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Facts
Police seized Rs. 30 lakhs in cash from the employees of the assessee company on 20.01.2016. The Director admitted that the cash belonged to the company and offered it for taxation. The Assessing Officer reopened the assessment, issued a show-cause notice, but the assessee did not respond, leading to the addition of Rs. 30 lakhs as unexplained cash credit.
Held
The Tribunal noted that the assessee had filed a reply to the show-cause notice on 03.12.2019, which was not considered by the Assessing Officer. The CIT(A) also ignored the relevant documents and replies filed by the assessee. The addition was made under Section 68 based on cash seized, which the assessee contended was out of sales and not a cash credit entry.
Key Issues
Whether the addition of Rs. 30 lakhs as unexplained cash credit under Section 68 is justified when the assessee claims it is out of sales and provided evidence that was allegedly not considered by the AO and CIT(A)?
Sections Cited
68, 143(1), 147, 142(1), 139(1), 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘B’ 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 17.07.2025 of the learned Addl./Joint Commissioner of Income Tax-(Appeals), Thane, for the assessment year 2016-2017.
2 ITA.No.1423/Hyd./2025 2. The assessee has raised the following grounds of appeal:
“The Order passed by the Learned Commissioner of Income Tax (Appeals) is erroneous in law and is against the facts of the case.
The Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.30,00,000/- as Unexplained Cash Credit under section 68 of the Act, made by the Assessing Officer for untenable reasons.
3. Any other ground/s that may be urged at the time of hearing with the permission of the Hon'ble ITAT.”
Brief facts of the case are that the Police Authorities seized cash of Rs.30 lakhs from the employees of the assessee company on 20.01.2016. Thereafter, the DDIT, Unit-II(3), Hyderabad recorded the statement of the Director of the assessee company on 30.01.2016 wherein he admitted cash of Rs.30 lakhs seized by the Police belongs to the assessee company and desired to offer the same to tax. The assessee company filed its return of income for the year under consideration on 22.10.2016 admitting total income of Rs.41,95,360/-. The return was processed u/sec.143(1) Income Tax Act, [in short “the Act”], 1961 on 28.10.2016. Thereafter, the Assessing Officer reopened the assessment by 3 ITA.No.1423/Hyd./2025 issuing notice u/sec.148 of the Act by recording reasons that despite the admission of cash and offered to tax by the assessee company in the statement of Sri Balram Agarwal, Director of the assessee company recorded by the DDIT (Inv.), Unit-II(3), Hyderabad, the assessee has not offered the said income to tax in the return of income. In response to the notice u/sec.148 of the Act, the assessee filed the return of income on 05.11.2019 admitting the same income as declared in the return of income filed u/sec.139(1) of the Act. Thereafter, the Assessing Officer issued notice u/sec.143(2) as well as sec.142(1) requiring the assessee to furnish fund flow statement, cash book, bank account statement, details of cash along with supporting bills/invoices etc. to substantiate its claim that the amount of Rs.30 lakhs was out of the available cash in hand. The Assessing Officer in the assessment order observed that the assessee has not bothered to respond by filing any counter submissions to the show cause notices and, therefore, in the absence of any explanation from the assessee, the sum of Rs.30 lakhs was treated as unexplained cash and added to the income of the 4 ITA.No.1423/Hyd./2025 assessee. 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 the Assessing Officer in the show cause notice issued u/sec.142(1) of the Act allowed the assessee to file reply on or before 03.12.2019. The assessee duly responded to the said show cause notice by filing the reply on 03.12.2019, acknowledgment of the same is placed at Page-18 along with reply at Pages-19 to 21 of the paper book. Thus, the learned Authorised Representative of the Assessee has submitted that the reply filed by the assessee was not considered by the Assessing Officer while passing the assessment order. He has further submitted that the learned CIT(A) has also ignored all the relevant documents and replies filed by the assessee while passing the impugned order. He has further contended that the Assessing Officer has made the addition u/sec.68 of the Act, which is not permissible as the cash seized by the Police is out of the sales of the assessee and, therefore, it is not a cash credit entry in the books of the assessee.
