MRS. A. SUGANTHI,SALEM vs. DCIT, CIRCLE-1,, SALEM

आदेश / O R D E R PER ABY T. VARKEY, JM: 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 25.07.2025 for the

Assessment Year (hereinafter referred to as "AY”) 2017-18.

regular filer of ITR; and stated to be engaged in the business of job work

of manufacturing silver leg chains and also claims to derive rental income

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and has shown bank balance in her savings bank accounts as follows (i)

Tamil Nadu Mercantile Bank [TMB] SB a/c – ₹20,50,796/- & (ii) City Union

Bank - ₹30,07,730/- [total ₹50,58,526/-]. The assessee filed her return

of income for the assessment year 2017-18 on 20.06.2017, declaring

taxable income of ₹10,77,660/-. During the course of assessment

proceedings, the AO noticed that the assessee had made total cash

deposits of Rs.44,80,000/- after demonetization in Specified Bank Notes

(SBNs) in her bank account maintained with Tamil Nadu Mercantile Bank

(TMB) to the tune of ₹11 lakhs & with City Union Bank ₹33,80,000/-. The

AO asked the assessee to explain nature & source of SBNs, for which the

assessee filed a written submission and submitted that source of cash

deposits of Rs 37,80,000/- was out of realization of sundry

advances/receivables of earlier years and Rs 7 lakhs was out of current

year income, for which the assessee has filed evidences including financial

statements along with ITR filed for earlier financial years. The AO,

however didn’t accept the explanation given by the assessee. According

to the AO, the assessee could not satisfactorily explain source for cash

deposits, although claims to have realized sundry advances appearing in

the balance sheet. And the AO cited the decision of Hon’ble Supreme

Court in the case of Sudhir Kumar Sharma (HUF) v. CIT [2016] 69

taxman.com 317 and was of the view that assessee didn’t file the details

of person who returned the advances given to them and failed to file

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confirmation from them. So, he made addition of ₹44,80,000/- u/s.68 of

the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘). On

appeal, the Ld.CIT(A) is noted to have confirmed the action of the AO

though assessee reiterated the aforesaid explanation/facts to explain the

nature and source of SBNs deposited in her bank account. According to

the Ld.CIT(A), when the Government has withdrawn legal tender of SBNs

of ₹500/- & ₹1,000/-, then the assessee accepting said notes/SBNs from

his customers and depositing into her bank account is in violation of

guidelines issued by the RBI and thus, rejected the explanation of the

assessee and confirmed the addition of ₹44,80,000/- u/s. 69A of the Act.

Aggrieved, the assessee is before us.

on record. From a perusal of the Paper Book and return filed by the

assessee, it is noted that the assessee has been regularly filing return of

income (RoI) admitting income from her property, income from other

sources i.e. interest on advances. From a perusal of the ITRs filed by the

assessee for the earlier two assessment years and especially that of AY

2015-16, it is noted that the assessee had filed her return on 23.07.2015

returning income of ₹6,11,330/- wherein the assessee had shown

advances outstanding at ₹31,55,000/-. Likewise, in AY 2016-17, the

assessee is noted to have filed RoI on 30.07.2016 returning an income of

₹8,54,780/- and advance outstanding at ₹37,80,000/-. In the relevant

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AY 2017-18, the assessee has admitted total income at ₹10,67,660/- in

her ITR dated 20.06.2017 which was selected for scrutiny to scrutinize

the source & nature of ₹44,80,000/- cash deposited in Specified Bank

Notes (SBNs) in her bank-account during the demonetization period.

Pursuant to the query, the assessee filed reply explaining the source of

the deposits of SBNs to the tune of ₹37,80,000/- as realized from the

persons/borrowers to whom she had earlier advanced amounts to the

tune of ₹37,80,000/-, [which was shown as sundry-advances in her

balance-sheet as on 31.03.2016], and the balance amount of ₹7 lakhs as

from the current year earning. However, the AO didn’t accept the

explanation/claim of the assessee by taking note that the assessee didn’t

give the list of persons who had returned back the advances given by her

in the earlier years, was pleased to take an adverse view and made

addition of ₹44,80,000/-. On appeal, the assessee is noted to have

reiterated the source & nature of SBNs and brought to the notice of the

Ld.CIT(A) that the assessee had given advances to borrowers to the tune

of ₹37,80,000/- [as on 31.03.2016] and after demonetization was

declared in November, 2016, the borrowers had returned back the

borrowed amount of ₹37,80,000/- and the balance amount of ₹7 lakhs

was from her current year earning. The Ld.CIT(A) however didn’t accept

the explanation of the assessee and confirmed the action of the AO.

