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Facts
The assessee, a retail liquor business, appealed against the CIT(A)'s order for AY 2017-18. Key issues included the rejection of books of accounts by the AO, an addition of Rs.72,45,860/- as unexplained cash deposits under Section 69A during the demonetization period, and disallowance of Rs.30,000/- under Section 80C. The assessee claimed inability to produce physical books due to business closure but provided P&L and Balance Sheet.
Held
The Tribunal condoned a one-day delay in filing the appeal. It upheld the rejection of books of accounts by the lower authorities. However, it deleted the addition of Rs.72,45,860/- made under Section 69A, noting that the AO had already estimated business income based on sales, and the cash deposits were derived from sales and used for liquor purchases, consistent with the bank account entries and balance sheet. The disallowance of Rs.30,000/- claimed under Section 80C was upheld due to the assessee's failure to provide supporting evidence.
Key Issues
Whether cash deposits during demonetization, arising from accepted retail liquor sales, can be treated as unexplained money under Section 69A when books are rejected and income is estimated; and the validity of disallowing a deduction under Section 80C without proof.
Sections Cited
145(3), 143(3), 69A, 80C, 68, 115BBE, 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad A’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO & SHRI MANJUNATHA G.
PER VIJAY PAL RAO, VICE PRESIDENT :
This appeal by the Assessee is directed against the Order dated 15.07.2024 of the learned CIT(A)-National Faceless Appeal Centre [in short “NFAC], Delhi, for the assessment year 2017-2018.
2 ITA.No.911/Hyd./2024 2. There is a delay of 01 day in filing the present appeal before the Tribunal. The assessee has filed a petition for condonation of delay which is also supported by the affidavit of the assessee.
We have the learned Authorised Representative of the Assessee as well as learned DR and carefully perused the contents of the affidavit filed by the assessee. The assessee has explained that the delay of 01 day was due to some technical problems as Form No.36 could not be uploaded on 13.09.2024 and finally the assessee was able to upload the Form No.36 on 14.09.2024 which has resulted in 01 day delay in filing the present appeal. Having considered the reasons explained by the assessee, we condone the delay of 01 day in filing the present appeal.
The assessee has raised the following grounds of appeal:
“The order of the Hon'ble CIT (A) is erroneous in law as well as facts of the case.
The Hon'ble CIT (A) ought to have observed that the Assessing Officer erred in rejecting the books of accounts u/s 145(3) of the IT
3 ITA.No.911/Hyd./2024 Act without appreciating the facts of the case properly and judiciously proceeded to complete the assessment u/s.143(3) of the IT Act and hence the same is liable to be deleted. 3. The Hon'ble CIT(A) ought to have observed that there is no scope for the Assessing Officer to reject the books of the Appellant as there are no specific defects pointed out by the Assessing Officer to enable him to reject the books. This fact was also explained in detail during the course of appeal proceedings and has duly responded to the notices issued by submitting all the required information in support of the grounds of appeal. However, such submissions were not considered and the order passed by the Hon'ble CIT(A) is infructuous and not sustainable. 4. The Hon'ble CIT(A) ought to have considered that the Assessing Officer without bringing any material on record treated the cash deposits made for Rs.72,45,860/-during the demonetization period as unexplained cash deposits u/s 69A of the IT Act and such conclusion is not correct and hence it is liable to be deleted. 5. The Hon'ble CIT(A) ought to have considered that the Assessing Officer erred in disallowing the deduction claimed u/s 80C of the IT Act for Rs.30,000/- without understanding the facts of the case and hence it is liable to be deleted. 6. Without prejudice to the above grounds, the Hon'ble CIT (A) ought to have considered that the Assessing Officer ought not to have made an addition of Rs.95,444/- as consultancy fees without understanding the facts of the case and hence the same is liable to be deleted. 7. The Appellant craves to add/leave/alter any other grounds during the course of hearing.”
4 ITA.No.911/Hyd./2024 3. Ground no.1 is general in nature and not requires any specific adjudication.
Ground nos.2 and 3 regarding rejection of books of accounts.
