Bank Deposits Treated as Business Receipts – ITAT Upholds Deletion of ₹1.71 Cr Addition u/s 69A

ITO Vs Palanikumar Velusamy Krishnakumar (ITAT Chennai)

Bank Deposits Treated as Business Receipts – ITAT Upholds Deletion of ₹1.71 Cr Addition U/s 69A

The AO received information that the assessee had bank credits of ₹1.71 crore, including cash deposits of ₹75.29 lakh during the demonetisation period, and since the assessee had allegedly not filed a return or explained the deposits, the AO completed ex-parte assessment u/s 144 and treated the entire amount as unexplained money u/s 69A.

Before the CIT(A), the assessee submitted that:

• He was a battery dealer and authorised distributor of Amararaja Batteries.
• He had filed the return of income on 25.09.2019 in response to notice u/s 142(1).
• The bank deposits represented business receipts, supported by financial statements, VAT returns, books of account and tax audit report.
• The assessee had declared turnover of ₹2.81 crore, which was higher than the total bank credits of ₹1.71 crore.

The CIT(A) accepted the explanation and deleted the addition holding that the bank credits represented business receipts already reflected in turnover.

On appeal by the Revenue, the ITAT held that:

• The documents relied upon by the CIT(A) were already part of the return and not fresh evidence, hence no violation of Rule 46A occurred.
• Since the declared turnover exceeded the bank credits, the deposits were reasonably explained as business receipts.
• The assessee had discharged the burden of proving the nature and source of deposits.

Accordingly, the Tribunal confirmed the deletion of addition of ₹1.71 crore made u/s 69A.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

This is an appeal preferred by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as “the Ld.CIT(A)”), Delhi, dated 18.06.2025 for the Assessment Year (hereinafter referred to as “AY”) 2017-18.

2. At the outset, the Revenue’s appeal, is delayed by ‘58’ days, for which, the Addl. CIT has filed an affidavit seeking condonation of delay, contents of the affidavit reveals that the cause for the delay is excusable.

Hence, the delay of ‘58’ days in filing of the appeal stands condoned and the appeal filed by the Revenue is taken up for hearing on its merits.

3. The main grievance of the Revenue is against the action of the Ld.CIT(A) deleting the addition of ₹1,71,79,765/-.

4. None appeared for the assessee. The brief facts of the case are that the AO received information that assessee deposited cash to the tune of ₹75,29,300/- during demonetization period and noted that assessee didn’t file any return of income (RoI) u/s.139(1) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). So, he issued various statutory notices to the assessee and further noted that the assessee had not only deposited Specified Bank Notes (SBNs) during demonetization period, but has also credit of ₹96,50,465/- in his bank account, totalling ₹1,71,79,765/- in the relevant assessment year. According to the AO, despite notices assessee didn’t bother to prove the nature and source of the deposits/credits made in his bank account. Therefore, he had no other alternative but to add the entire credits i.e. ₹1,71,79,765/- u/s.69A of the Act. Aggrieved, the assessee preferred an appeal before the Ld.CIT(A) who was pleased to delete the same by holding as under:

5. Decision on Grounds of Appeal:

5.1 Ground No. 1 to 6 are interlinked and are on validity of section order u/s 144 and determination of total income of Rs.1,71,79,765/-u/s 69A. The Assessing Officer has stated in the impugned assessment order that notice u/s 142(1) dated 08.03.2018 was issued and the same was duly served on appellant on 08.03.2018 calling for return of income for the assessment year 2017-18 but there was no response to the above said notice. It is also stated that another letter dated 13.08.2019 was also issued to appellant and was also duly served. However, there was no response from the appellant till the date of assessment.

5.2 The appellant, on the other hand, has uploaded the scanned copy of ITR-V of the return of income filed by him on 25.09.2019 for the assessment year 2017-18 vide acknowledgement no.175985381250919, declaring a gross total income of Rs.5,06,711/-and Rs.4,45,540/- respectively. In the written submission, the appellant has also stated the following:

I am a dealer in batteries. During the assessment year 2017-18, I have made a cash deposit in my bank account. I have not filed my return of income u/s 139(1) due to some unfavourable circumstances.

I have filed my return of income for the Assessment year 2017-18 on 25-09-2019 vide acknowledgement number: 175985381250919.

I am authorised dealer for Amararaja Batteries. I regularly sell to various customers and they pay either by cash or through banking channels.

The learned income tax officer while passing order u/s 144 on 25-12-2019 not even considered my filing of return on 25-09-2019 that is 3 months prior to the date of order.

Thus, based upon the information found out from AIMS of ITBA module of Income Tax Department, the department has issued notice u/s 142(1) and a letter was served on 08-03-2018 and 13-08-2019 respectively.

I have declared turnover of Rs. 2,81,50,596. This turnover was declared in my VAT returns. Copy of return enclosed for your reference. Since the turnover exceeds the limit, the books were also audited and tax audit report was also submitted.

The learned AO has obtained from bank the credit summation to the tune of Rs. 1,71,79,765. This includes cash deposits to the tune of Rs. 75,29,300. Το the volume of turnover Rs. 2,81,50,596 for the assessment year 2017-18, the deposit in the bank is within the turnover limits. Thus it is clearly evident that the deposits were made out of the operations of business.

However, credit summation includes receipts from debtors, sale proceeds and mere transfer entries.

Further the learned officer has said that I have not responded to any of the notices but I had responded to the letter issued on 13-08-2019 and SCN issued on 04-12-2019.

It is also clearly visible from the site, under filing type of the return for the assessment year 2017-18 that the return was filed in response to the notice u/s 142(1).

It is also clear from the site that the ITR has been transferred to Jurisdiction AO.

Thus even after this, stating that the return was not filed is erroneous.

Copy of financials, ITR filed and Screenshots from site showing filing type is attached herewith for your reference.

Thus based upon the return filed, responses made and the grounds mentioned above, I request the department to drop the proceedings.”

5.3 I have perused the profit & loss account also. The appellant has declared a turnover of Rs.2,81,50,596/-, which is more than the amount of Rs.1,71,79,765/- found to be credited in the bank account. The Assessing Officer has not made a case that the amount of cash deposited in the bank account was over above the turnover declared in the profit & loss account. Gross Profit and Net profit has been declared at Rs.30,96,566/- and Rs.5,06,711/- respectively, i.e., @11.00% and 1.80% respectively.

5.4 In view of the aforesaid documents (none of which is fresh evidence, being part of the return of income) and considering the written submission of the appellant, I am of the view that the amount of Rs. 1,71,79,765/- found to be credited in the bank account represents business receipt of the appellant, more than which has since been declared as turnover of business. Therefore, without entering into the adequacy of profit declared, I find that the said sum of Rs.1,71,79,765/- found to be credited in the bank account is not liable to be added u/s 69A. I direct the Assessing Officer to delete the addition of Rs.1,71,79,765/- made u/s 69A and compute the total income as declared in the return of income. Grounds No. 1 to 6 are therefore allowed.

5.5 Grounds no. 7 and 8 are general in nature; and hence, are not separately adjudicated.

6. In the result, the appeal is allowed.

5. The main grievance of the Revenue is that Ld CIT(A) has violated Rule 46A of Income Tax Rules 1962 (herein after the Rules) without calling for a remand report. In this regard it is noted that AO in the assessment order alleges non compliance from the part of assessee to his notices, which has been rebutted by assessee by bringing to the notice of Ld CIT(A) that he has filed reply to AO’s notices (refer the reply of assessee to notice issued on 13-08-2019 and SCN issued on 04-12-2019). Further the assessee brought to the notice of Ld CIT(A) that despite he filing ITR [pursuant to notice u/s 142(1)] the AO erroneously observed that assessee didn’t file ITR. The assessee also is noted to have filed before AO [copy of financials, ITR, which were uploaded, hence evident from the departmental site and assessee filed screen-shot to prove it before Ld CIT(A)]. Hence Ld CIT(A) is noted to have found that assessee didn’t file any fresh evidence. Hence there is no violation of Rule 46A as contended by the Revenue, and so it is rejected.

6. Coming to the deletion of section 69A addition of the entire credit is concerned, it is noted that assessee is engaged in the business of batteries. Pursuant to notice u/s 142(1), the assessee is noted to have filed ITR on 25-09-2019 declaring gross total income of Rs.5,06,711/-[vide acknowledgement number: 175985381250919]. The assessee is noted to have filed the financials, Tax Audit Report (TAR), and books of account, VAT return to prove that cash deposit as well as the credits in the bank account was nothing but business receipts. The assessee is noted to have shown turn over of Rs 2,81,50,596/- which is admittedly more than the total credit in bank-account of Rs 1,71,79,765/-. Assessee is noted have shown G.P @ 11% i.e Rs 30,96,566/- and NP @ 1.80% i.e. Rs 5,06,711/-. In these relevant factual background, the Ld CIT(A) has found that credits in the bank-account, including cash deposit was business receipts. Hence the assessee is noted to have discharged the burden to prove the nature & source of credit found in the bank-account. Therefore Ld CIT(A) rightly deleted addition u/s 69A of Rs 1,71,79,765/-, which action we confirm and dismiss the appeal of Revenue.

7. In the result, appeal filed by the Revenue stands dismissed.

Order pronounced on the 04^th day of March, 2026, in Chennai.