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Facts
The assessee company, engaged in wholesale trading, filed its return of income on 06.11.2017. During the demonetization period (09.11.2016 to 30.12.2016), the assessee deposited Rs. 2,10,38,900 in cash. The Assessing Officer (AO) treated these deposits as unexplained money under section 69A of the Income Tax Act, 1961, and made an addition to the income. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's order.
Held
The Tribunal noted that the AO made an addition under section 69A without giving proportionate benefit on the turnover shown by the assessee for the net profit included in these cash deposits. The Tribunal also observed that the AO did not follow the standard operating procedures laid down by the CBDT for examining cash deposits during the demonetization period. Citing a coordinate bench's judgment, the Tribunal held that the issue should be remitted back to the AO.
Key Issues
Whether the cash deposits made during the demonetization period can be treated as unexplained money under section 69A of the Income Tax Act, 1961, without considering the business turnover and profit, and whether the AO followed the prescribed procedures.
Sections Cited
69A, 115BBE, 271AAC(1), 143(3), 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “PATNA BENCH”, PATNA
O R D E R
PER LAXMI PRASAD SAHU, ACCOUNTANT MEMBER
This is an appeal filed by the revenue against the order passed u/s 250 of the Income Tax Act, 1961 (hereafter “the Act”) by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereafter “the Ld. CIT(A)] dated 06.06.2025, DIN & order No. ITBA/NFAC/S/250/2025-26/1076775751(1) on the following grounds:
Patliputra Distributors Private Limited “1. For that the grounds of appeal hereto are all without prejudice to each other.
2. For that on the fact and in circumstances of the case the order passed u/s 250 by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, New Delhi (here-in-after known as "the Id. CIT (A), NFAC") is arbitrary and bad in law.
3. For that on the fact and in circumstances of the case the order passed under the provision of section 143(3) of the Act dt. 14.12.2019 by the DC/AC Circle-2, Patna (here-in-after known as "the AO") and confirmation by the Id. CIT (A), NFAC has further erred both in law and in disposing off the appeal without considering the fact of the case.
4. For that on the facts and in circumstances of the case the determination of the total Income at Rs. 3,87,46,380/- as against the returned income of Rs. 1,77,07,480/- by the Id. AO and confirmation by the CIT (A), NFAC are wholly arbitrary, unwarranted, wrong, illegal and at any rate are excessive.
5. For that on the facts and in circumstances of the case the Ld. CIT(A), NFAC has erred in sustaining the addition made by the Assessing Officer amounting to Rs. 2,10,38,900/- on account of cash deposit made by the assessee during the demonetization period i.e. from 09.11.2016 to 30.12.2016 being treated as unexplained money u/s 69A of the Income Tax Act, 1961.
6. For that on the facts and in the circumstances of the case, the Ld. AO erred in making addition u/s 69A as unexplained money with regard to cash deposits of Rs. 2,10,38,900/- made out of normal course of business and levying tax u/s 115BBE of the Act" and confirmation by the CIT (A), NFAC are wholly arbitrary, unwarranted, wrong, illegal and at any rate are excessive.
7. For that on the facts and in the circumstances of the case the Id. CIT (A), NFAC ought to have held that the Id. AO grossly erred in holding the sum of Rs. 2,10,38,900/- as unexplained money u/s 69A of the Act despite the fact that the detailed submissions are made that such deposits arose from business activity in the facts and circumstances of the case.
8. For that on the fact and in circumstances of the case the Id. CIT(A), NFAC ought to have held that the penalty proceedings initiated by the Id. AO u/s 271AAC(1) of the Act is contrary to law on the facts and circumstances of the case.
9. For that on the facts and in circumstances of the case the Id. A.O has erred in considering the cash deposits of Rs. 2,10,38,900/- as unexplained money u/s 69A of the Act and also confirmation by the CIT (A), NFAC, which made out of normal course of trading business.
10. For that the impugned order is misconceived and arbitrary in nature.
11. For that the appellant prays to add, amend, modify, and delete any ground, if necessarily. 12 For that other grounds, if any, will be urged at the time of hearing.”
Patliputra Distributors Private Limited 2. Briefly stated the facts of the case are that the assessee company derives its income from business of wholesale trading, filed its return of income on 06.11.2017 declaring income at Rs. 1,77,07,480/-. The case was selected for complete scrutiny. Accordingly, notice u/s 143(2) of the Act dated 25.09.2018 was duly served to the assessee and subsequently, other statutory notices were issued to the assessee. The assessee furnished reply time to time, from the bank statement as per ITBA information available with the income tax department that the assessee has maintained bank account with ICICI Bank Limited, Shahi Bhawan, Exhibition Road, Patna in current account No. 625951000542. During the course of assessment proceedings, the assessee was asked to explain the source of cash deposits made during demonetisation period from 09.11.2016 to 30.12.2016 along with credible cogent supporting documents in response to the assessee furnished bank book and tax audit report in form 3CD. The AO observed that the assesse has failed to explain the source of cash deposits made during demonetisation period the AO noted that the assessee was unable to explain the source of cash deposits during demonetisation period and which were remained unexplained. Therefore, the addition was made u/s 69A of the Act and the AO relied on the various other judgments.
