Case Law Details
JCIT (OSD) Vs M B Exim Private Limited (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT), Delhi, dismissed the Revenue’s appeal and upheld the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which restricted the addition under Section 69A of the Income-tax Act to the peak negative cash balance instead of the aggregate of all negative cash balances reflected in seized data.
For Assessment Year 2022-23, the assessee filed its return declaring total income of Rs. 34,94,390/-. Following a search and seizure operation conducted on 24 November 2022, the Assessing Officer (AO) made an addition of Rs. 1,14,09,260/- under Section 69A on account of unexplained cash. The AO relied on books of account seized during the search, which reflected negative cash balances on twelve occasions. According to the AO, these negative balances indicated that the assessee had introduced unaccounted cash to convert the negative balances into positive cash balances. The addition was computed by aggregating all such negative balances.
During appellate proceedings, the assessee contended that the negative balances were derived from unaudited dump data extracted from the Tally software and resulted from duplicate and incorrect entries. It submitted that the questioned cash originated from withdrawals from its bank account and that the audited financial statements did not contain any negative cash balance. Alternatively, the assessee argued that if any addition was warranted, it should be restricted to the peak negative cash balance.
The CIT(A) observed that the assessee had acknowledged discrepancies in the seized documents and had offered the issue for taxation. However, it rejected the AO’s view that each individual negative balance represented a separate unexplained amount. The CIT(A) held that the maximum negative balance in the running cash book should be treated as the peak. It found that the highest negative cash balance occurred on 13 September 2021 at Rs. 16,83,956/- and sustained the addition only to that extent under Section 69A.
Before the Tribunal, the Revenue argued that the peak credit theory was inapplicable because the case involved negative cash balances arising from expenditure rather than unexplained cash deposits. It also relied upon Sections 132(4A), 292C and 2(12A), contending that the electronic books of account found during the search were presumed to be true.
The assessee submitted that no cash, bullion, jewellery or other valuable article had been found or seized during the search. It pointed out that audited books had already been prepared before the date of search and that the negative balances appearing in the Tally dump had been reconciled. According to the audited cash book, the cash balances on the relevant dates were positive and substantially higher than the negative balances relied upon by the AO. The assessee also referred to bank withdrawals made for its honey procurement operations and submitted that the AO had neither pointed out defects in the audited books nor invoked Section 145(3) of the Act.
The Tribunal held that the AO had proceeded on the presumption that every negative cash balance necessarily represented the introduction of unaccounted cash. It observed that a negative cash balance may justify further investigation but cannot automatically be treated as undisclosed income. The Tribunal noted that the assessee had provided detailed explanations regarding the reconciled audited books and accepted the alternative submission that, if any addition was required, it should be restricted to the peak negative balance.
Accordingly, the Tribunal affirmed the CIT(A)’s order treating only the peak negative cash balance of Rs. 16,83,956/- as unexplained money under Section 69A and dismissed the Revenue’s appeal.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This appeal arises from order dated 14.11.2025, passed u/s 250 of the Income Tax Act, 1961 (hereafter as “the Act”), by Ld. CIT(A)-3, NOIDA.
1.1 In this case, a return for AY 2022-23 was filed declaring a total income of Rs.34,94,390/-. In this case, a search and seizure operation was conducted on 24.11.2022, thereafter the Ld. AO passed an order dated 29.03.2024 in which an addition of Rs.114,09,260/- was made on account of unexplained cash u/s 69A of the Act. The AO is seen to have based his findings on the assumption that the seizure of books of accounts reflected the actual position of accounts and negative balances on as many as 12 occasions (even though the negative balance of Rs.1,41,753/- is dated 12.09.2022, which is beyond the scope of the present assessment year) would indicate that the assessee was introducing unaccounted cash to obtain a resulting positive cash balance. On this basis, the impugned addition was made after totaling all such negative balances.
1.2 The Ld. CIT(A) is seen to have considered the submissions of the assessee and has granted relief with the following findings: –
“During the appellate proceedings, the appellant stated that the negative cash balances were erroneously derived from unaudited dump data extracted from the tally system. As per appellant, these figures were a consequence of duplicate and incorrect entries. The appellant has further stated that the sources of cash questioned by the AO is from withdrawals from the bank account of the assessee. As per appellant, there is no negative cash balance in the audited financial statements of the assessee. The appellant has further stated that without prejudice to the above, addition, if any, could have been made by the AO only to the extent of peak negative cash balance.
The contentions of the appellant have been gone through, it appears from above that the assessee had acknowledged the discrepancy in the seized documents and offered the same to tax before the Assessing Officer and during the appellate proceedings. The contentions of the AO that the negative cash balance of a particular day is already a peak negative balance and no further peak needs to be calculated is not correct as the maximum amount of negative cash balance has to be seen in the running cashbook when all the balances are placed chronologically. This view has also been held in number of judicial pronouncements as discussed below. It is further revealed from the assessment order and the submissions of the appellant that the negative cash balance peaked on 13.09.2021 at
Rs.16,83,956/-. It would have been appropriate if the maximum amount/peak amount of the negative cash balance as per the cashbook had been added to the income of the assessee.
