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Facts
The assessee, a firm engaged in silver and jewellery trading, filed its return for AY 2017-18. The case was selected for scrutiny concerning cash deposits during demonetization and unsecured loans. The AO treated cash deposits of Rs. 49,50,000/- as unexplained money under Section 69A, adding it to total income and taxing it under Section 115BBE.
Held
The Tribunal held that the cash deposits arising from sales declared for the period before 08.11.2016, as recorded in the books of account, should be accepted as the source for cash deposits. However, capital contributions from partners could not be accepted due to lack of evidence of creditworthiness.
Key Issues
Whether the cash deposits made during the demonetization period were adequately explained by the assessee as out of accumulated cash balance from sales and partner's capital contribution.
Sections Cited
143(2), 142(1), 69A, 115BBE, 271AAC
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Income Tax Appellate Tribunal, Hyderabad “B” Bench, Hyderabad
करदाता का प्रतततितित्व/ : Shri Srirang Heda, C.A. Assessee Represented by राजस्व का प्रतततितित्व/ : Dr. Sachin Kumar, Sr. A.R. Department Represented by सुिवाई समाप्त होिे की ततति/ : 13.01.2026 Date of Conclusion of Hearing घोर्णध की तधरीख/ : 28.01.2026 Date of Pronouncement O R D E R PER MANJUNATHA G., A.M : This appeal filed by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals) – 11, Hyderabad, dated 20.02.2025, pertaining to the assessment year 2017-18. 2 Renuka Silver Merchents
At the outset, there is a delay of 31 days in filing the present appeal before the Tribunal. The partner of the assessee firm has filed an affidavit explaining the reasons for the delay, wherein it was submitted that, the order of the Commissioner of Income Tax, Hyderabad was passed on 20.02.2025, and the time limit for filing the appeal before the Tribunal was to expire on 20.04.2025. It was submitted that, during the relevant period, the partner of the assessee firm, who was looking after the taxation matters, was undergoing treatment for kidney stone, which included surgery and bed rest. It was further submitted that, he was also infected with chicken guinea, due to which the appeal could not be filed within the prescribed time. It was submitted that, the memorandum of appeal was thereafter, filed on 19.05.2025 through the e-filing portal. It was further submitted that, the delay was neither intentional nor deliberate, but occurred due to unavoidable medical reasons, and therefore, the delay may kindly be condoned in the interest of justice.
The learned Sr. A.R. for the Revenue, Dr. Sachin Kumar, on the other hand, did not oppose the request for condonation of delay, in view of the reasons explained by the assessee.
3 Renuka Silver Merchents
We have heard both the parties and perused the petition and affidavit filed by the assessee seeking condonation of delay in filing the appeal. We find that, the reasons explained by the assessee constitute ‘reasonable cause’. The Hon’ble Supreme Court in the case of Collector, Land Acquisition Vs. MST. Katiji [1987] 167 ITR 471 (SC) has held that, a liberal and pragmatic approach should be adopted while considering applications for condonation of delay, so that substantial justice is not defeated on technical grounds. Similar view has been taken by the Hon’ble Karnataka High Court in CIT & Anr. Vs. ISRO Satellite Centre [2013] 263 CTR (Kar) 549 and by the Hon’ble Jurisdictional ITAT in Srimaan Industries Private Limited Vs. ITO [2022] 217 TTJ (Hyd) 120. Respectfully following the aforesaid judicial precedents, and considering the bona fide reasons explained by the assessee, we condone the delay in filing the appeal and admit the appeal for adjudication.
The brief facts of the case are that, the assessee is a firm engaged in the business of silver and jewellery trading. The assessee filed its return of income for the assessment year 2017– 18 on 31.10.2017, declaring a total income of Rs.1,75,210/-. The 4 Renuka Silver Merchents case was selected for scrutiny under Computer Aided Scrutiny Selection (CASS) to examine the issues relating to cash deposits during the demonetization period and unsecured loans. Notice under Section 143(2) of the Income-tax Act, 1961, was issued on 13.08.2018, and the assessment proceedings were conducted through e-proceedings. Thereafter, notices under Section 142(1) of the Act dated 05.07.2019 and 12.12.2019 were issued calling for various details including bank statements, details of cash deposits made during the demonetization period, cash book, sales and purchase ledgers, valuation of closing stock, capital account details, and source of cash deposits. The assessee furnished the requisite details from time to time.
