Case Law Details
Umabayi Gamanagatti Vs ITO (ITAT Bangalore)
Bangalore ITAT Deletes Demonetisation Additions; Confirmations from Debtors Not Mandatory When Sales Are Accepted
The Bangalore ITAT in Umabayi Gamanagatti (through Legal Heir) v. ITO deleted additions of ₹4.50 lakh and ₹6.11 lakh arising from cash deposits during the demonetisation period. The assessee, a petrol and diesel trader, had explained that the cash deposits represented amounts recovered from sundry debtors against sales already recorded in the books of account.
During assessment, the Assessing Officer questioned cash deposits made during the demonetisation period and treated part of the opening cash balance and debtor recoveries as unexplained. Although the CIT(A) granted substantial relief, additions of ₹4.50 lakh and ₹6.11 lakh were sustained mainly because the assessee could not furnish confirmations from certain debtors.
The Tribunal observed that the Revenue had accepted that goods were sold to the concerned parties and that the assessee had produced ledger accounts, party details and sample sales bills. Once the sales were duly recorded in the books and the corresponding sale proceeds were received in cash, the assessee could not be compelled to obtain confirmations from every debtor in the absence of any evidence showing that the transactions were bogus.
ITAT held that non-furnishing of confirmations alone cannot justify an addition when the underlying sales, ledger accounts and supporting documents are already on record. Accordingly, both additions of ₹4,50,000 and ₹6,11,683 were directed to be deleted, and the assessee’s appeal was allowed in full.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. ITA No. 2702/Bang/2025 for Assessment Year 2017–18 has been filed by Umabayi Gamanagatti, through her legal heir Anil Gamanagatti (the Assessee/Appellant), against the order dated 14.07.2025 passed by the National Faceless Appeal Centre, Delhi (the Ld.CIT(A)). By that order, the Ld. CIT(A) partly allowed the Assessee’s appeal against the assessment order dated 26.12.2019 passed by the Income Tax Officer, Ward–3, Bijapur (the Ld. Assessing Officer), under section 143(3) of the Income Tax Act.
2. Aggrieved by the appellate order, the Assessee is before us raising two substantive grounds challenging the confirmation of additions of Rs. 4,50,000/-and Rs. 6,11,683/- made by the Ld. Assessing Officer and sustained by the Ld. CIT(A).
3. The facts of the case are that the Assessee is engaged in the business of trading petrol and diesel. She filed her return of income on 28.10.2017 declaring total income of Rs. 14,09,870/-. The return was selected for complete scrutiny to verify cash deposits made during the demonetization period and notice under section 143(2) of the Act was issued on 24.09.2018. During the assessment proceedings, it was noted that the Assessee had declared net profit of Rs. 15,14,998/- on gross turnover of Rs. 14,29,68,007/-, reflecting a net profit rate of 1.06%. The Assessee’s books of account were also audited. As per the bank statements, between 09.11.2016 and 31.12.2016, the Assessee deposited cash of Rs. 98,04,000/- and Rs. 17,05,000/- in accounts maintained with Bank of India and State Bank of India, respectively. The Ld. Assessing Officer issued notices under section 133(6) to the banks and obtained details of the cash deposits. When asked to explain their source, the Assessee submitted that the deposits were made out of the closing cash balance recorded in her books and sales proceeds. She further stated that she had a cash balance of Rs. 28,17,772/- as on 08.11.2016 and sales proceeds of Rs. 1,03,28,919/- during the demonetization period, against which cash of Rs. 1,16,19,500/-was deposited in the State Bank of India and Bank of India accounts. Accordingly, the Assessee contended that there was no infirmity in the cash deposited in the bank accounts.
4. The Ld. Assessing Officer rejected the Assessee’s claim of having an opening cash balance of Rs. 28,17,772/- and added the said amount to her total income.
5. The Ld. Assessing Officer further verified the Assessee’s VAT returns and noted a difference between the sales recorded in the books of account at Rs. 14,29,68,007/- and the sales reported in the VAT return at Rs. 14,42,96,368/-. The resulting difference of Rs. 13,28,361/- was added to the Assessee’s income.
