Case Law Details
ITO Vs Chennarapu Ashok Kumar (ITAT Hyderabad)
Hyderabad ITAT Orders Fresh Verification of Cash Deposits Due to Lack of Supporting Evidence; Section 69A Addition Sent Back for Reconsideration Because Business Receipts Claim Was Unverified; ITAT Says Cash Deposits Cannot Be Accepted as Business Receipts Without Proper Proof; Hyderabad ITAT Finds CIT(A) Relied on Financial Statements Without Adequate Evidence.
The Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT) dealt with a Revenue appeal against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, for Assessment Year 2017-18.
The assessee had not filed a return of income under Section 139 of the Income-tax Act, 1961. The assessment was reopened under Section 147, and notices under Sections 148 and 142(1) were issued seeking explanations regarding large cash deposits, cash withdrawals, and insurance commission receipts. Initially, the assessee did not respond. Later, in response to a notice dated 14.01.2022, the assessee filed a return declaring total income of Rs.10,77,510.
The Assessing Officer (AO) observed that the assessee had deposited Rs.8.87 crore in cash into a current account maintained with Andhra Bank and had withdrawn Rs.1.10 crore from the same account. Since the assessee failed to explain the source of the deposits or furnish supporting details, the AO treated the cash deposits as unexplained money under Section 69A read with Section 115BBE of the Act. The AO also made an addition towards insurance commission income.
Before the CIT(A), the assessee argued that the cash deposits represented business receipts from commission agency activities relating to paddy transactions and that the deposits were accounted for in the books of account. The assessee relied on financial statements and audit reports to support the claim that the deposits formed part of business turnover.
The CIT(A) held that Section 69A applies only to unrecorded money and that the AO had misapplied the provision. According to the CIT(A), the cash deposits formed part of the reported turnover reflected in the books of account and tax audit report. The CIT(A) observed that treating the entire deposits as unexplained income would amount to double taxation because the receipts already formed part of gross business turnover. The CIT(A) also relied on the Delhi ITAT decision in ACIT vs. Raj Bajwa, where additions under Section 69A were deleted because the deposits were linked to business turnover. Accordingly, the CIT(A) deleted the addition of Rs.8.87 crore.
The Revenue challenged the CIT(A)’s order before the Tribunal, contending that the assessee had failed to establish any genuine business activity or explain the source of cash deposits. The Revenue further argued that the CIT(A) admitted additional evidence, including audit reports and financial statements, without complying with Rule 46A and without giving the AO an opportunity to examine or rebut the documents.
The assessee defended the CIT(A)’s order and argued that the return of income and financial statements had already been filed before the AO. The assessee maintained that the cash deposits were business receipts arising from commission agency operations and therefore could not be treated as unexplained money under Section 69A.
The Tribunal observed that although the assessee eventually filed a return of income and audit report, the assessee had failed to furnish supporting evidence regarding business activities, purchases, sales, stock records, GST registration, or other documents to substantiate the claim of carrying on commission business in paddy. The Tribunal noted that the financial statements merely reflected purchases and sales figures without details regarding the nature of goods. It further observed that the audit report lacked particulars relating to business activities and examination of records.
The Tribunal held that the CIT(A)’s conclusion that the cash deposits represented business receipts could not be accepted solely on the basis of submissions, financial statements, and Form 3CD without supporting evidence. However, the Tribunal also observed that where an assessee claims that cash deposits arose from business receipts, such a claim requires proper verification by the AO.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal filed by the Revenue is directed against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [in short “NFAC”], Delhi, dated 23.09.2025, pertaining to the assessment year 2017-18.
2. The grounds raised by the Revenue read as under :
“1. The C1TIA) erred in deleting the addition of Rs. 8,87,67,000/ -made u/s 69A, despite the assessee’s complete failure to explain the source of huge cash deposits or substantiate any business activity.
2. The CIT(A) erred in admitting additional evidence (books, audit report, financial statements, etc.) without recording the findings of admission of additional evidences and reasons thereof in the appellate order as required mandatorily in Rule 46A(2).
3. The CIT(A) erred in taking into account the additional evidences produced without affording a reasonable opportunity to the AO to examine or rebut the additional evidences as required mandatorily in Rule 46A(3).
4. The CIT(A) ignored the fact that the assessee did rot file a return u/s 139, did not respond to repeated notices u/s 142(1), and did not furnish books of account or audit report or any primary evidence during assessment proceedings.
5. The CITA) erred in stating in Para 5 of the appellate order that the AO did not establish that the books of account were unreliable or that the declared turnover was inaccurate, completely ignoring the fact that no books of account were produced before the AO as stated in the assessment order, so question of rejecting books of account does not arise.
6. The CIT(A) erred in presuming the correctness of the turnover of Rs. 10.18 crore without verifying primary books of account, vouchers, or business evidence.
7. The CIT(A) erred in relying on the decision in ACTT v. Raj Bajwa, which is based on materially different facts and cannot be applied to a case where the assessee did not maintain or produce books of account.
8. The CIT(A) passed the appellate order without adequate inquiry, without examining the genuineness of documents, and ignoring the AO’s detailed findings of unexplained cash deposits.
9. The CIT(A) erred in deleting well-founded additions made by the AO, rendering the order erroneous and prejudicial to the interests of the Revenue.”
3. The brief facts of the case are that, the assessee did not file return of income for the assessment year 2017-18 under section 139 of the Income-tax Act, 1961. In this case, the assessment has been reopened under section 147 of the Act, and the notice under section 148 of the Act, dated 27.03.2021 was issued and served on the assessee. The assessee did not file return of income in response to notice under section 148 of the Act. Therefore, notice under section 142(1) of the Income-tax Act, 1961 was issued on various dates and requested the assessee to explain the cash deposits into his current account and cash withdrawals from current account and insurance commission received. Once again, there was no response from the assessee. Therefore, one more notice under section 142(1) of the Act, was issued and served on the assessee on 14.01.2022. In response, the assessee filed return of income declaring total income of Rs. 10,77,510/-. The A.O., on the basis of the return filed by the assessee observed that, the assessee has made cash deposits of Rs. 8,87,67,000/- in the current account maintained with Andhra Bank and withdrawn Rs. 1,10,00,000/- from the same account. Therefore, issued notice under section 142(1) of the Act, and called upon the assessee to file relevant details. The assessee did not respond to the= notice issued by the A.O. and also failed to explain the source for cash deposits. Therefore, the A.O. made addition of Rs. 8,87,67,000/- under section 69A r.w.s. 115BBE of the Income-tax Act, 1961 on the ground that the assessee had failed to explain the source for cash deposits. The A.O. had also made addition towards insurance commission on the ground that the assessee has not furnished any details to explain the nature of income.
4. Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A).
5. Before the Ld. CIT(A), the assessee has challenged the addition made by the A.O. towards cash deposits into bank account under section 69A of the Income-tax Act, 1961, and claimed that, the source for cash deposit is out of business receipts and the same has been accounted in the books of accounts maintained for the year under consideration. The assessee further submitted that, he is into the business of agency commission for paddy and claimed that, the source for cash deposit was out of sale proceeds received from sale of paddy. Therefore, the addition made by the A.O. under section 69A of the Income-tax Act cannot be sustained.
6. The Ld. CIT(A), after considering the relevant submissions of the assessee and also taking note of the return of income filed by the assessee, along with the financial statements, including the audit report, observed that, the A.O.’s action of adding the entire cash deposits under section 69A of the Act, is a clear case of misapplication of section 69A of the Act, which is applicable to unrecorded money. Since the cash deposits were part of the money recorded in the books of accounts, as substantiated by the tax audit report, the entire cash deposits, therefore, cannot be classified as unexplained money under section 69A of the Act, as it forms part of the gross receipts already accounted for in the books of accounts. Therefore, by following certain judicial precedents, including the decision of ITAT, Delhi Bench in the case of ACIT Vs. Raj Bajwa in ITA No. 4830/Del/2024, wherein the ITAT, Delhi Bench held that once the source for cash deposit was out of business turnover, then no addition could be made towards such cash deposits under section 69A of the Act. Thus, the Ld. CIT(A) deleted the addition made by the A.O. towards cash deposit of Rs. 8,87,67,000/-. The relevant findings of the Ld. CIT(A) are as under :
“4. Ground Nos. 1, 4, and 6: Legal and Factual Flaws in Invoking Section 69A
The central issue in this appeal is the validity of the addition of Rs. 8.87.67.000/- under Section 69A of the Act Section 69A is applicable when an assessee is ‘found to be the owner of any money, bullion. jewellery or other valuable article” and “such money…is not recorded in the books of account”. The provision allows the AO to deem such a sum as income if the assessee’s explanation about its nature and source is deemed unsatisfactory.
The application of this provision in the present case is fundamentally flawed on two key fronts one factual, and the other legal. Factually, the AO’s order is premised on the assertion that the source of the cash deposits “remains unexplained” due to the appellant’s failure to respond to notices. This premise is demonstrably incorrect. The appellant filed a return of income along with audited financial statements on 15.02 2022. which was a month and a half before the assessment order was issued. The Trading and Profit & Loss Account for the A.Y. 2017-18 clearly shows a total turnover of Rs. 10.18.72.600/- The cash deposits of P 8.87.67.000/- are a component of this reported turnover
The AO’s action of adding the entire cash deposits under Section 69A is a clear case of misapplication of the law. Section 69A applies to unrecorded money. Since the cash deposits were part of the total turnover, they were, in fact, recorded in the appellant’s books of account, as substantiated by the Tax Audit Report The appellant’s financial records were prepared on a mercantile system of accounting, and the books were maintained at the business premises. The entire cash deposit, therefore, cannot be classified as “unexplained money” under Section 69A as it forms part of the gross receipts already accounted for in the books. The addition not only violates the statutory requirement of Section 69A but also leads to an erroneous outcome of taxing the same funds twice. The AO cannot tax the gross receipts as income while also taxing the net profit derived from them. This is a classic example of double taxation, which is not permissible under the Act
This position is well-supported by judicial precedents. In the case of ACTT Vs Raj Bajwa (ITA No 4830/ Del/ 2024), the Income Tax Appellate Tribunal (ITAT) Delhi addressed the issue of cash deposits that were part of the business turnover. The Tribunal held that making an addition of the entire cash deposit amount under Section 69A was unsustainable as it resulted in double taxation. The ITAT Delhi order provides that the action of the AO has resulted in double addition as the cash deposit amount already forms part of the gross receipts reported in the books of account based on which the appellant has filed its return of income and therefore the addition of Rs. 1,33,18,000/- on account of unexplained money u/ s 69A of the Act cannot be sustained and is directed to be deleted.
Based on the facts and legal analysis, the addition made by the AO is contrary to both the letter of the law and established judicial principles. Accordingly, Grounds 1, 4, and 6 are allowed.
5. Ground Nos. 2, 3, and 5: Business Nature and Corresponding Transactions
The AO’s failure to appreciate the nature of the appellant’s business as n commission agent is at the core of the incorrect addition. The appellant is a licensed commission agent for agricultural produce, specifically paddy. operating in the Mahabubnagar district A commission agent acts as a middleman. The funds transacted through the agent’s bank account are not their personal income, they are the gross receipts or turnover of the business The agent’s actual income is the small percentage of commission earned on these transactions
The appellant’s financial statements corroborate this business model. The Trading and Profit & Loss Account shows total sales/ turnover of Rs.10.18.72,600/-, and a net profit of Rs. 10.77.199/- The cash deposits of Rs. 8.87.67.000/- are an integral part of this turnover. The appellant’s written submissions explain that the cash was received from customers and was subsequently withdrawn and paid to the farmers, a claim which is supported by the corresponding cash withdrawals mentioned even in the AO’s own order. The presence of substantial withdrawals from the same account from which cash was deposited indicates a clear business cycle and contradicts the notion that the deposits represent unaccounted income. The AO’s failure to consider this crucial aspect of the business activity led to the erroneous conclusion.
It is a settled principle that for a commission agent, the entire amount of gross receipts cannot be treated as income. The AO, in his order, did not establish that the books of account were unreliable or that the declared turnover was inaccurate. Instead, he simply ignored the submitted documents and applied a provision meant for unrecorded income to a case where the transactions were explicitly accounted for.
In the present case, the appellant has not only provided a plausible explanation but also furnished a duly audited set of financial statements, which should have been considered by the AO. The AO’s decision to treat the entire cash deposit as income despite the availability of this evidence is therefore arbitrary and unjust. Consequently, Grounds 2, 3 and 5 are also allowed, as the A.O. failed to appreciate the nature of appellant’s business and the correlation between the cash deposits and the reported turnover.”
7. Aggrieved by the order of the Ld. CIT(A), the Revenue is now in appeal before the Tribunal.
8. The Ld. CIT-DR, Dr. Narendra Kumar Naik, submitted that, the Ld. CIT(A) erred in deleting the addition of Rs. 8,87,67,000/- under section 69A of the Act, despite the assessee’s complete failure to explain the source of huge cash deposits or substantiate any business activity. The Ld. CIT-DR further submitted that, the Ld. CIT(A) erred in admitting additional evidence like audit reports and financial statements without recording the findings for admission of additional evidence and the reasons thereof in the appellate order as required under Rule 46A(2) of the Income-tax Rules, 1962. Further, the Ld. CIT(A) has violated the principles of natural justice by not affording any opportunity to the A.O. to comment on additional evidence submitted by the assessee. Although the assessee had failed to explain the source of cash deposits and also failed to substantiate the business activity, but the Ld. CIT(A) only on the basis of submissions of the assessee, presumed that, the source for cash deposits was out of business receipts and the same cannot be added under section 69A of the Income-tax Act, 1961. Therefore, he submitted that, the addition made by the A.O. should be upheld and, in the alternative, the matter may be remitted back to the A.O. to examine the nature and source of cash deposits into bank account in light of the claim of the assessee that it is out of business receipts.
9. On the other hand, the learned counsel for the assessee, Shri R. Mohan Kumar, Advocate, supporting the order of the Ld. CIT(A), submitted that, it is not a case of ex parte assessment as claimed by the Ld. CIT-DR, because the assessee has filed the return of income, although belatedly, in response to notice under section 148 of the Act, on 15.02.2022 and the A.O. has taken into account the above return of income and issued notice under section 143(2) of the Act, on 18.02.2022. Therefore, it cannot be said that it is an ex parte assessment order before the A.O. Further, the assessee has not furnished any additional evidence as claimed by the Ld. CIT-DR, because the assessee has furnished relevant return of income along with the financial statements which clearly show the sales and purchases of the assessee. The Ld. CIT(A), after considering the relevant financial statements and audit report, has reached to the conclusion that the source for cash deposits was out of business receipts and therefore, once the source was out of business receipts, then the same cannot be treated as unexplained money under section 69A of the Act. Therefore, he submitted that, there is no violation of Rule 46A of the Income-tax Rules, 1962 as claimed by the Revenue and that the appeal filed by the Revenue should be dismissed.
10. We have heard both parties, perused the material available on record, and had gone through the order passed by the authorities below. It is an admitted fact that, the assessee did not file a return of income on or before the due date provided under section 139(1) of the Income-tax Act, 1961. Further, the assessee has also not furnished any return of income initially in response to notice issued under section 148 of the Act. However, at the fag end of the assessment proceedings i.e., on 15.02.2022, the assessee has furnished a return of income declaring a total income of Rs. 10,77,500/-. The A.O., taking cognizance of return of income filed by the assessee, issued notice under section 143(2) of the Act, along with notice under section 142(1), and called for various details, including the description of business activity carried on by the assessee, financial statements for the year under consideration, the details of purchases and sales made during the year, and corresponding supporting evidence. However, the assessee neither furnished any details nor explained the source for cash deposits. Therefore, it is necessary for us to examine the reasons given by the Ld. CIT(A) to delete the addition made towards cash deposits in light of the above facts.
11. The Ld. CIT(A) deleted the addition made by the A.O. for Rs. 8,87,67,000/- under section 69A of the Act, on the ground that the source of the above cash deposits was out of business receipts and the assessee had explained the nature of the business activity and source for cash deposits by filing the relevant financial statements and audit report. The Ld. CIT(A) further noted that, the assessee is into the business of commission agency in paddy and the source for cash deposits was out of sale proceeds received in cash. Admittedly, the assessee has not furnished any details except filing belated return of income on 15.02.2022. The assessee has neither explained the nature of business nor furnished any evidence to explain the source for cash deposits. Even before the Ld. CIT(A), except filing return of income, financial statements and audit report in Form 3CD, the assessee has not furnished any books of accounts and supporting evidence to prove the nature of business activity and the details of purchases and sales of paddy, etc. The Ld. CIT(A), only on the basis of submissions of the assessee along with the financial statements and Form 3CD, came to the conclusion that the assessee was into the business of commission agent in paddy and the source was out of business receipts. However, going by the evidences filed by the assessee before the Ld. CIT(A), which are available in the paper book filed by the assessee, we find that, the assessee has furnished the financial statements, including the profit and loss account as on 31.03.2022. Upon perusal of the relevant details, we find that, the assessee prepared profit and loss account with purchases and sales without any description as to nature of goods and claimed that he has achieved sales of Rs. 10.18 crore. No details as to the nature of products dealt in by the assessee have been furnished. Further, in the audit report issued by the tax auditor, the tax auditor has issued a blank report, stating that many columns are not applicable or no records are available and the tax auditor has neither examined the records nor reported the relevant particulars of books examined by the assessee along with details of business activity. The tax audit report has also not shown the nature of business of the assessee. Therefore, from the above, it is very clear that, the assessee has neither proved nor furnished any evidence to substantiate the business activity along with evidence. Even though the assessee has failed to file any supporting evidence to prove the same, such as relevant registered from concerned authorities or any GST registration obtained from the GST authorities. The assessee had not furnished any books of accounts, sales bills, purchases bills and stock registers to prove trading activities. In the absence of any evidence to substantiate the claim of the assessee that he has carried out commission business in paddy, in our considered view, the conclusion drawn by the Ld. CIT(A) on the basis of the submissions of the assessee to explain the source of cash deposits as business receipts cannot be accepted. Therefore, to this extent, we cannot agree with the findings of the Ld. CIT(A).
12. Having said so, let us come back, whether the assessee has actually proved his case by filing relevant evidences. The assessee has filed belated return of income along with audit report on 15.02.2022, which is much beyond the due date provided for filing return of income under section 139(1) of the Income-tax Act, 1961. Therefore, only on the basis of financial statements and audit report, the explanation of the assessee cannot be accepted. However, the fact remains that when the assessee claims to have carried on business as commission agent and the source is out of business receipts, in our considered view, this fact needs to be verified from the side of the A.O., because the assessee had not furnished any evidence before the A.O. Therefore, in our considered view, the issue needs to be set aside to the file of the A.O. for further verification to examine the nature of business and the source for the cash deposits into bank account. Thus, we set aside the order of the Ld. CIT(A) and restore the issue to the file of the A.O., and the A.O. is directed to verify the claim of the assessee in light of any evidence that may be filed to explain the source for cash deposits into bank account.
13. In the result, the appeal filed by the Revenue is allowed for statistical purposes.
Order pronounced in the Open Court on 13th May, 2026.
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