The A.O., after considering the submissions of the assessee and on examination of the bank statements obtained directly from the banks, observed that, during the demonetization period, the assessee had deposited cash amounts of Rs.13,00,000/- on 11.11.2016 and Rs.25,00,000/- and Rs.11,50,000/- on 12.11.2016, aggregating to Rs.49,50,000/-, in its bank accounts. The assessee explained that, the said cash deposits represented accumulated cash balance, out of which Rs.14,00,000/- was 5 Renuka Silver Merchents stated to be partners’ capital contribution and the remaining amount was claimed to be from sales. However, the A.O. observed that, the assessee had not maintained such huge cash balances either in the preceding months or in the subsequent months and that the cash book did not reflect comparable sales or cash generation. The A.O. further observed that, the assessee failed to produce satisfactory and substantial evidence to substantiate the source of the cash deposits made during the demonetization period. Accordingly, the A.O. treated the entire cash deposits of Rs.49,50,000/- as unexplained money under Section 69A of the Act, made addition of the same to the total income of the assessee and brought the same to tax under Section 115BBE of the Income-tax Act, 1961, and initiated penalty proceedings under Section 271AAC separately.
Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee challenged the assessment order passed under Section 143(3) of the Income-tax Act, 1961, inter alia, contending that, the A.O. erred in treating the cash deposits made during the demonetization period as unexplained money under Section 69A 6 Renuka Silver Merchents of the Act. The assessee submitted that, the cash deposits were out of accumulated cash balance available from business operations and partners’ capital contribution. It was submitted that, the assessee was engaged in regular business activity and maintained books of account, including cash book, and that the cash deposits were duly recorded therein. The assessee further submitted that, the A.O. failed to properly appreciate the explanation and evidences furnished during the course of assessment proceedings. Written submissions were filed before the Ld. CIT(A) in support of the grounds raised.
The Ld. CIT(A), after considering the submissions of the assessee and perusing the material available on record, observed that, the assessee failed to satisfactorily substantiate the source of cash deposits made during the demonetization period with credible evidence. The Ld. CIT(A) observed that, the pattern of cash balance and sales did not support the claim of availability of accumulated cash and that the explanation offered by the assessee was not supported by contemporaneous records. Accordingly, the Ld. CIT(A) upheld the action of the A.O. in treating the cash deposits as unexplained money under Section 7 Renuka Silver Merchents 69A of the Act and in bringing the same to tax under Section 115BBE of the Act, and dismissed the appeal filed by the assessee.
Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.
The learned counsel for the assessee, Shri Srirang Heda, C.A., submitted that, the Ld. CIT(A) erred in sustaining additions made towards cash deposits into bank account under Section 69A of the Income-tax Act, 1961, even though, the assessee has filed relevant evidences and proved that, source for cash deposits is out of opening cash balance in hand as on 08.11.2016, which is generated out of sales and also contribution from the partners into capital account. The learned counsel for the assessee further referring to the submissions made before the A.O., submitted that, the assessee has filed all the details, including comparative analysis of total sales, cash sales and cash deposits and also filed relevant books of accounts, including stock register, so as to prove that, there is no negative stock and further, the sales were declared by filing relevant GST / VAT returns. The A.O. without 8 Renuka Silver Merchents pointing out any discrepancies in books of accounts and also without rejecting the books of accounts u/s 145(3) of the Act, simply made additions towards cash deposits, even though the said cash deposits are already part of the sales declared by the assessee in the books of accounts. Therefore, he submitted that, the additions made by the A.O. should be deleted.
The learned Senior A.R. for the Revenue, Dr. Sachin Kumar, on the other hand, supporting the order of the Ld. CIT(A), submitted that, although the assessee claims to have made cash deposits out of cash in hand available as on 08.11.2016, but fact remains that, the assessee has artificially increased the cash balance by showing higher sales for the months of September, 2016, October, 2016 and upto 08.11.2016, which is evident from the sales declared by the assessee for the previous period of the same financial year and also the sales declared for the earlier financial year. Upon perusal of the relevant analysis submitted by the assessee, it was found that, there is sudden spike in the sales for the months of September, 2016 and October, 2016 and the same has not been explained by the assessee with relevant details. Further, the assessee claims to have deposited cash into bank 9 Renuka Silver Merchents account out of capital contributions received from the partners, but the assessee has failed to file relevant details of capital contribution from the partners by establishing their creditworthiness. In the absence of these details, the A.O. has rightly made cash deposits, as unexplained money u/s 69A of the Act. Therefore, he submitted that, the additions made by the A.O. should be upheld.