Hence, the assessee is before us; and in order to prove the genuineness

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of the fact that borrowers owned her ₹37,80,000/- as on 31.03.2016 i.e.

closing balance as on AY 2016-17 [of earlier year], the assessee has

furnished copy of ITR for earlier assessment years along with ITR of the

relevant assessment year 2017-18. From a perusal of the same, it is

noted that assessee had been regularly filing the ITR for earlier years and

the sundry debtors available as on 31.03.2016 is at an extent of

₹37,80,000/-, which explains the nature & source of ₹37,80,000/-and the

balance amount of Rs 7 lakhs as realized/earned during the current year,

which has been deposited by the assessee in the form of SBNs in her

bank account during demonetization is plausible explanation. In this

regard, it is noted that assessee is maintaining regular books of accounts

and has duly shown the sundry debtors in her books of accounts and has

filed her return for AY 2016-17 on 30.07.2016, well before

demonetization, so the assessee’s explanation about the source & nature

of SBNs as realized from sundry debtors can’t be termed as an

afterthought. The assessee is noted to have discharged the burden of

proof cast on her to prove the nature and source of SBNs, by filing her

ITRs for three earlier years, P&L a/c, balance-sheet, cash-book, etc. The

cash-book reveals date-wise receipts from borrowers, which were

deposited in her bank account. Considering the relevant facts supra, we

find that assessee’s explanation about the nature and source of SBNs

deposited out of realization of sundry-debtors is believable. In such

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circumstances, unless the AO disproves the explanation given by the

assessee on the source of SBNs was from ‘sundry debtors’; in the given

facts the AO erred in making addition of ₹37,80,000/- merely on

suspicion or conjectures; and the Ld.CIT(A) erred in confirming the same.

Coming to the balance amount of ₹7 lakhs, the same is noted to be

realized/earned from the current year earnings, source of which has been

substantiated by production of cash-book and it has not been disproved

by the AO/Ld.CIT(A). Therefore, in such a back ground, we are of the

view that SBNs deposited to the bank account of the assessee stands

explained and therefore, we are of the view that the AO/Ld.CIT(A) erred

in making addition towards cash deposits in the bank account to the tune

of ₹44,80,000/-. Therefore, we direct the AO to delete the addition of

₹44,80,000/-. Further, it was brought to our notice that similar additions

were made in the case of husband of the assessee [Shri Paramakudi

Thulasiraman Ananthan] in whose hands ₹37,34,000/- was made u/s.69A

of the Act for AY 2017-18 and the Tribunal vide order dated 22.02.2023 in

ITA No.280/Chny/2022 for AY 2017-18 have accepted the explanation

and deleted the addition by holding as under:

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advances shown in the balance sheet as on 31.03.2016. We have gone through various evidences filed by the assessee including ITR filed for earlier three years and financial statements of the assessee and we find that the assessee has declared substantial income for earlier years and also maintained books of accounts. The assessee has shown sundry debtors in his books of accounts and said return have been filed before demonetization. From the above explanation of the assessee it is very clear that source for cash deposits is out of realization of sundry debtors appears to be genuine and bonafide. In fact, the assessee has filed cash book explaining date wise receipts from various parties and deposited into bank account. Therefore, we are of the considered view that the AO is completely erred in making additions towards cash deposits into bank account as unexplained money u/s. 69A of the Act and levied tax u/s. 115BBE of the Act, when the assessee has explained source for said cash deposits. The ld. CIT(A), without considering relevant facts simply sustained additions made by the AO. Thus, we direct the AO to delete additions made towards cash deposits u/s. 69A of the Act. 4. In the light of the aforesaid discussion and also taking note of the

reasons given in the decision of this Tribunal in the case of Tamil Nadu

State Marketing Corporation Ltd. v. ACIT [in ITA No.431/Chny/2023 for

AY 2017-18 order dated 07.10.2024], we direct the AO to delete the

addition of ₹44,80,000/-.

Order pronounced on the 28th day of January, 2026, in Chennai.

Sd/- Sd/- (एस. आर. रघुनाथा) (एबी टी. वक�) (S.R.RAGHUNATHA) (ABY T. VARKEY) लेखा सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER

चे�ई/Chennai, �दनांक/Dated: 28th January, 2026. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF