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Facts
The assessee deposited Rs. 46.75 Lakhs in cash into their bank account during the demonetization period. The Assessing Officer (AO) treated these deposits as unexplained income under Section 68 read with Section 115BBE of the Income Tax Act, 1961.
Held
The Tribunal held that Rs. 11 Lakhs of the cash deposit was genuine as it was withdrawn and re-deposited, and therefore deleted the addition to that extent. However, for the remaining Rs. 35.75 Lakhs, the issue was remitted back to the AO for verification. Regarding the claim of indexation cost of construction, the Tribunal partly allowed the appeal by estimating the expenses at 50% of the claimed amount.
Key Issues
Whether cash deposits made during demonetization are unexplained income, and whether the indexed cost of construction for capital gains is allowable without sufficient documentary evidence.
Sections Cited
68, 115BBE, 133(6), 143(3)
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Income Tax Appellate Tribunal, DELHI BENCH ‘G’, NEW DELHI
Before: SHRI MAHAVIR SINGH & SHRI KRINWANT SAHAY
Assessee by : Shri Ved Jain, Advocate, CA Uma Upadhyay, CA Devesh Aggarwal & CA Aditya Garg Revenue by : Shri Manish Gupta, Sr. DR. Date of Hearing: 13.11.2025 Date of Pronouncement: 19 .11.2025 ORDER PerMahavir Singh, Vice President: This Appeal by Assessee is arising out of the order of CIT(A), National Faceless Appeal Centre (NFAC), Delhi in Appeal No. CIT(A), Delhi- 15/10942/2019-20 dated 13.02.2025. Assessment was framed by Income Tax Officer, Ward 43(7), Delhi, for the Assessment Year (AY) 2017-18 under section 143 (3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’), vide his order dated 28.12.2019.
1 | P a g e NavneetGarg 2. The first issue in this appeal of Assessee is as regards the order of NFAC/CIT(A), confirming the action of AO in making addition of Rs. 46.75 Lakhs on account of Cash Deposit under section 68 of the Act, read with section 115 BBE of the Act by treating the cash deposit as unexplained Cash Credit. For this, Assessee has raised the followingGround No. 2”
2(i) On the facts and circumstances of the case, the learned CIT(A), ITD has erred both on fact and in law, in confirming the addition of Rs. 46,75,000/- made by the AO on account of cash deposits under Section 68 read with section 115BBE of the Income Tax Act, 1961 (“the Act (ii) That the above-said addition has been confirmed rejecting the detailed submissions and explanations along with the evidences brought on record by the assessee to justify the source of deposit made in the bank account.”
Brief facts of the case are that the Assessee made cash deposit of Rs. 46.75 Lacs in his Bank account with Bank of Baroda during the demonetization period. The Assessing Officer required the Assessee to explain the source of these cash deposits. The Assessing Officer after noticing from the Bank statement of the Assessee procured under section 133(6) of the Act that the Assessee has deposited cash during demonetization period three or four times. The AO noted that out of this Rs. 46.75 Lacs, the Assessee has deposited Rs. 11 Lacs during the period 07.04.2016 to 09.06.2016 and balance of Rs. 35.75 Lacs during the period 10.11.2016 to 31.12.2016. The assessee explained that his firstRs. 11 Lacs was withdrawn from the same bank account
2 | P a g e NavneetGarg during the period 07.04.2016 to 09.06.2016 and the same was re-deposited in the same bank account. For the balance, the Assessee contended that the amounts were withdrawn on various dates and he filed a compilation of withdrawals made during various dates from the bank of Baroda and re- deposited the amount of Rs. 37.75 Lacs during demonetization. The AO has not accepted the explanation of the Assessee that this amount was withdrawn out of the earlier withdrawn cash, for the reason that the Assessee cannot hold this cash for such a long period and, he added the entire cash deposit of Rs. 46.75 Lacs as unexplained income u/s. 68 of the Act. Aggrieved, Assesseeappealed before the Ld. CIT(A). The CIT(A) after considering the submissions of the Assessee and explanation submitted before him, noted that the deposits into bank account are more than the period of one year. Apart from this, its first withdrawal of cash from bank account and there is no documentary evidences that this amount was not spent, and, accordingly, he has not accepted the submissions of the Assessee and dismissed the ground raised by Assessee by observing as under:
“5.1.3 During the course of the current appellate proceedings, the appellant had not answered to any of the contentions raised by the AO during the course of assessment proceedings. Further, the claim of the appellant also is not tenable as its cash in hand position as at 31.03.2016 is not sacrosanct as neither are his books of accounts audited, nor has he substantiated as to how in a city like New Delhi he can survive with a meager drawing of Rs. 3,50,000/- per annum. Further, he has shown source of cash of Rs. 4,84,040/-, during the F.Y. 2015-16, as income from business for which no evidences have been filed and its only being reflected in 3 | P a g e NavneetGarg his computation of income that the same is income from M/s N B International. No rationale as to why such huge cash withdrawals were made by the appellant has been convincingly given by him. Reliance in this regard is placed on the decision of Hon’ble High Court of Punjab & Haryana in the case of Smt. Kavita Chandra v. Commissioner of Income-Tax (Appeals), Panchkula[2017] 81 taxmann.com 317 (Punjab & Haryana) wherein at para 5 of its judgement, the Hon’ble High Court held that- 5. Further, the deposits in Bank were made after a gap of two-three instances of withdrawals. Taking the totality of facts and circumstances of the case, the Tribunal concurred with the findings recorded by the CIT(A) that the withdrawals were for the purpose of business and not available for redeposit. Further, the withdrawals were re-deposited after a gap of two or three months which was not probable. Thus, the assessee was not able to link the cash withdrawn from the bank with the cash deposit. (Emphasis supplied)
In the appellant’s case, the deposits into the bank account are more than one year apart from its first withdrawal of cash from bank account, which is claimed to be the source of the said deposit by the appellant. Therefore, in the absence of any documentary evidence to back the claim made by the appellant, it cannot be accepted that the said withdrawals were made by him on account of any legal dispute related to his family business. As such, the ground of appeal raised by the appellant is dismissed. ”
Aggrieved, Assessee is in appeal before the Tribunal.
The Assessee before us now has explained that this amount of Rs. 11 Lakh was withdrawn during the period 07.04.2016 to 09.06.2016 out of the cash available in the bank account of Assessee. For this, the Ld. Counsel for the Assessee referred the bank statement of Bank of Baroda which is enclosed with 4 | P a g e NavneetGarg Assessee’s Paper Book at pages 22 to 31 and referred to various entries wherein, the total withdrawal during this period was Rs. 11 Lacs. Consequently, he explained that the same amount was not utilized for any purpose and kept at home and this was re-deposited when demonetization was announced. He also stated that neither the AO nor CIT(A) has gone into the details or brought out any fact that this amount was spent. He made statement at Bar that this amount was kept at home after withdrawal and the same amount was re-deposited in his Bank of Baroda account. We noted that there is no finding of fact recorded by AO or CIT(A) that this amount is expended for any purpose. Once the fact is that the Assessee has withdrawn amount of Rs. 11 Lacs during the above mentioned period and re-deposited immediately after the announcement of demonetization, we find no reason to disbelieve the submissions of the Assessee. Hence, we delete the addition made by AO to the extent of Rs. 11 Lacs.
For the balance, the sum of Rs. 35.75 Lacs, the Assessee claimed that this amount was withdrawn during Assessment Years 2013-14 to 2016-17 and for this, he has filed copies of bank statements i.e. for the year ending 31.03.2013, 31.03.2014, 31.03.2015 &31.032016 respectively. He also filed cash flow statements for these years. We noted that from the cash flow statements although there is a cash withdrawal during these years, but it is not clear that whether this withdrawal wasmade from bank was kept for so long. Hence, to 5 | P a g e NavneetGarg enquire into the same, and to verify the genuineness of the claim of the Assessee, we remit this issue back to the file of AO for re-deciding the same, after giving adequate opportunity of being heard to the assessee. Hence, on this issue, the order of CIT(A) and that of the AO are set aside and matter is remitted back to the file of AO to verify the source of Rs. 35.75 Lacs deposited in Assessee’s Bank Account during the demonetization period. This issue of the Assessee Appeal is partly allowed for statistical purposes.
The next issue in this appeal of Assessee is as regards to the order of CIT(A), confirming the disallowance of claim of exemption of indexation cost of construction for an amount of Rs. 1,09,54,020/- while computing the same under the head ‘capital gain’. For this, Assessee has raised the following grounds vide Ground No. 3.
“ 3(i) On the facts and circumstances of the case, the learned CIT(A), ITD has erred both on fact and in law, in confirming the disallowance of Rs. 1,09,54,020/- made by the AO on account of indexed cost of construction claimed by the assessee while computing the income under the head capital gain.
(ii) That the above-said disallowance has been confirmed rejecting the submissions and explanations along with the evidences brought on record by the assessee to justify the cost of improvement claimed by the assessee.”
Brief facts of this issue are that the Assessee while computing capital gains arising out of sale of property claiming indexed cost of acquisition for an 6 | P a g e NavneetGarg amount of Rs. 1,53,43,003/-. The AO during the assessment of cross- proceedings asked the Assessee to submit the details for the claim, but Assessee could not submit any detail and, hence, he disallowed the claim of addition/improvement cost and consequent indexation while computing capital gain. The AO made addition of Rs. 1,53,43,003/-. Aggrieved, Assessee is in appeal before the CIT(A).
