessee has shown in Schedule-EI details of exempt income [Item No.4 which includes agricultural income an amount of ₹3,59,65,360/- which includes capital gains to the tune of ₹3,49,42,060/- which fact has been brought to the notice of the AO in his letter dated 21.11.2017 placed at Page No.4-6 of the Paper Book wherein the assessee has brought the following facts to the notice of the AO which is reproduced as under:
In the light of the aforesaid facts, the AO as well as the Ld.CIT(A) erred in finding that the assessee didn’t disclose the fact of him receiving part consideration for sale of the agricultural land in AY 2012-13. Since the assessee has been able to discharge the burden to prove that the source of ₹2.01 Crs. deposited in the relevant assessment year is from the consideration which assessee received in AY 2012-13 wherein assessee disclosed the same in ITR as discussed supra onus shifted to the shoulder of the AO/Ld.CIT(A) to rebut/disprove it, which has not been discharged by them. In such a scenario, the nature and source of the cash deposits of ₹2.01 Crs. stands explained. Only other reason for disbelieving the explanation of the assessee is that since the assessee is an educated business person, he couldn’t have kept this amount more than ‘32’ months in his hand. Holding cash in hand for a long time can’t be the only ground to disbelieve the explanation of the assessee, unless the AO is able to show that the assessee had spent it somewhere else or made investment of it or otherwise deployed it elsewhere. Considering the overall facts, and that the payer of amount Shri S. Arunkumar has admitted of have given cash of ₹2.15 Crs. in AY 2012-13 as advance for purchase of agricultural land, which fact has been recorded by the AO (AY 2015-16) Jayakumar Thomas u/s.131 of the Act, the assessee has discharged burden and incase if the AO/Ld.CIT(A) doubts the creditworthiness of Shri S. Arunkumar, then they should investigate about his creditworthiness and take action against Shri S. Arunkumar not on the assessee. Hence, we accept the explanation given by the assessee and direct the AO to delete the addition of ₹2.01 Crs. For the aforesaid action, we rely on the decision of this Tribunal in the case of Ganapathy Panneerselvam v. ITO in order dated 27.06.2025, wherein, the Tribunal held as under:
We have heard both the parties, perused materials available on record and gone through orders of the authorities below along with judicial precedents relied on. It is an admitted fact that the assessee is regular in filing his return of income and had filed the return of income by declaring total income of Rs.9,64,490/- for AY 201516, Rs.10,89,430/- for AY 2016-17, and Rs.9,94,670/- for AY 2017-18. Further, it is undisputed fact that the assessee had withdrawn cash aggregating to Rs.42,50,000/- from his bank account from 10.05.2015 to 29.05.2016. In support of the cash deposit made, the assessee had furnished a comprehensive cash flow statement, a summary of cash inflows and outflows, bank statement and extracts from the cash book both before the AO as well as the ld.CIT(A). These documents collectively demonstrate that the cash deposits of Rs.15,10,500/- made into the assessee’s bank account during the demonetization period were sourced from earlier cash withdrawals from the same bank account. We note that it is evident that the assessee has duly discharged the initial burden of proof by establishing the source of the cash deposits as unutilized cash withdrawals. It is a settled position in law that while an assessee is required to prove a positive fact, he cannot be expected to prove a negative. In such circumstances, the onus shifts to the Assessing Officer to rebut the explanation by bringing on record any material evidence to show that the withdrawn cash was utilized or diverted for some other purpose.
In the present case, the Assessing Officer has not brought on record any such material to suggest that the cash withdrawn earlier was spent, invested, or otherwise deployed elsewhere. We note that the only basis for the AO’s rejection of the assessee’s explanation is the time gap between the withdrawal and the subsequent re-deposit of cash. However, it is to be noted that there is no statutory or judicially prescribed time limit within which cash must be re- deposited to be considered explained. The mere existence of a time gap, without any corroborative evidence of alternate use of funds, cannot be a valid ground to disbelieve the assessee’s explanation. Furthermore, there is no legal bar on an assessee retaining cash in hand for a reasonable period, particularly when the source of such cash is accounted for and traceable through bank withdrawals. The AO’s inference that no prudent person would hold cash and forego interest is speculative and not based on any evidence specific to the assessee's financial conduct or circumstances.
It is also an undisputed fact that the assessee’s sole source of income is interest, as accepted by the AO. There is no allegation or finding on record to suggest that the assessee has any other source of income. Therefore, in the absence of any contrary evidence or material brought on record by the AO, the cash deposits made in the bank account cannot be presumed to represent income from an undisclosed source. The AO’s primary concern appears to be that a prudent person would not keep substantial cash in hand, thereby foregoing interest income, and has presumed that the cash withdrawn must have been utilized for some other purpose. However, such a presumption is merely based on conjecture and not supported by any material evidence on record. It is not for the AO to decide that the assessee should have acted in a financially prudent manner, which expectation is unreasonable and cannot form a valid basis for drawing an adverse inference. The AO has neither demonstrated nor established that the cash withdrawals were in fact utilized or diverted elsewhere. Mere assumptions regarding the utilization of cash without concrete evidence cannot justify an addition u/s. 69 of the Act. It is a wellsettled principle that additions cannot be made based on suspicion or surmise. Therefore, in our considered view, in the absence of any positive finding or evidence to contradict the assessee’s explanation, the presumption that the cash deposits are unexplained is not sustainable.