5 ITA.No.1423/Hyd./2025 5. On the other hand, the learned DR has submitted that the Assessing Officer has duly recorded in the assessment order that the assessee has not filed any documentary evidence to explain source of the cash seized by the Police Authorities which was handed over to DDIT-(Inv.), Unit-II(3), Hyderabad. The learned DR relied upon the Orders of the authorities below.
We have considered the rival submissions as well as relevant material on record. There is no dispute about the seizure of the cash belonging to the assessee as the assessee itself admitted before the Authorities that the cash belongs to the assessee and the employees of the assessee were carrying the said cash for depositing in the bank account when the Police seized the said cash and handed it over to the Income Tax Authorities. Even in the case of Shri Balram Agarwal, one of the employees, the Assessing Officer made the addition which was deleted by the learned CIT(A) vide order dated 09.09.2019 by considering the fact that the assessee company has owned the said cash and also surrendered the same for tax at the time of recording statement by the DDIT- 6 ITA.No.1423/Hyd./2025 (Inv.), Unit-II(3), Hyderabad. These facts are not in dispute as the only dispute involved in the present appeal of the assessee is the source of the said cash of Rs.30 lakhs. The Assessing Officer issued a show cause notice dated 29.11.2019 and specifically asked the assessee to furnish fund flow statement, cash book, bank account statement, complete details of cash sales along with supporting bills/vouchers etc. to substantiate the claim that the amount of Rs.30 lakhs was out of available cash on hand of the assessee company. In the said show cause notice the assessee was required to file reply on or before 03.12.2019, failing which, the proceedings would be finalized treating the impounded sum as undisclosed and unexplained cash credit by invoking provisions of sec.68 of the Act. In Para-5 of the impugned order the Assessing Officer has observed as under:
5. Though the assessee was required to furnish it's objections for the above proposal by 03-12-2019, the assessee has not bothered to respond by filing any counter submissions to the proposed treatment of impounded cash as unexplained cash credits. In the absence of any explanation from the assessee company, the impounded sum of Rs. 30,00,000/- is treated as unexplained cash credits under the provisions of section 68 of IT Act.
7 ITA.No.1423/Hyd./2025 7. Thus, the Assessing Officer made the addition of the said impounded sum of Rs.30 lakhs in the absence of any reply/supporting evidence. The learned Authorised Representative of the Assessee has referred to the reply filed by the assessee dated 03.12.2019, acknowledgment of which is placed at page-18 of the paper book as under:
8 ITA.No.1423/Hyd./2025 7.1. Thus, it is clear from the acknowledgment of e- proceedings response by the assessee that the assessee has filed reply on 03.12.2019 which contains letter as well as cash book. The Assessing Officer specifically asked the assessee to furnish fund flow statement, cash book, bank account statement, bills and vouchers in support of the availability of the cash on hand at the time of seizure of Rs.30 lakhs by the Police. The reply filed by the assessee is a matter of record, however, the Assessing Officer while passing the assessment order on 06.12.2019 has not considered the said reply and, therefore, the reasons cited by the Assessing Officer for making the addition are contrary to the record, particularly, the reply filed by the assessee. Accordingly, in the facts and circumstances of the case when the Assessing Officer has made the addition without considering the reply filed by the assessee, we are of the considered opinion that the matter requires re-consideration at the level of the Assessing Officer and to decide the same as per law after considering the relevant record and reply filed by the assessee. The assessee is also directed to file all the relevant 9 ITA.No.1423/Hyd./2025 details and record as asked by the Assessing Officer in the show cause notice. Hence, the impugned order of the learned CIT(A) is set-aside, and the matter is remanded to the record of the Assessing Officer for fresh adjudication, after giving proper opportunity of hearing to the assessee.
In the result, appeal of the Assessee is allowed for statistical purposes.
Order pronounced in the open Court on 09.01.2026.