Bangalore ITAT Deletes ₹1.13 Crore Cash Deposit Addition; Mere Suspicion Cannot Override Accepted Books

Anand Chirania Vs DCIT (ITAT Bangalore)

Bangalore ITAT Deletes ₹1.13 Crore Cash Deposit Addition; Mere Suspicion Cannot Override Accepted Books

The Bangalore ITAT deleted an addition of ₹1.13 crore made under Section 69A read with Section 115BBE, holding that once the assessee’s books of account reflected sufficient cash balances and the Revenue failed to prove that such cash had been utilized elsewhere, the cash deposits could not be treated as unexplained merely on the basis of suspicion or human probabilities.

The assessee had deposited ₹1.29 crore in bank accounts during demonetisation period, explaining that the deposits were sourced from cash withdrawals made in earlier years and from cash balances regularly reflected in his audited books. The Assessing Officer accepted withdrawals of only ₹16.29 lakh made during the relevant year and treated the balance ₹1.13 crore as unexplained, observing that it was improbable for a person to retain such a large amount of cash without utilizing it. The CIT(A) also confirmed the addition by applying the test of human probabilities.

Before the Tribunal, the assessee demonstrated that his books disclosed cash-in-hand of ₹86.17 lakh as on 31.03.2015, ₹1.22 crore as on 31.03.2016 and ₹18.87 lakh as on 31.03.2017, supported by audited financial statements, cash-flow statements and bank records. During FY 2016-17, total cash availability exceeded ₹1.65 crore against deposits of about ₹1.30 crore.

The Tribunal observed that neither the Assessing Officer nor the CIT(A) had brought any material on record to show that the cash balance appearing in the books was fictitious or that the withdrawn cash had been spent elsewhere. The Revenue had merely proceeded on assumptions that maintaining such large cash balances was unusual. The ITAT held that accepted books of account and disclosed cash balances cannot be discarded on conjectures and surmises, particularly when supported by bank withdrawals and there is no contrary evidence. Accordingly, the entire addition of ₹1,13,26,000 was directed to be deleted.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

1. ITA No. 2524/Bangalore/2025 is filed for assessment year 2000 1718 by Mr.Anand Chirania (the assessee/appellant against the appellate order passed by the National faceless appeal Centre, Delhi (The Learned Commissioner Of Income Tax Appeals/CIT – A) dated 2 September 2025 wherein the appeal filed by the assessee against the assessment order dated 26 November 2019 passed under section 143 (3) of The Income Tax Act, 1961 (The Act) by the Asst Commissioner of income tax, Circle 7 (2) (1), Bangalore (the learned AO) was dismissed.

2. The assessee is aggrieved and has preferred this appeal raising several grounds of appeal however the crux of the issue is that there is an addition of cash deposit of Rs 129,55,000 and benefit of withdrawal given by the learned assessing officer of ₹ 1,629,000 resulting into the net unexplained deposit in the bank account of Rs 113,26,000 is upheld under section 69A of the act read with section 115BBE of the act.

3. Briefly stated, the assessee, an individual, filed his return of income on 2 December 2017 declaring total income of ₹ 30,41,830 from business and other sources. The return was selected for limited scrutiny to verify large cash deposits in the bank account and transactions involving the purchase or sale of immovable property during the year. Accordingly, notice under section 143(2) of the Act was issued and served on the assessee on 10 August 2018. Thereafter, notices under section 142(1) were also issued. The assessee filed various submissions and explained the source of the substantial cash balance deposited in the bank account.

4. The assessee primarily explained that he had withdrawn cash from his bank account and later redeposited the same amount. To support this claim, he furnished copies of the relevant bank statements. The details were set out in paragraph 5 of the assessment order, at page 2 of 5. Accordingly, the assessee contended that the cash deposited in the bank account represented amounts earlier withdrawn from the same account.

5. The learned Assessing Officer rejected the assessee’s explanation, holding that it was highly improbable for a person to retain such a large cash balance, particularly when the assessee did not carry on any business generating substantial cash income. He therefore considered the transactions to be non-genuine. The Assessing Officer further observed that the assessee was an educated person, familiar with financial matters, as reflected from his mutual fund trading and investment activities over the preceding years. On this basis, he held that the explanation regarding high cash-in-hand was unreasonable and unacceptable. He also stated that the burden on the Assessing Officer was not to prove undisclosed income beyond reasonable doubt, but only on the test of preponderance of probabilities. Accordingly, against cash deposits of ₹ 1,29,55,000 made in the bank account on 2/8 December 2016, the Assessing Officer allowed credit for withdrawals of ₹ 16,29,000 made during financial year 2016–17 and added the balance sum of ₹ 1,13,26,000 to the assessee’s total income as unexplained deposits in the assessment order dated 26 November 2019.

6. Aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). The assessee reiterated that the disputed cash deposits represented cash balances brought forward from earlier years and that he had maintained proper books of account, which were produced before the learned Assessing Officer during the assessment proceedings but were ignored while passing the impugned order. The assessee referred to his audited balance sheets for the financial years ended 31 March 2015 and 31 March 2016, which clearly reflected the cash balances and supported the source of the cash deposits made during financial year 2016–17. He also relied on the cash-flow statement, which showed cash withdrawals from the bank of ₹ 85,31,500 for financial year 2014–15, ₹ 46,29,004 for financial year 2015–16, and ₹ 40,19,004 for financial year 2016–17. Further, the assessee stated that cash deposits in the bank account amounted to ₹ 5,77,500 for financial year 2014–15, ₹ 13,51,000 for financial year 2015–16, and ₹ 1,29,80,004 for financial year 2016–17. The cash-flow statement also reflected closing cash balances of ₹ 86,17,713 at the end of financial year 2014–15, ₹ 1,22,86,438 at the end of financial year 2015–16, and ₹ 18,87,438 at the end of financial year 2016–17. The assessee further relied on the audited accounts, bank statements, and summary of cash withdrawals to show that the cash-in-hand was duly recorded in the books. He also cited several judicial precedents and challenged the validity of the notice issued under section 143(2) of the Act on the ground that a non-jurisdictional officer issued it.

7. The learned CIT(A) confirmed the addition, holding that a mere accounting entry in the balance sheet was insufficient to discharge the assessee’s onus. He observed that the possibility of the withdrawn cash having been utilized elsewhere, and the cash deposits having come from other undisclosed sources, could not be ruled out. The learned CIT(A) also rejected the judicial precedents relied upon by the assessee, which stated that no addition could be made where cash available in the books of account was shown as the source of deposits in the bank account. Relying on the decision of the Hon’ble Supreme Court in Sumati Dayal v. Commissioner of Income Tax (214 ITR 801), he held that the true nature of a transaction must be tested on the basis of human probabilities. Since the assessee’s explanation did not satisfy that test, the addition of ₹ 1,13,26,000 was confirmed.

8. The learned authorized representative, assailing the assessment order, filed a paper book of 239 pages and relied on 30 judicial precedents in the case-law compilation. He submitted that the assessee had furnished a cash-flow statement for financial years 2014–15 to 2016–17, demonstrating sufficient cash availability. The assessee’s books of account were audited, and the relevant transactions were duly recorded therein; nevertheless, the lower authorities rejected the assessee’s explanation. He argued that there was no evidence to show that the cash deposited in the bank account had been utilized elsewhere. Referring to page 20 of the written submissions, he pointed out the cash-flow statement, and to page 18, the summary of the Axis Bank and ICICI Bank statements. He also referred to page 74 of the paper book containing the assessee’s balance sheet and highlighted the cash-in-hand as on 31 March 2015, 31 March 2016, and 31 March 2017. He submitted that the Assessing Officer rejected the explanation merely on the grounds that it was not properly explained and was not believable, without giving any cogent reason for such disbelief. He further contended that, since the annual accounts audited for earlier years showing cash-in-hand had not been disturbed and were, in fact, accepted, the same could not be disregarded in the present assessment proceedings. He also referred to the day-to-day cash book prepared by the assessee, which reflected the relevant cash balances. Relying on the case-law compilation, he submitted that once the assessee disclosed that the source of cash was withdrawals made from identified banks on specified dates, the Revenue could not question how the assessee dealt with that cash unless it brought contrary evidence on record. Without proper investigation into the genuineness of the deposits or the supporting documents, the Assessing Officer could not merely presume that it was improbable for the assessee to retain the cash unutilized for nearly two years; rather, the assessee ought to have been given an opportunity to substantiate the source of the capital. In this regard, he relied on the decision of the Hon’ble Karnataka High Court in S. R. Venkata Ratnam v. Commissioner of Income Tax (1981) 6 Taxmann 263 (Karnataka). He also referred to the decision of the coordinate bench in ITA No. 2668/Bangalore/2019 for assessment year 2013–14, dated 19 February 2020, where, on identical facts, the addition for unexplained cash deposits was deleted because the deposits were found to have originated from earlier cash withdrawals. Further, he relied on the decision of the Hon’ble Delhi High Court in CIT v. Kulwant Rai (2007) 163 Taxman 585 (Delhi), wherein the cash-flow statement was accepted and deposits made out of earlier cash withdrawals were held to be explained. He therefore submitted that the addition confirmed by the learned CIT(A) was without merit.

9. The learned departmental representative vehemently supported the action of the learned assessing officer and stated that there is no infirmity in the order of the learned CIT – A in confirming the amount of cash deposit into the bank account.

10. We have carefully considered the rival contentions and perused the orders of the lower authorities. The relevant facts have already been set out above. The assessee deposited ₹ 1,29,55,000 in his bank account and explained that the deposits were made out of cash withdrawals in earlier periods. The learned Assessing Officer allowed credit only for withdrawals made during financial year 2016–17, amounting to ₹ 16,29,000, and treated the balance sum of ₹ 1,13,26,000 as unexplained deposits. The assessee’s grievance is that credit was not given for the cash balance available in his cash book. It is undisputed that the assessee maintained regular books of account. These books reflected cash-in-hand of ₹ 86,17,713 as on 31 March 2015, ₹ 1,22,86,438 as on 31 March 2016, and ₹ 18,87,438 as on 31 March 2017. However, while making the addition for cash deposited during the year, the learned Assessing Officer did not accept the opening cash balance of ₹ 1,22,86,438 as on 1 April 2016 as a source of the deposits. During the year, the assessee also withdrew ₹ 40,19,000 from the bank and showed further cash receipts of ₹ 2,10,000, resulting in total cash availability of ₹ 1,65,15,438, against which cash deposits of ₹ 1,29,80,000 were made. These transactions were disclosed in the assessee’s balance sheets for the relevant financial years, which were accepted as such. The Assessing Officer rejected the explanation merely on the ground that maintaining such high cash-in-hand was unreasonable and unacceptable, and the learned CIT(A) confirmed the addition on the same basis. Thus, the addition was sustained only on conjectures and surmises. Neither the Assessing Officer nor the learned CIT(A) has given any reason for disbelieving the assessee’s annual accounts, which were supported by bank statements from three banks. The Revenue has not shown that the cash balance recorded in the books was fictitious or that the cash was utilized elsewhere. In the absence of any corroborative evidence to that effect, the addition cannot be sustained merely because the cash-in-hand was substantial. This is particularly so when the bank statements show cash withdrawals in earlier years, duly recorded in the books of account, and there is no finding that such withdrawals were used for any other purpose or were unavailable for redeposit. The cash-flow statement submitted by the assessee has also been rejected without assigning any cogent reason. In view of these facts, we direct the learned Assessing Officer to delete the addition of ₹ 1,13,26,000 made under section 69A read with section 115BBE of the Act. Accordingly, ground No. 5 and all connected grounds relating to the addition under section 69A are allowed.

11. All other grounds of appeal were either supportive or general in nature and therefore same are dismissed.

12. In the result appeal of the assessee is partly allowed.

Order pronounced in the open court on 15^thJune, 2026.