Aggrieved from the above order, the assessee filed appeal before the Ld. CIT(A) and filed detailed written submission relying on certain judgments. Further, the assessee did not furnish the actual source of cash deposits merely filed document which were furnished during the course of assessment proceedings were not sufficient. Therefore, after considering the submission, the Ld. CIT(A) dismissed the appeal of the assessee.
The Ld. Counsel reiterated the submissions made before the lower authorities and submitted that the source of cash deposits are out of turnover of the assessee. The AO has not doubted on the turnover of the assessee and merely on the conjectures and surmises he added the entire cash deposits during the demonetization period. However, the cash deposit of Rs. 2,10,38,900/- are part of the turnover and the profit is also embedded on this turnover which is included in the turnover of income of the assessee it clearly shown that it double taxation to the assessee which is not permitted in the income tax provision. The assessee does not have any other sources of income except the trading activity the books of accounts have not been rejected and relying on the certain judgments.
On the other hand, the Ld. DR relied on the orders of lower authorities and submitted that during the course of assessment proceedings as well as appellate proceedings the assessee was unable to explain the source of cash deposits during demonetisation period no books of account were furnished during the course of assessment proceedings and therefore, the AO was correct to make the addition u/s 69A of the Act. He further submitted that considering the total quantum of cash deposits for whole year the cash deposits during demonetisation period is excessive and unreasonable compared to the pre and post demonetisation period. The order of ld. CIT(A) should be upheld.
Considering the rival submissions and perusing the material available on record and orders of authorities below. We noted that the case was selected or complete scrutiny and on the basis of cash deposits during the demonetization period for Rs. 2,10,38,900/- in its Patliputra Distributors Private Limited current account. However, we observed that that cash deposit for want of proper explanation regarding the source of cash the AO has made addition u/s 69A of the Act and he has also not given proportionate benefit on the turnover shown by the assesse for the benefit of net profit included in these cash deposits. We also noted that the CBDT had issued notifications/instructions to the assessing authority time to time for examination of the cash deposits during the demonetization period but the AO has not done so in support of our decision, we rely on the judgment of coordinate Bench of the ITAT, Bangalore in and 564/Bang/2022, dated 15.09.2022 in the case of Bhoopalam Marketing Services Pvt. Ltd., Vs. ACIT, Circle 1 it has been held as under:
“7.1 We have carefully gone through the various standard operating procedures laid down by the central board of direct taxes issued from time to time in case of operation clean. The 1st of such instruction was issued on 21/02/2017 by instruction number 03/2017. The 2nd instruction was issued on 03/03/2017 instruction number 4/2017. The 3rd instruction was in the form of a circular dated 15/11/2017 in F.No. 225/363/2017-ITA.II and the last one dated 09/08/2019 in F.no.225/145/2019-ITA.II. These instructions gives a hint regarding what kind of investigation, enquiry, evidences that the assessing officer is required to take into consideration for the purpose of assessing such cases.
In 1 of such instructions dated 09/08/2019 speaks about the comparative analysis of cash deposits, cash sales, month wise cash sales and cash deposits. It also provides that whether in such cases the books of accounts have been rejected or not where substantial evidences of vide variation be found between these statistical analyses. Therefore, it is very important to note that whether the case of the assessee falls into statistical analysis, which suggests that there is a booking of sales, which is non-existent and thereby unaccounted money of the assessee in old currency notes (SBN) have been pumped into as unaccounted money. 8.1 The instruction dated 21/02/2017 that the assessing officer basic relevant information e.g. monthly sales summary, relevant stock register entries and bank statement to identify cases with preliminary suspicion of back dating of cash and is or fictitious sales. The instruction is also suggested some indicators for suspicion of back dating of cash else or fictitious sales where there is an abnormal jump in the cases during the period November to December 2016 as compared to earlier year. It also suggests that, abnormal jump in percentage of cash trails to on identifiable persons as compared to earlier histories will also give some indication for suspicion. Non-availability of stock or attempts to inflate stock by introducing fictitious purchases is also some indication for suspicion of fictitious sales. Transfer of deposit of cash to Patliputra Distributors Private Limited another account or entity, which is not in line with the earlier history. Therefore, it is important to examine whether the case of the assessee falls into any of the above parameters are not. 8.2 The assessee is directed to establish all relevant details to substantiate its claim in line with the above applicable instructions. We are aware of the fact that not every deposit during the demonetisation period would fall under category of unaccounted cash. However the burden is on the assessee to establish the genuineness of the deposit in order to fall outside the scope of unaccounted cash. The Ld.AO shall verify all the details / evidences filed by the assessee based on the above direction and to consider the claim in accordance with law. Needless to say that proper opportunity of being heard must be granted to the assessee. The assessee may be granted physical hearing in order to justify its claim. In the result, the appeal filed by assessee as well as the appeal of revenue stands allowed for statistical purposes 8. Respectfully following the above judgement, the issue is remitted to the AO in above terms and decide the issue as per law after giving reasonable opportunity of being heard and assesse is directed to substantiate its case with cogent documents and not to seek unnecessary adjournments for early disposal of the case. In case of failure, no second leniency shall be granted to the asseessee.
In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced on 20.01.2026