………..
In view of above discussion and judicial pronouncements, the peak of negative cash as discussed above amounting to Rs.16,83,956/- shall be considered as unexplained money of the assessee us/ 69A and addition to that extent is sustained.”
1.3 The Revenue is aggrieved with this action and has approached the ITAT with the following grounds: –
1. “Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in applying the Peak theory. The Peak theory is applicable for unexplained cash deposits/receipts whereas the present case pertains to expenses i.e. negative cash balance on twelve occasions. Hence, for every instance of negative cash balance, the assessee would introduce his unaccounted cash to make expenses thereby nullifying the applicability of peak credit theory.
2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the provisions of section 132(4A), 292C and 2(12A) which clearly support the legitimacy of the cash book (TALLY) found during search proceedings. Section 132(4A) & 292C clearly state that the contents of books of account and other documents found during search proceedings are true. Furthermore, section 2(12A) states that “books or books of account” includes books maintained in electronic/digital format.
3. That the order of Ld. CIT(A)-3, Noida being erroneous in law and facts be set aside and order of the AO be restored.
4. That the above grounds are without prejudice to each other and appellant craves leave to add, alter or amend any ground or grounds on or before the date of hearing of appeal.”
2. Before us the Ld. DR argued on behalf of the Revenue and stated that there was a detailed finding of fact in the Ld. AO’s order on pages 2 to 4. It was stated that the real position was reflected in the accounts seized during the course of search and seizure and were not the ones which were presented through the audited accounts. It was stated that the authenticity of the books of account was in serious doubt considering that in the course of normal transactions the cash balance could not be negative. It was also argued by the Ld. DR that the assessee was only indulging in a post-facto afterthought by saying that the results in “tally” software only represented “dump” material.
2.1 The Ld. AR, on the other hand, argued with the help of a paper book and written submissions. It was stated that during the course of search no cash, bullion, jewelry or any other valuable article was physically found and seized. Also, the assessee had already got audited accounts prepared prior to the search. It was pointed out that the rough entries in the “tally” software were duly reconciled and on the dates on which the negative cash balances have been shown there were actually positive balances as per the audited cashbook. The Ld. AR pointed out the exact balances on the dates on which negative balances were observed by the Ld.AO. For the sake of brevity, we are not reproducing the table of data placed before us but suffice it to say that the balances on the dates on which negative balances have been worked out by the Ld. AO, show positive balances by substantially huge margins. For instance, on 27.07.2021 the negative cash balance of Rs.10,23,950/- is actually a positive balance of Rs.160,25,244/-. Similarly, on 13.09.2021 the negative cash balance of Rs.16,83,956/- is seen to be a positive balance of Rs.21,71,194/-. In this manner, the Ld. AR demonstrated that as per the audited books of account the cash balances were substantially more than the so-called negative balances visible to the Ld. AO. It was argued, by way of an alternative submission, that the assessee was accepting that the peak of the so called negative balances could be added to his income and in this regard the Ld. AR pointed out that the position on 13.09.2021 represented the peak balance of Rs.16,83,956/-.
It was also averred that not only were the books of accounts prepared at the time of filing of return of income on 22.10.2022 (the date of search being 24.11.2022), but the Ld.AO had not pointed out any specific defect in the books of account and had not invoked the provisions of section 145(3) of the Act. To further strengthen the assessee’s position, the Ld. AR stated that the requirement of cash on the relevant dates would also be explained by the withdrawals seen in the assessee’s HDFC Bank account no.03262320002678 maintained at Saharanpur branch, which revealed adequate cash withdrawals, which was deployed in the assessee’s honey procurement operations. The Ld. AR stated that these facts were never disputed by the Ld. AO. The Ld.AR relied on several case laws in support of his argument that the book results have to be accepted until and unless countervailing situations could be proved.
3. We have heard the rival arguments and have considered the documents before us. Right at the outset, it deserves to be mentioned that the Ld.AO has gone by a presumption that a negative balance would need to be made good by introducing unaccounted receipts/cash. A negative balance would at best be the starting point of an investigation, but it cannot automatically be presumed that such negative balances would be ends in themselves and whatever the assessee may say about the same, would need to be disbelieved. In this case, we find that the assessee has gone to great lengths to show that the negative balances could not have been taxed as undisclosed income in the manner that has been done by the Ld.AO. Since, we have noted the arguments of Ld. AR in detail earlier in this order, hence, we do not deem it necessary to reproduce the same all over again. Suffice it to say, that the action of Ld. CIT(A) in bringing to tax the peak credit value on 13.09.2021 on the basis of the assessee’s submissions to this effect, and extracted (supra) in this order, is worth supporting. Accordingly, we affirm the action of Ld. CIT(A) in treating the peak credit value of Rs.16,83,956/- as unexplained money and approve the same.
4. In the result, the Revenue’s appeal is dismissed.
Order pronounced in the open court on 24.06.2026
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