We have heard the learned Authorised Representative of the Assessee and learned DR. Before the Assessing Officer the assessee submitted that though the assessee maintained books of accounts for the year under consideration manually however, as the business has been closed the assessee is not in a position to produce the same. The Assessing Officer has recorded these facts in Para no.04 of the assessment order as under:
“4. In response to the final show cause letter the assessee appeared on 06.12.2019. He filed a copy of Profit & Loss Account for the Year ended 31.03.2016 and stated that he has been carrying out retail business in wine from the year 2014-15 and the sources of funds for the License Fee paid are out of sales made in retail wine business. The assessee further stated that he maintained books of account for the year under consideration manually and as the business has been closed, he is not in a position to produce the same. During the hearing held on 06.12.2019, vide order sheet noting’s at Page-2, the assessed is informed that in view of his failure in producing books of account,
5 ITA.No.911/Hyd./2024 bills/Vouchers in support of the expenditure claimed as per the return of Income, the profits admitted by the assessee as per the return of income are not reliable hence not acceptable. Therefore, there is no other option except to estimate the business profits of the assessee from retail wine business. Therefore, the assessee has been required to show cause as to why his business profits from wine business should not be estimated @3% of the stock put to sale. The assessee has no explanation to offer. Therefore, the business profits of the assessee from wine business are estimated as under:
Opening Stock Rs. 10,24,324/- Rs.5,46,33,808/- 2. Add: Purchases
Rs. 14,81,046/- 3. Less: Closing Stock Rs.5,41,77,090/- Net Stock Put to Sale 4. Rs. 16,25,320 5. 3% there of Profit Admitted as per the return of 6. Rs. 12,42,578/- income 7. Difference of Business Profits Rs. 3,82,742/- 8. Add: Consultancy Fee Rs. 95,444/- Total Difference of Business Profits Rs. 4,78,186/- 9. now brought to tax
5.1. Thus, the results as declared by the assessee in the return of income were not supported by the books of accounts and accordingly, in the facts and circumstances of the case, we do not find any error or illegality in the impugned
6 ITA.No.911/Hyd./2024 order of the learned CIT(A) in upholding the rejection of the books of accounts. Ground nos.2 and 3 of the assessee are accordingly dismissed.
Ground no.4 is regarding the addition of Rs.62,45,860/- made by the Assessing Officer u/sec.69A of the Income Tax Act [in short "the Act"], 1961 on account of cash deposit in the bank account during the demonetization period.
The assessee is in the business of retail sale of liquor and wines in the name and style of M/s. Uma Sangameshwara Wines. During the assessment proceedings, the Assessing Officer asked the assessee to furnish information in support of the return of income. However, the assessee submitted only copy of the profit and loss account for the year under consideration and he has stated that because the business has been closed, he is not in a position to produce the books of accounts. The Assessing Officer further noted that apart from failure of the assessee to produce the books of accounts, he has also not produced the
7 ITA.No.911/Hyd./2024 bills and vouchers in respect of the expenditure claimed as per the return of income. Accordingly, the Assessing Officer proceeded to reject the book results and estimated the income of the assessee at 3% of the stock put to sale in other words, the cost price of the sales made during the year. Apart from the estimation of the income from the business of liquor retail sale, the Assessing Officer also made an addition u/sec.69A of the Act on account of cash deposits during the demonetization period to the tune of Rs.72,45,860/-. The assessee challenged the action of the Assessing Officer before the learned CIT(A) but could not succeed.
Before the Tribunal, the learned Authorised Representative of the Assessee has submitted that once the Assessing Officer has estimated the income @ 3% on the cost of stock put to sale then, no other addition can be made by the Assessing Officer. In support of his contention, he has relied upon the decision of Coordinate SMC-Bench of this Tribunal Order dated 10.10.2025 in ITA.No.637/Hyd./2025 in the case of Shri Venkata Subba Reddy Karnati, Hyderabad vs. ITO, Ward-1, Proddatur and submitted that the Tribunal
8 ITA.No.911/Hyd./2024 in the said case has deleted the addition made by the Assessing Officer u/sec.68 of the Act after rejecting the books of accounts and estimation of the income. Even otherwise, the learned Authorised Representative of the Assessee has submitted that the deposits were made from the sales of the assessee which are duly reflected from the record and also manifest from the bank account statement of the assessee. He has referred to the bank account statement of the assessee and submitted that the assessee has been regularly depositing the cash generated through the cash sales of the assessee and the said deposit is used for purchase of the liquor. Thus, the entries in the bank account itself show the nature and source of deposit as well as the utilisation of the same being payment for purchase of the liquor. Thus, the learned Authorised Representative of the Assessee has submitted that once the cash sales of the assessee is more than sufficient to explain the source of cash deposit then, the same cannot be added u/sec.69A of the Act. He has further contended that the Assessing Officer has also applied sec.115BBE of the Act which is also not applicable in the case
9 ITA.No.911/Hyd./2024 of the assessee when the entire transactions are recorded in the books of accounts of the assessee. The learned Authorised Representative of the Assessee has referred to the balance sheet of the assessee and submitted that the assessee has shown the cash in bank as well as cash in hand as on 31.03.2017 and the cash in bank as shown in the balance sheet is matching with the closing balance in the bank account of the assessee as on 30.03.2017. Thus, the learned Authorised Representative of the Assessee has submitted that once the transactions are duly recorded in the books of accounts then, the addition made by the Assessing Officer u/sec.69A of the Act is not sustainable in law.