The Hon’ble Karnataka High Court in S.R. Venkata Ratnam v. CIT [1981] 127 ITR 807 (Kar) has held as under:
“….once the petitioner-assessee disclosed the source as having come from the withdrawal made on a given date from a given bank, it was not for respondents Nos. 1 and 2 to concern themselves with what the assessee did with that money, i.e., whether he had kept the same in his house or utilised the services of a bank by depositing the same. The ITO had only two choices before him. One was to reject the explanation as not believable for the reason that on his investigation no such pigmy deposit was ever made in the bank. In the alternative he ought to have called upon the assessee-petitioner to substantiate his claim by documentary evidence. Having exercised neither of the choices, it was not open to the ITO to merely surmise that it would not be probable for the assessee to keep Rs. 15,000 unutilised for a period of two years. The ITO should have given an opportunity to the assessee to substantiate his assertion as to the source of his capital outlay.”
Following the above judgment, the Hon’ble Karnataka High Court in Smt. P. Padmavathi v. ITO (ITA No. 414/2009, dated 06.10.2020), has held as under:
“12. In this case, it is not in dispute that the assessee withdrew a sum of ₹.5,00,000/- on 18.8.2003 and ₹.2,00,000/- on 20.8.2003 from her savings account. She is an agriculturist and she had agricultural income. Once she demonstrated that she was in possession of ₹.7,00,000/- cash plus agricultural income on her hands, if after 40 days, a cash deposit is made to the extent of about ₹.5,20,000/- towards loan account, it cannot be said that the source of the said deposit is not properly explained. Merely because there is a delay of 40 days from the date of withdrawal of the money from the bank account to the date of deposit in the loan account. Once money is shown to be in the account and withdrawn, what the assessee did with that money till it was actually deposited, is not the concern of the Department. As long as the source is explained and established and when the money is withdrawn from a savings bank account and paid to discharge loan by deposit into a loan account, it is not possible to hold that the source is (AY 2015-16) Jayakumar Thomas not explained. In that interregnum period, if the very same money is utilised for other purpose and thereafter, it is appropriated towards discharge of a loan, that cannot be held against the assessee. In that view of the matter, the finding recorded by the Tribunal is erroneous and requires to be set aside. Therefore, the said substantial question of law is also held against the revenue and in favour of the assessee.”
The Hon’ble Delhi High Court in Jaya Aggarwal v. ITO [2018] 92 taxmann.com 108 (Del) has held as under:
“8. We find it difficult to accept the approach and findings recorded for several reasons. The brief order does not examine and consider the entire explanation and material on record as withdrawal of Rs.2,00,000/- in cash was undisputed. Naturally, the huge withdrawal was for a purpose and objective. From the beginning the explanation given was that withdrawal was to pay earnest money for purchase of immovable property, which deal did not fructify. Explanation given was not fanciful and sham story. It was perfectly plausible and should be accepted, unless there was justification and ground to hold to the contrary. Delay of some months in redeposit of part amount is the sole and only reason to disbelieve the appellant. Persons can behave differently even when placed in similar situations. Due regard and latitude to human conduct and behaviour has to be given and accepted when we consider validity and truthfulness of an explanation. One should not consider and reject an explanation as concocted and contrived by applying prudent man's behaviour test. Principle of preponderance of probability as a test is to be applied and is sufficient to discharge onus. Probability means likelihood of anything to be true. Probability refers to appearance of truth or likelihood of being realised which any statement or event bears in light of the present evidence (Murray's English Dictionary). Evidence can be oral and cannot be discarded on this ground. Assessment order and the appellate orders fall foul and have disregarded the preponderance of probability test.”
Therefore, in the present facts and circumstances of the case and the ratio decidendi laid down in the aforementioned judgments is directly applicable to the facts and circumstances of the present case concerning the assessee and hence we are inclined to set aside the order of the ld.CIT(A). Accordingly, by respectfully following the binding precedent, we hold that the addition of Rs.15,10,500/- made u/s.69 of the Act in the hands of the assessee, is not justified in law. Consequently, the said addition stands deleted.
In the result, the appeal filed by the assessee is allowed.
Hence, we rely on the ratio of decision of this Tribunal in the case of Ganapathy Panneerselvam supra and accordingly accept the explanation given by the assessee in the given facts discussed supra and direct the AO to delete the addition of ₹2.01 Crs.