We have heard both sides, perused the material available on record and had gone through the orders of the authorities below. There is no dispute with regard to the amount of cash deposited into bank account and the explanation offered by the assessee towards source for the said cash deposits. Admittedly, the assessee has made cash deposits of Rs. 49,50,000/- on three different dates after demonetization of currency notes on 08.11.2016. The assessee has made cash deposits of Rs.13,00,000/- on 11.11.2016 and Rs.25,00,000/- and Rs.11,50,000/- on 12.11.2016, aggregating Rs.49,50,000/-. In other words, the assessee has made huge cash deposits of Rs.49,50,000/- on three dates immediately after the demonetization. The assessee claims to have explained the source 10 Renuka Silver Merchents for cash deposits out of opening cash balance available in the cash book maintained for its business and as per cash book submitted by the assessee, the opening cash in hand available as on 08.11.2016 was Rs.44,78,576/-. The assessee further claimed that, the above cash balance has been generated out of sales declared for the months of September, 2016, October, 2016 and upto 08.11.2016 and further, capital contribution from the partners aggregating to Rs.14 lakhs. The A.O. rejected the explanation of the assessee on the ground that, although there was sufficient cash balance as per cash book as on 08.11.2016, but the assessee has failed to explain the abnormal deviation in the sales declared for the above period and corresponding cash deposits. The A.O. has also disbelieved the source in the form of capital contributions from the partners in the absence of relevant creditworthiness of the partners. According to the A.O., the assessee could not file relevant details and also proved source for cash deposits with known source of income.
We have given our thoughtful consideration to the reasons given by the A.O. to make additions towards cash deposit under Section 69A of the Income-tax Act, 1961 in light of various 11 Renuka Silver Merchents arguments of the counsel for the assessee along with the relevant evidence and we ourselves do not fully subscribe to the reasons given by the A.O. for the simple reason that, the assessee has shown sales for the month of October, 2016 and up to 08.11.2016 and the same has been recorded in the books of account of the assessee maintained for the relevant period. Although there is a slight increase in sales declared for the above period when compared to the previous month or previous financial year, in our considered view, the sudden spike in sales in a particular month cannot be a reason for doubting the sales declared by the assessee unless otherwise the A.O. makes out a case that the sales declared by the assessee are not supported by relevant sales bills or stock-in-trade. In the present case, there is no findings in the assessment order with regard to the incorrectness in the books of account maintained by the assessee are non-availability of the stock or negative stock when the assessee has booked sales for the above period, which is abnormal in the opinion of the A.O. In the absence of any findings as to incorrectness in the books of account or non-availability of the stock, the sales declared by the assessee, which is further supported by necessary bills and stock 12 Renuka Silver Merchents details, should be accepted as it is. Therefore, to this extent, we are not in agreement with the A.O. that the assessee has not been able to prove the source for cash deposit into the bank account. Therefore, to this extent of source explained by the assessee, out of the sales declared for the above period and recorded in the books of account, should be accepted as source for cash deposit into the bank account during the demonetization period.
Further, the assessee explained the cash deposits out of capital contributions from the partners. We find that, the assessee has shown capital contribution of Rs.8 lakhs from 4 partners on 05.08.2016 and further, contribution of Rs.8 lakhs from 4 partners on 10.09.2016 and the same has been carried forward in the books of accounts upto 08.11.2016. Although, the assessee claims that the partners have contributed capital into firm account for the purpose of business and the same is available for the assessee to explain the cash deposits during the demonetization period, but the assessee has failed to file the relevant details of the partners and their financial particulars to prove their creditworthiness. Since the assessee has failed to prove the creditworthiness of the partners, in our considered view, 13 Renuka Silver Merchents the cash contributions introduced by the partners on two different dates, as a capital contribution, cannot be accepted. Therefore, we are of the considered view that, the explanation offered by the assessee towards the source for cash deposit out of Rs. 14,00,000/- capital contribution in cash from the partners cannot be accepted. Therefore, we direct the A.O. to verify the cash book submitted by the assessee to prove availability of cash in hand as on 08.11.2016 for Rs. 44,78,576/- and out of which the A.O. is directed to accept the source available to the assessee out of the sales declared for the period before 08.11.2016 as the source for cash deposit into the bank account. Insofar as the source explained by the assessee out of capital contribution of Rs. 14,00,000/-, the A.O. is directed to determine the availability of opening cash balance as on 08.11.2015 by excluding the sum of Rs. 14,00,000/- capital contribution introduced by the assessee in the books of account before the date of demonetization and arrive at the total availability of cash balance as on 08.11.2016. In case the assessee is not able to explain the cash deposit of Rs. 49,50,000/- out of cash balance available in the cash book as on 08.11.2015, then the A.O. is directed to make addition towards 14 Renuka Silver Merchents shortfall in source towards cash deposit into bank account u/s 69A of the Act.
In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the Open Court on 28th January, 2026. /- (श्री विजय पाल राि) (मंजूनाथ जी) (VIJAY PAL RAO) (MANJUNATHA G.) उपाध्यक्ष /VICE PRESIDENT लेखा सदस्य/ACCOUNTANT MEMBER Hyderabad, dated 28.01.2026. TYNM/sps आदेशकी प्रनतनलनप अग्रेनर्त/ Copy of the order forwarded to:-
1. 1. निर्धाररती/The Assessee : Renuka Silver Merchents, 3-3-33 & 34, Gandhi Road, Armoor, Nizamabad. 2. रधजस्व/ The Revenue : The Income Tax Officer, Ward – 1, Nizamabad.