ITO (INT TAXN)-1, HYDERABAD vs. SRINIVAS RAO DONTINENI, MEDAK

The Ld. CIT(A) rightly deleted the addition of Rs.96,30,000 as the assessee explained the nature/source of cash deposits with bank statements and cash flow, and Revenue has not brought any contrary material.

Without prejudice, the Ld. CIT(A) was justified in holding that the addition u/s 69A is unsustainable on facts, since the assessee discharged the onus regarding source of deposits, and the AO failed to rebut the same with evidence.

Without prejudice, the Ld. CIT(A) was justified in holding that the addition under section 69A is unsustainable on facts, since the assessee discharged the onus regarding source of deposits, and the AO failed to rebut the same with evidence 5. The assessee craves leave to add/alter/amend any ground at the time.”

Succinctly stated, the AO, based on information received through Statement of Financial Transactions that the assessee, a Non-Resident Indian (NRI), had during the period relevant to AY 2017-18, made substantial cash deposits of Rs. 96.30 lacs (including cash deposits of Rs. 57.50 lacs made during the demonetisation period) in his bank account, but had not filed his return of income for the year under consideration, issued a notice under Section 142(1) of the Act. However, as the assessee failed to comply with the notices issued by the AO, therefore, the latter was constrained to frame the assessment vide an ex-parte order passed under Section 144 of the Act, wherein besides treating the entire amount of cash deposits of Rs. 96.30 lacs (supra) as the assessee’s unexplained money under Section 69A of the Act, he made an addition of the interest income of Rs.48,927/- received on the said bank account and determined the total income of the assessee at Rs. 96,78,930/-.

Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). Before the CIT(Appeals), it was the claim of the assessee that he had no source of income in India and that the funds deposited in his bank account were sourced from remittances made by him from his professional income earned in USA, which were duly taxed abroad. It was submitted by him that the cash withdrawals made during the earlier years for meeting the family needs in India were subsequently redeposited, including those made during the demonetization period. The assessee, to fortify his contention, furnished bank statements of his NRE and NRO accounts, cash flow statements from Financial Year 2012-13 onwards, and copies of his US income tax returns.

The CIT(A) forwarded the “additional evidence” to the AO and called for his “remand report”. In the remand proceedings, the AO did not dispute that the assessee was earning substantial professional income abroad and that remittances were made in his bank accounts in India. However, the AO expressed his reservations regarding the pattern of cash withdrawals and redeposits, based on which he held a conviction that the source of cash deposits was not satisfactorily explained.

As is discernible from the record, the CIT(Appeals), after considering the assessment order, written submissions, remand report, and rejoinder, recorded a categorical finding that the assessee was a non-resident with substantial professional income in USA, which had been offered to tax abroad. The CIT(Appeals) noticed that the inward remittances in the NRE account were not disputed by the revenue and that the assessee had furnished “cash flow statements” explaining the availability with him of cash from his earlier withdrawals.

The CIT(Appeals) further observed that a similar issue for the immediately preceding year, i.e., AY 2016-17, was examined by the Department in proceedings initiated under Section 147 of the Act in the case of the assessee, and no addition was made. The CIT(A) after relying upon judicial precedents including the decisions of the co- ordinate benches of the Tribunal in cases involving non-residents and inward remittances through banking channels, observed that the provisions of Section 69A could not be invoked merely on suspicion, particularly when the assessee had demonstrated availability of funds and the Revenue had not brought any material to show that the deposits represented income accrued or arisen in India. Accordingly, the CIT(A), based on his exhaustive deliberations, deleted the addition of Rs. 96,30,000/- made by the AO under Section 69A of the Act and allowed the appeal.

The Revenue, being aggrieved with the CIT(A) order, has carried the matter in appeal before us.

We have heard the Ld. Authorised Representatives of both parties, perused the orders of the authorities below and the material available on record, as well as considered the judicial pronouncements pressed into service by them to drive home their respective contentions.

The learned Departmental Representative (for short, “DR”) had relied upon the assessment order and submitted that the “cash flow statement” furnished by the assessee was not reliable and that the AO, considering the pattern of cash deposits made in the bank account during the demonetization period, had rightly made the addition. It was submitted by him that the assessee had failed to conclusively establish a nexus between his earlier cash withdrawals and the subject cash deposits made during the year.

Per Contra, the Ld. Authorised Representative (for short, “AR”) relied on the CIT(A) order. The Ld. AR submitted that the CIT(A) had rightly observed that as the subject cash deposits made by the assessee in his bank account during the year under consideration were sourced from the substantial cash withdrawals made from his bank account during the preceding years, therefore, there could be no justification in treating the subject cash deposits made during the year as having been sourced out of the assessee’s unexplained money under Section 69A of the Act. Also, it was submitted by him that the assessee during the subject year was a non-resident Indian and had, in the preceding years, made substantial remittances in his subject bank account in India out of the income derived from his medical profession abroad, which was already subjected to tax in the said foreign land. Elaborating further on his contention, the Ld. AR submitted that as the assessee has no source of income in India, therefore, the AO without dislodging and disproving the assessee’s claim that the subject cash deposits in his bank account were sourced from the funds available with him out of the substantial amount of cash withdrawals made from his subject bank account in the preceding years, could not have whimsically held the cash deposits made in his bank account during the year under consideration as having been source out of the assessee’s unexplained money under section 69A of the Act. Apart from that, the Ld. AR submitted that after the culmination of the assessment for the year under consideration, i.e., AY 2017-18, vide order passed by the AO under section 144 of the Act, dated 17/12/2019, proceedings under Section 147 of the Act were initiated in his case for the immediately preceding year, i.e., AY 2016-17, for verifying the substantial cash deposits of Rs. 1,10,20,000/- made during the said year in his bank account with ICICI Bank Limited. Elaborating further, the Ld. AR submitted that the AO, after examining the cash flow statement that was produced by the assessee for explaining the source of the cash deposits in the said preceding year, i.e., AY 2016-17, had accepted the same, vide his order passed under section 147 of the Act, dated 31/01/2025, Page 87-88 of APB. The Ld. AR submitted that the revenue by accepting the cash flow statement produced by the assessee in the preceding year, i.e., AY 2016-17, had thus accepted that the assessee possessed cash-in-hand of Rs. 96,42,000/- on 31/03/2016. Carrying his contention further, the Ld. AR submitted that now when the cash flow statement of the assessee had been accepted by the revenue while verifying the assessee’s explanation regarding the source of the cash deposits made in his bank account during the said preceding year, i.e AY 2016-17, i.e., cash withdrawals of the preceding years, therefore, there can be no justification for the AO to adopt a self-contradictory approach and reject the Opening “Cash-in Hand” of Rs. 96,42,000/- on 01/04/2016, which in turn had sourced the subject cash deposits of Rs. 96.30 lacs (supra) made in the assessee’s bank account during the year under consideration.

