Case Law Details
Kishor Vitthal Kolhe Vs DCIT (ITAT Pune)
Demonetisation Cash Deposits: ITAT Pune Partly Sustains Section 68 Addition, Grants 50% Relief
The Pune Bench of the ITAT partly allowed the appeal of an individual assessee for AY 2017-18, restricting the addition made under section 68 read with section 115BBE in respect of cash deposits during the demonetisation period.
The assessee, engaged in travel agency and petrol pump business, had deposited cash of ₹2.60 crore during demonetisation. The Assessing Officer observed a sharp and unexplained increase in cash-in-hand from ₹1.02 crore as on 01.04.2016 to ₹1.67 crore as on 08.11.2016, coupled with frequent cash withdrawals despite high cash balances, and failure to furnish vehicle-wise receipts or trip-wise details. Holding the cash-in-hand to be unreliable, the AO treated the incremental amount of ₹64.94 lakh as unexplained cash credit under section 68 and taxed it u/s 115BBE. The CIT(A)/NFAC confirmed the addition, holding that the assessee failed to satisfactorily explain the source and necessity of such cash accumulation.
Before the Tribunal, while rejecting the assessee’s contention that audited books and accepted sales automatically precluded section 68, the ITAT took note of the fact that the assessee was also a petroleum dealer permitted to accept specified bank notes during demonetisation. Considering the overall facts and probabilities, the Tribunal held that some portion of the cash deposits could be attributable to explained business receipts. To balance the equities, the ITAT restricted the addition to 50% of the amount, i.e. ₹32.47 lakh, and granted partial relief to the assessee. Accordingly, the appeal was partly allowed.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal filed by the assessee is directed against the order dated 26.06.2025 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2017-18.
2. Although a number of grounds have been raised by the assessee, however, these all relate to the order of the Ld. CIT(A) / NFAC in confirming the addition of Rs.64,94,250/- made by the Assessing Officer u/s 68 r.w.s. 115BBE of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
3. Facts of the case, in brief, are that the assesse is an individual and engaged in the business of travel agency and petrol pump in the name and style of Shree Durga Tours & Travels and Shree Durga Petroleum. He filed his return of income on 07.11.2017 declaring total income of Rs.13,39,310/-. The return was processed u/s 143(1) of the Act. Subsequently the case was selected for scrutiny under CASS. Accordingly statutory notice u/s 143(2) of the Act was issued and served on the assessee. Thereafter, the Assessing Officer issued notice u/s 142(1) of the Act along with a questionnaire in response to which the assessee filed the details from time to time.
4. During the course of assessment proceedings the Assessing Officer noted that the assessee during the demonetization period has deposited cash amounting to Rs.2,60,27,680/-. He noted that the cash in hand as on 01.04.2016 was Rs.1,02,80,708/-. However, there was sudden increase in the cash in hand as on 08.11.2016 at Rs.1,67,74,958/-. He further noted that there was continuous withdrawal of cash from the bank account. According to him, if there was sufficient cash in hand, there was no need on the part of the assessee for such cash withdrawals. Further, the assessee has not given separate receipts from the petrol pump and the travel agency. He, therefore, issued a show cause notice asking the assessee to furnish certain details justifying the cash deposited during the demonetization period.
5. So far as the query raised by the Assessing Officer regarding the explanation for withdrawing huge cash when there was sufficient cash available in the books is concerned, it was submitted that since the assessee has availed loans from the bank, for its repayment and for the maintenance of buses, there was withdrawal of cash from the bank. So far as the query raised by the Assessing Officer regarding the vehicle-wise receipts in each trip is concerned, it was submitted that the same is not possible to maintain vehicle-wise receipts and expenditure. So far as the query raised by the Assessing Officer regarding sudden increase / decrease in cash receipts is concerned, it was submitted that during the year 2015-16 there were two buses and in March two more buses have been purchased and during the year 2016-17 there were seven buses, hence, the travel receipts were increased as compared to the year 2015-16. It was also explained by the assessee that the old currency notes were used for purchase of petrol and diesel and hence there is sudden surge in sales during the said period.