6. Consequently, the assessment order was passed, determining the Assessee’s total income at Rs. 69,18,390/-. Aggrieved by the said order, the Assessee preferred an appeal before the Ld. CIT(A). Upon examining the Assessee’s submissions and the remand report, the Ld. CIT(A) held that, out of the total opening cash balance of Rs. 28,17,651 /-, only an addition of Rs. 4,50,000/- could be sustained and accordingly restricted the addition to that amount. Regarding the difference between sales as per the VAT account and the books of account, the Ld. CIT(A) granted partial relief to the Assessee to the extent of Rs. 13,28,361/-.
7. Aggrieved by the appellate order, the Assessee is in appeal before us.
8. Since the first ground of appeal is general in nature and no specific arguments were advanced, the same is dismissed.
9. Regarding the second ground of appeal, relating to the confirmation of addition of Rs. 4,50,000/- by the Ld. CIT(A), the Assessee submitted that the amount represented recoveries from sundry debtors duly recorded in the books of account. It was contended that the provisions of section 68 of the Income Tax Act, 1961 were not attracted, as the Assessee had explained the nature and source of the cash deposits. The Assessee further submitted that certain earlier errors in the books of account had been explained before the Ld. CIT(A), as recorded at page 27 of the appellate order. The Ld. Authorized Representative referred to paragraph 5.5 of the Ld. CIT(A)’s order and submitted that, although the Ld. Assessing Officer accepted the explanation in the remand report, the Assessee’s rejoinder was not considered by the Ld. CIT(A). Accordingly, it was argued that the addition of Rs. 4,50,000/-, made by the Ld. Assessing Officer and confirmed by the Ld. CIT(A), was unsustainable.
10. The Ld. Departmental Representative substantiated and supported the orders of the Ld. lower authorities.
11. We have carefully considered the rival contentions. The Ld. Assessing Officer made an addition of Rs. 28,17,000/- on account of cash deposits, whereas the Assessee claimed that the amount represented the opening cash balance available as on 09.11.2016. A remand report was called for from the Ld. Assessing Officer, and the Assessee also filed a rejoinder. The addition of Rs. 4,50,000/- was sustained on the ground that the Assessee failed to furnish confirmations from the creditors who were stated to have deposited cash with her. Although the Assessee produced account copies of all three parties, along with sample bills issued, the addition was confirmed for want of confirmations from those parties.
12. We find that the Assessee has stated, and the Revenue has accepted, that goods were sold to these parties and their ledger accounts were furnished. Therefore, merely because confirmations from those parties were not produced, the addition could not have been made in the hands of the Assessee. The sole basis for the addition was the non-furnishing of confirmations from the sundry creditors. Once the sales were duly recorded in the profit and loss account and the sale consideration was received in cash, the Assessee was not required to produce confirmations from every party in the absence of any contrary evidence. Accordingly, we direct the Ld. Assessing Officer to delete the addition of Rs. 4,50,000/-. Ground No. 2 of the Assessee’s appeal is allowed.
13. Ground No. 3 of the Assessee’s appeal concerns the addition of Rs. 6,11,683/-confirmed by Ld. CIT(A). The Ld.Authorized Representative submitted that this issue is identical to the one raised in Ground No. 2.
14. The Ld. Departmental Representative vehemently supported the order of the Ld. lower authorities.
15. On careful consideration of the facts, we find that the Ld. Assessing Officer made the addition to business income on account of cash deposits as well as the difference in turnover reported in the VAT returns and income-tax return. In respect of the cash deposits, the Ld. Assessing Officer accepted that the cash was received by the Assessee from sundry debtors against sales already recorded in the books of account. However, the addition of Rs. 6,11,683/- was sustained because the Assessee could not furnish confirmation from one party. In her rejoinder, the Assessee stated that the ledger account of the said party, along with sample bills issued, had already been produced before the lower authorities and the Ld. CIT(A). Since the Assessee had furnished the party details, ledger account, and sample bills in support of the cash receipts deposited in the bank account, we find no reason to sustain the addition of Rs. 6,11,683/-. Accordingly, we direct the Ld. Assessing Officer to delete the said addition. Ground No. 3 of the Assessee’s appeal is allowed.
16. In the result Appeal filed by the Assessee is allowed.
Order pronounced in the open court on 22nd June, 2026.
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