On the other hand, the learned DR has submitted that the assessee has failed to explain the source of deposit in the bank account during the demonetization period in Specified Bank Notes [in short “SBNs”] and therefore, the Assessing Officer is justified in making the addition u/sec.69A of the Act. The learned DR has further submitted that once the assessee has failed to produce the books of accounts before the Assessing Officer the contention of the
10 ITA.No.911/Hyd./2024 assessee cannot be accepted in the absence of any supporting evidence. She has relied upon the Orders of the authorities below.
We have considered the rival submissions as well as the relevant material on record. The Assessing Officer has made the addition of Rs.72,45,560/- u/sec.69A of the Act on account of cash deposit during the demonetization period. The assessee explained the source of the deposit as sales which was deposited in the bank account for making the payment of purchase of the liquor. The learned CIT(A) has considered this issue in Para nos.7 and 7.1 of the impugned order as under:
“7. Ground No.4 pertains to the issue of addition of cash deposits of Rs.72,45,860/- on account of unexplained money u/s 69A of the Act and the same is adjudicated as under:- "On perusal of the information, obtained during the course of assessment proceedings u/s.133(6) of the I.T. Act, 1961 during the year under consideration, the assessee maintained bank account with Andhra Bank, Tekmal Branch vide Account Bearing No.057311100000265. On perusal of the copy of the Bank account statement it is noticed that the assessee made cash deposits during the period 09.11.2016 to 30.12.2016, in the Specified Bank
11 ITA.No.911/Hyd./2024 Notes to the tune of Rs.72,45,860/-. It is also noticed that out of the cash deposits made, the assessee transferred Rs.1,00,000/- each to one Suresh Gupta and Sri Gurudatta Fertilizers on 17.12.2016. During the hearing held on 06.12.2019 the assessee has stated that the sources of cash deposits are out of the sales made and the cash balances available as on 08 11.2016, however, he is not in a position to substantiate the same with any documentary evidence. In view of the assessee's failure in furnishing satisfactory explanation with regard to the sources of funds for the cash deposits made, during the hearing held on 06.12.2019, vide order sheet notings at page-2, the assessee has been required to show cause as to why the amount of Rs.72,45,860/-, deposited in Specified Bank Notes during the period 09.11.2016 to 31.12.2016 should not be treated as Unexplained Money as per the Provisions of Section 69A of the 1.T.Act, 1961. The assessee has no explanation to offer. Therefore, the amount o, Rs,72,45,860 is treated as Unexplained Money in the Bank Account of the assessee as per the Provisions of Section U/s 69A of the I.T. Act, 1961, which attracts the tax rates as per the Provisions of Section 115BBE of the I.T. Act. 1961. 7.1. During the assessment proceedings, the AO issued a show-cause notice dated 03.12.2019 thereby fixing the case for hearing on 06.12.2019 to the assessee to explain nature & source of cash deposits made amounting to Rs.72,45,860/- during the demonetization. However, the assessee failed to explain the nature and source of the cash deposits made amounting to Rs.72,45,860/- During the appellate proceedings, in spite of providing sufficient opportunities, the appellant did not file any submission/explanation in support of the grounds of appeal
12 ITA.No.911/Hyd./2024 raised. However, the appellant claimed to have deposited cash out of cash received form the customers. However the same could not be proved with supporting documentary evidences before the AO as well as during the appellate proceedings. In view of the facts discussed above, the nature & source of deposits made by the appellant remained unexplained. Thus the appellant had failed to discharge his onus under section 69A of the Act. Hence, the addition made by the AO of Rs.72,45,860/- as unexplained money u/s 69A of the Act is confirmed. Accordingly, Ground No. 4 is dismissed.”
Thus, the learned CIT(A) has reproduced the order of the Assessing Officer which is confirmed by giving the reasons that the assessee has not produced the evidence to explain the source of deposit. It is pertinent to note that the entries in the bank account reflects regular cash deposit on daily basis as well as the utilisation of the same for making payment of purchase of the liquor. The Assessing Officer himself has estimated the business income of the assessee @ 3% on the sale of the liquor by taking the stock put to sale. Once the purchase and sale of liquor is not in dispute then, the claim of the assessee as source of the cash deposit from the day-to-day sale proceeds cannot be denied without pointing out any discrepancy in the sale proceeds and deposit
13 ITA.No.911/Hyd./2024 made in the bank account during the said period. Though the complete books of accounts were not produced by the assessee, however, the profit and loss account and balance sheet were produced by the assessee to reflect the business transactions as well as cash balance available with the assessee. We find from the balance sheet that the cash at bank is matching with the bank account balance at the end of the financial year 2016-2017 relevant to the assessment year under consideration. Therefore, the addition made by the Assessing Officer ignoring the undisputed fact of the sales during the year is not justified. Further once the deposit in the bank account is part of the books of accounts and the same is utilised for the purchase of liquor then, the provisions of sec.69A cannot be invoked. For ready reference sec.69A of the Act is quoted as under:
“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
14 ITA.No.911/Hyd./2024 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.”
Thus, the addition u/sec.69A of the Act on account of inter alia, unexplained money can be made only when the assessee is found to be owned any money, bullion, jewellery or other valuable articles which is not recorded in the books of account, and the assessee offers no explanation about the nature and source of the said money. In the case in hand, once the Assessing Officer has accepted the business of retail sale of liquor then, the sales of the assessee cannot be ignored as a source of deposit in the bank account and that too when there is no other utilisation of the sales than purchase of liquor is found from the record. Accordingly, the addition made by the Assessing Officer u/sec.69A of the Act is not sustainable and the same is deleted.
Ground no.5 is regarding disallowance of deduction claimed u/sec.80C of the Act.
The assessee claimed deduction of Rs.30,000/- u/sec.80C of the Act. During the assessment proceedings,
15 ITA.No.911/Hyd./2024 the assessee could not produce any evidence in support of the said claim of deduction. Accordingly, the Assessing Officer has disallowed the claim of deduction u/sec.80C of the Act. The assessee challenged the action of the Assessing Officer before the learned CIT(A) but could not succeed.
We have heard the learned Authorised Representative of the Assessee as well as the learned DR and carefully perused the Orders of the authorities below. The Assessing Officer has disallowed the claim of deduction u/sec.80C of the Act for want of any supporting evidence/ proof of payment. The learned CIT(A) has confirmed the disallowance made by the Assessing Officer on the similar ground as the assessee failed to produce any documentary evidence/proof even during the appellate proceedings. Though the assessee has raised this ground before the Tribunal however, the assessee has not produced any documentary proof in support of the claim. Accordingly, in the absence of any documentary evidence in support of the claim of deduction u/sec.80C of the Act, we do not find any
16 ITA.No.911/Hyd./2024 reason to interfere with the Orders of the authorities below. Ground no.5 of the assessee is dismissed. 16. Ground no.6 is an alternative plea of the assessee. In view of our findings on the addition u/sec.69A of the Act, this ground becomes infructuous and accordingly, ground no.6 of the assessee is dismissed.
In the result, appeal of the Assessee is partly allowed.
Order pronounced in the open Court on 20.02.2026. Sd/- Sd/- [MANJUNATHA G.] [VIJAY PAL RAO] ACCOUNTANT MEMBER VICE PRESIDENT Hyderabad, Dated 20th February, 2026. VBP Copy to : Dakappagari Naveen Kumar, Tekmal, Medak Dist. 1. PIN – 502 302 Telangana. 2. The Income Tax Officer, Ward-1, SANGAREDDY. 3. The Pr. CIT, Hyderabad. 4. The DR, ITAT, “A” Bench, Hyderabad. 5. Guard file. BY ORDER VADREVU Digitally signed by VADREVU PRASADA PRASADA RAO Date: 2026.02.20 RAO 15:18:02 +05'30'