6. However, the Assessing Officer was not satisfied with the explanation given by the assessee. He noted that the assessee was showing cash in hand which is quite high. Further, there is an increase in cash in hand from 01.04.2016 to 08.11.2016. At the same time, there are instances of continuous withdrawals from the bank account. In view of the above discussion and rejecting the various explanations given by the assessee and applying the provisions of section 68 of the Act, the Assessing Officer made addition of Rs.64,94,250/- being the difference between the cash balance as on 01.04.2016 and the cash balance as on 08.11.2016 by observing as under:
6.11 In the present case, it is seen that assessee has made sufficient withdrawal from the bank. inspite of having sufficient cash in hand all time during the year for the payment of his monthly expenses. Further, the details as asked for in the showcause relating to the trip-wise vehicle wise receipt and the vehicle wise expenses incurred was not sufficiently explained by the assessee. There is sudden increase in the cash-in-hand which is also not satisfactorily explained by the assessee. Thus, parameters like receipts and expenses which directly affect the cash-in-hand was not satisfactorily explained by the assessee.
Thus, the cash-in-hand shown by the assessee is not reliable. Therefore, the increase in cash-in-hand during the year of Rs.64,94,250/- (closing cash in hand as on 08.11.2016 — opening cash in hand as on 01.04.2016) is treated as unexplained and added to the total income of the assessee. Thus, it is treated that the nature and source of such Deposits made in the bank accounts were not satisfactorily explained by the assessee. Further, for invoking deeming provisions under Section 68 of the act, there should be clearly identifiable receipts/credits in the books. It is amply proved beyond doubt that the assessee has shown the cash credits in the books which stands unexplained to the extent of Rs.64,94,250/- and thus the corresponding cash deposit of Rs.64,94,250/- in bank accounts stands unexplained.
6.12 In the instant case, the assessee deposited Cash in bank account during demonetisation which resulted in income and on this basis it can be concluded that the assessee had income of Rs.64,94,250/- and he could be held to be the owner of the cash deposited and the Money at his credit could be deemed to be his income by virtue of Section 68 of the Act. Hence, in the facts of this case a legitimate inference can be drawn that the assessee had income/receipt which he had deposited in Bank accounts and, as such, that Income was subject to tax u/s 68 of the Act.
6.13 In the cases where assessees has deposited Cash in banks but the sources were neither explained nor such money offered for taxation, the onus is on the assessee to prove that the Cash deposits made did not bear the character of income. In this case, the assessee had failed to prove this fact and therefore, I hold that the amount of Deposits made during demonetisation to the extent of Rs.64,94,250/- represented income from undisclosed sources. The assessee has concealed his true income which otherwise is taxable. There was ample evidence that Cash was deposited in bank accounts, which is an evidence against the assessee that the credits in the books are undisclosed income and are taxable under the provisions of the Act.
6.14 The assessee has made cash deposit amounting to Rs.64,94,250/- in the bank during the demonetisation remained unexplained. Moreover, the assessee has failed to give any explanation about the nature and source of cash credits/receipts. Therefore, the amount of Rs.64,94,250/- is treated as unexplained credits u/s 68 of the Income Tax Act, 1961 and added to the Total Income of the assessee. The Total Income assessed is taxed u/s’115 BBE of the Act.
6.15 In view of the above, penalty proceedings u/s 271 AAC of the Act in respect of unexplained income is initiated.
[Addition u/s 68: Rs.64,94,250/-]
7. In appeal the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer by observing as under:
5.3.1 I have perused the appellant’s submission vis-a-vis the findings of the Assessing Officer narrated in the impugned assessment order. The Assessing Officer has made addition of Rs.64,94,250/- out of total cash deposit of Rs.2,60,27,680/- made during the demonetisation period. This amount of Rs.64,94,250/- represents the difference in cash-in-hand as on 8.11.2016 (Rs.1,67,74,958/-) and cash-in-hand as on 01.04.2016 (Rs.1,02,80,708/-). The Assessing Officer has recorded, in the impugned order, his observation that contention of the assessee, that the cash deposit during demonetisation was out of sale proceeds, could not be substantiated with complete documentary evidences.
5.3.2 The appellant has contended that “the AO had sought for information of many types about the cash deposits from time to time but no specific show cause for the addition of excess cash deposit of Rs.64,94,250/- was apprised to the assessee.” It is seen from page-3 of the impugned order that the Assessing Officer had duly 4t9tzlighted the issue before the appellant. The relevant portions of the order are extracted below:
“6. As per the consolidated B/s for Shree Durga tours and travels and Shree Durga Petroleum, the closing cash-in-hand as on 31.3.2016 is Rs.31,92,505/-. However, as per the opening cash-in-hand as on 1.4.2016 (as per the summary chart submitted) is Rs.1,02,80,708/-. Please reconcile the same and reconcile it with the cash book submitted for A.Y 2017-18.