We have given thoughtful consideration to the contentions advanced by the Ld. Authorised Representatives of both parties, and perused the material available on record.

Admittedly, it is an undisputed fact that the assessee is a non- resident and has been residing in USA since 1998. The AO has not brought any material on record to show that the assessee had any source of income in India during the year under consideration. Further, the AO in his “remand report” had acknowledged that the assessee was earning substantial professional income in the USA, and had furnished copies of US tax returns. It is also not in dispute that remittances were made through banking channels into the NRE account and thereafter transferred to his NRO account.

We find that the AO made the addition under Section 69A of the Act primarily on the ground that the explanation of the assessee regarding the availability of cash from earlier withdrawals was not acceptable. However, we find that the CIT(Appeals) had examined the cash flow statement from Financial Year 2012-13 onwards and recorded a finding that the assessee had sufficient cash available with him and that the Revenue had failed to demonstrate that such withdrawals were utilized elsewhere.

In our view, in the case of a non-resident, what is chargeable to tax under Section 5(2) of the Act is the income received or deemed to be received in India or income accruing or arising or deemed to accrue or arise in India. The remittance of one’s own money earned abroad and already subjected to tax in the foreign jurisdiction cannot be treated as income chargeable to tax in India in the absence of any material establishing accrual or receipt of income in India. At this stage, we find that the explanation of the assessee that the subject cash deposits made in his bank account was sourced from the cash withdrawals made in the preceding years, which, in turn, were sourced out of the remittances made by him from his income earned abroad, had not been dislodged or disproved by the department by placing on record any material proving to the contrary. It is not the case of the revenue that the substantial cash withdrawals made by the assessee in the preceding years and shown by him as available with him on the respective dates of making the cash deposits in his bank account during the year under consideration were either invested or expended somewhere else and, thus, were at the relevant point of time not available with him. In fact, the only reason given by the AO for rejecting the claim of the assessee is that most probably the said amount would not be available with him to source the cash deposits made in his bank account during the year under consideration. We are unable to persuade ourselves to subscribe to the view taken by the AO based on nothing but assumptions, presumptions, surmises, and conjectures, rather than placing on record any irrefutable material to prove his conviction. Apart from that, the very fact that after the culmination of the assessment in the case of the assessee for the year under consideration. i.e. AY 2017-18, his case for the immediately preceding year, i.e., AY 2016-17 was reopened under Section 147 of the Act for verifying the cash deposits of s. 1.10 crores (approx.) made by him in the same bank account during the said preceding year, which, we find the assessee had explained to have been sourced from the cash in hand available with him by drawing support from the cash flow statement that was accepted by the AO, further lends credence to his claim that the subject cash deposits made during the year under consideration were sourced out of the cash withdrawals made from his bank account during the preceding years. Rather, the fact that now when the AO had accepted the cash flow statement of the assessee for the preceding year, therefore, it is implicit that having accepted the availability of Cash In Hand (CIH) of Rs. 96.42 lacs (supra) with the assessee on 31/03/2016, it is incomprehensible that the AO could draw a view to the contrary regarding the availability of the same amount of Cash In Hand (CIH) with the assessee on 01/04/2016. Accordingly, based on the said standalone fact itself, i.e., availability of Cash In Hand of Rs 96.42 lacs (supra) with the assessee on 01/04/2016, the source of the cash deposits of Rs. 96.30 lacs (supra) made by the assessee in his bank account during the subject year stands explained.

We further find that the Revenue has not brought any evidence on record to establish that the impugned cash deposits represent income earned in India or income which had escaped assessment. In fact, the addition appears to have been made by the AO based on human probabilities rather than concrete material disproving the veracity of the assessee’s explanation.

Ostensibly, the CIT(Appeals), after considering the entire material, including the “remand report”, has recorded a reasoned finding that the assessee had discharged the onus that was cast upon him. We do not find any perversity in the findings recorded by the CIT(Appeals) warranting interference. We, thus, in terms of our aforesaid observations, find no infirmity in the view taken by the CIT(A) and thus, uphold his order dated 19.08.2025, wherein he had directed the AO to delete the addition of Rs. 96.30 lacs made by the AO under Section 69A of the Act.

In the result, the appeal filed by the Revenue is dismissed. As the cross-objection filed by the assessee is merely supportive, therefore, the same is dismissed as not pressed.

Sd/- Sd/- (MANJUNATHA G.) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated 04th March, 2026. OKK / SPS