The CIT(A) required the Assessee to substantiate his claim by filing evidences. For this, the Assessee filed a valuation report from one Valuer who valued the improvements carried out by Assessee and consequent claim of indexation. Ld. Counsel for the assessee stated that his valuation establishes that the Assessee has constructed the boundary wall and also carried out improvement on the land and for that he has spent this amount of Rs. 1,53,43,003/-. Ld. CIT(A) further enquired whether any documentary evidences like bills, vouchers for purchase of material or expenses incurred thereon are available with the Assessee. Assessee could not answer the same before the CIT(A). Hence, he confirmedthe action of the AO by concluding vide Para No. 5.2.5 which is reproduced as under:
5.2.5 The contentions of the appellant have been taken into consideration, however, they are not found tenable as allowance of claim of land filling and boundary wall expenses is a matter of fact and since the claim has been made by the appellant against his Taxable Income, it is for him to substantiate the same by way of furnishing of valid 7 | P a g e NavneetGarg supporting documents in this regard. Submission of a valuer’s report, without the necessary corroborative evidence in the form of bills/vouchers, is not suffice in this matter. Further, the appellant has claimed to have made all these expenses in cash for which there is no trail. Not only that, there are no evidences in the form of any TDS being done by the appellant on the payments made to the contractors who might have executed the said work, if any. Even the names of other basic details of the person(s) who executed the so-called land filling and boundary wall contract for the appellant has not been disclosed. In short, the appellant’s claim remains grossly unsubstantiated by him by way of submission of any external corroborative evidence in this regard. Therefore, I am inclined to confirm the addition made by the AO to the total income of the appellant to the extent of indexed cost of the above land filling and boundary wall expenses, total amounting to Rs. 1,09,54,020/-. However, with respect to the cost of acquisition of the impugned properties, as there purchase deeds have been enclosed, sum of Rs. 43,88,983/- is allowable in the hands of the appellant to be claimed against total sale consideration of Rs. 6,47,50,000/-. Therefore, the ground of appeal raised by the appellant is party allowed.
Aggrieved, Assessee is in appeal before the Tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. Before us, Ld. Counsel for the Assessee filed a Chart showing computation of indexation cost of assessment for land at Village Mokarabpur, land at Village Udhamgarh and also filed confirmation from the buyers in respect of sale of property that on this property it was fenced by boundary wall and land filling was done. Ld. Counsel for the 8 | P a g e Sr. Land at Land filling Incurred Index Chart Index No and in F.Y. Cost boundary (Rs.) wall expenses (Rs.) 01 Village 20,06,000 2014-15 1125/1024 22,03,857 Mokarabpur [Area (9k + 11m)] 02 Village 22,01,000 2013-14 1125/939 26,36,981 Udhamgarh 7,99,500 2014-15 1125/1024 8,78,357 [Area (16k 5m + 6s] 11,25,000 2016-17 1125/1125 11,25,000 03 Village 12,00,500 2012-13 1125/852 15,85,167 Udhamgarh 22,98,000 2014-15 1125/1024 25,24,658 [Area (21k + 19m)]
In view of above, Ld. Counsel for the Assessee stated that the above land filling and boundary wall expenses were supported by Valuation Report obtained from Valuer and also the purchaser of the property who confirmed that there is a boundary wall. When this was confronted by Ld. Sr. DR, he stated that to substantiate his expenses, the Assessee is required to submit bills and vouchers for expenses incurred and not the valuation report because according to him, the valuation report does not contain as to when this wall was constructed and land filling was done in this land. Going by the entirety of the facts, and the evidences produced before us, we are of the view that it cannot be out rightly rejected that the Assessee has not incurred any expenses on this 9 | P a g e NavneetGarg account. It is also a fact that Assessee is unable to prove entirely the expenditure by placing the bills and vouchers. In such circumstances, we are left with no alternative except to estimate the cost of acquisition for which boththe parties agreed. Hence, we estimate the improvement done and cost of this construction of wall as well as land filing at Rs. 1,09,54,020/-and consequent indexation of the same. Accordingly, we make a fair estimate that the expenditure for construction of wall and land filling during this period might have been incurred approx. @50%. Hence, we estimate the same @ 50% and restricting the expenses at Rs. 55 Lakh instead of 1,09,54,020/-. The AO will accordingly allow indexation and re-compute the capital gain accordingly.
12 In the result Appeal of the Assessee is partly allowed in the above terms.
Order pronounced in the Open Court on -11-2025.