7. On perusal of the details submitted, it has been found that, there is continuous increase in the cash-in-hand of the assessee during the year under consideration. The cash-in-hand as on 8.11.2016 has increased to Rs.1,67,74,958/-. Further, there are instances of the cash withdrawal also. If the assessee has cash-in-hand in sufficient quantity, the instances of cash withdrawal do not justify the cash-in hand.
At the same time, the assessee is continuously depositing cash in the bank account, still there is increase in cash-in-hand in your books, please justify such increase in cash-in-hand even after regular deposits.”
5.3.3 Therefore, it is evident that the appellant’s contention stated above are not correct. Thus, there was no violation of principles of natural justice, as alleged in Para 6.1 of the submission of the appellant. Ground No. 1 is therefore, dismissed.
5.4.1 As regards the merit of addition u/s 68, the appellant has submitted that he has been running travelling agency and petrol pump business, apart from plying of about 7 buses. It has been stated that the receipt in the form of fares are always in cash in this line of business, sale of petroleum products is also in cash only and deposits of cash in bank account obviously are out of day to day cash fare receipts and cash sales of petroleum products, there being no other source of business income. All receipts in the form of fare and sale of petroleum products, are against cash and as such substantial cash is received and deposited into bank immediately since, payments for petroleum products, RTO taxes, vehicle maintenance, etc. are required to be made immediately and amount is required to be remitted to the BPCL through banking channel. The appellant also has submitted that the fares are duly recorded in the regular books of account and both the sets of accounts are duly audited u/s 44AB and therefore, it cannot be denied that being out of cash balance, as per audited accounts, the source of the deposits are clearly proved; and therefore, the deposits could be said to be unexplained cash credits in the light of the provisions of section 68.
5.4.2 Conceptually, it cannot be denied that the contention of the appellant has merit. However, at the cost of being repetitive, the findings of the Assessing officer are extracted below:
“6.2 Here it is to be noted that the assessee was showing the cash-in-hand quite high. There is increase in cash-in-hand from 1.4.2016 to 8.11.2016. At the same time there are instances of continuous withdrawal from the bank accounts. The same fact was confronted with the assessee. The assessee has submitted that he has availed the bank loan therefore, there are movements of the cash from the bank account. This contention of the assessee is not acceptable.
6.3 In the showcause, the assessee was asked to furnish the vehicle wise income earned during the year. He was further asked to give the date wise trip done by each vehicle to and from Jalgaon. However, the assessee failed to furnish the requisite details in the given format. The assessee only submitted that it is not possible to maintain the trip wise receipt earned. Here it is to be noted that if the assessee takes the stand that the trip wise details are unable to maintain, then how the cash-in-hand was justified and on what basis the assessee has produced the books of accounts. This only shows that the assessee has manipulated the books of accounts to introduce his unaccounted income into the books in the garb of sale proceeds.” [Emphasis added]
5.4.3 In case appellant had sufficient cash balance on various days during 01.04.2016 to 08.11.2016, what was the necessity of withdrawal of cash ? The appellant’s submission before the Assessing Officer that “he has availed the bank loan therefore, there are movements of the cash from the bank account” (Para 6.2 of the assessment order) is clearly contradictory to his submission at the appellate stage that “as such substantial cash is received and deposited into bank immediately since, payments for petroleum products, RTO taxes, vehicle maintenance, etc. are required to be made immediately and amount is required to be remitted to the BPCL through banking channel” ( Para 7.1 of appellant’s submission).
5.5 It is reiterated that the Assessing Officer has made addition of Rs.64,94,250/- being the difference in cash-in-hand as on 8.11.2016 (Rs. 1,67,74 ,958/-) and cash-in-hand as on 01.04.2016 (Rs. 1,02,80,708/-), instead of total cash deposit of Rs.2,60,27,680/- made during the demonetisation period. This shows due application of mind on the part of the Assessing Officer. It has to be kept in mind that even the appellant did not claim that cash-in-hand as on 01.04.2016 (Rs.1,02,80,708/-) included demonetized cash only, which was required to be deposited in bank, upon demonetization. Even then, the Assessing Officer has allowed credit of the entire amount of Rs.1,02,80,708/-. The source of enhancement of Rs.64,94,250/- in cash in hand from 01.04.2016 to 08.11.2016, could not be demonstrated by the appellant at the assessment stage or even at the appellate stage, except for making some contradictory statements. The source of the amount of Rs.64,94,250/- is therefore, held to be unexplained.
8. Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal.
9. The Ld. Counsel for the assessee submitted that the assessee is maintaining day-to-day stock records and cash books which were produced before the Assessing Officer. No defects whatsoever were found by the Assessing Officer and there were no objections raised by the Assessing Officer regarding purchases and sales. Referring to the following decisions, he submitted that the addition made by the Assessing Officer u/s 68 of the Act by treating the sale proceeds credited to the Profit and Loss Account as unexplained cash credit cannot be sustained:
i) PCIT vs. Tripati Proteins (P.) Ltd. (2024) 165 taxmann.com 175 (Guj)
ii) CIT vs. Vishal Exports Overseas Ltd. (Tax Appeal No.2471 of 2009)
iii) PCIT vs. Agson Global (P) Ltd. 441 ITR 550 (Del)
iv) Abhijit Vivek Swami vs. ACIT vide ITA No.319/PUN/2023
v) Mohit Sukhija vs. NFAC (2025) 175 taxmann.com 94 (Del)
vi) Balwinder Kumar vs. ITO vide ITA No.256/ASR/2022
vii) Raj Kumar Dhab Wasti Ram vs. ITO vide ITA No.195/ASR/2022
viii) ACIT vs. Ramlal Jewellers vide ITA No.1600/Mum/2023 order dated 26.07.2023
ix) NECX (P) Ltd. Vs. ITO (2022) 145 taxmann.com 232 (Hyd)
x) Anantpur Kalpana vs. ITO (2022) 138 taxmann.com 141 (Bangalore)
xi) ACIT vs. M/s. Hirapanna Jewellers (2021) 128 taxmann.com 291 (Visakhapatnam-Trib.)
xii) M/s. Singhal Exim Pvt. Ltd. Vs. ITO vide ITA No.6520/Del/2018 (Del)
xiii) S.Balaji Mech Tech (P) Ltd. Vs. ITO (2025) 170 taxmann.com 639 (Del)
10. He accordingly submitted that the addition made by the Assessing Officer and sustained by the Ld. CIT(A) / NFAC should be deleted being not sustainable in law.
11. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC. He submitted that the assessee has made huge deposit of cash in the bank account during the demonetization period. The Assessing Officer was very liberal in restricting the addition amount being the difference between the cash balance as on 08.11.2016 and the opening cash balance as on 01.04.2016. Since the Ld. CIT(A) / NFAC has already passed a speaking order by allowing certain relief, therefore, the same being in accordance with law, should be upheld and the grounds raised by the assessee be dismissed.
12. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case made addition of Rs.64,94,250/- being the difference between the cash balance as on 08.11.2016 and 01.04.2016 out of the total cash deposit of Rs.2,60,27,680/- during the demonetization period treating the same as unexplained cash credit. We find the Ld. CIT(A) / NFAC substantially sustained the addition made by the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that when the books of account are audited and the assessee has produced the daily cash book, stock register and no defects were pointed out by the Assessing Officer and the sales which have been recorded in the books of account have been accepted, in that case, the Assessing Officer cannot invoke the provisions of section 68 of the Act by treating the sale proceeds credited to the Profit and Loss Account as unexplained cash credit.
13. We do not find much force in the above arguments of the Ld. Counsel for the assessee. The Assessing Officer has given a categorical finding that the assessee could not substantiate with justifiable reasons regarding the necessity of withdrawal of cash from the bank when it was having huge cash balances in its books of account. Further, the assessee did not submit the vehicle-wise receipts or trip-wise expenditure. Therefore, the submission of the Ld. Counsel for the assessee that the Assessing Officer has not rejected or doubted the same cannot be accepted. The various decisions relied on by the Ld. Counsel for the assessee are distinguishable and not applicable to the facts of the present case. However, we find the assessee, apart from doing travel agency business, was also the dealer of petroleum products and such dealers were allowed to accept the specified bank notes during the demonetization period. Therefore, the possibility of some deposits out of such cash received cannot be ruled out. Considering the totality of the facts of the case and in the interest of justice, we are of the considered opinion that addition of Rs.32,47,125/- being 50% of the total addition made by the Assessing Officer under the facts and circumstances of the case will meet the ends of justice. We hold and direct accordingly. The grounds raised by the assessee are accordingly partly allowed.
14. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open Court on 14th January, 2026.
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