Arnavjeet Baruah Vs ITO (ITAT Panaji)
Panaji ITAT Deletes ₹32.25 Lakh Section 68 Addition: Once Assessee Explains Nature, Source and Even “Source of Source”, AO Cannot Tax Loan Merely Doubting Creditor’s Creditworthiness
The assessee was assessed with two major additions—₹32.25 lakh as unexplained cash credit under Section 68 and ₹27.61 lakh towards unexplained cash deposits, with Section 115BBE also invoked. The CIT(A) sustained the Section 68 addition while restricting the cash-deposit addition to ₹9.45 lakh.
Regarding the ₹32.25 lakh loan from Mr. Pulak Kalita, the assessee produced the creditor’s bank statement, PAN/details, confirmation and evidence of his agricultural land and agricultural income. Significantly, the bank account was a joint account of the creditor and assessee, there were no preceding cash deposits, and the funds credited before issuance of the cheque had come through banking channels.
The ITAT held that the assessee had discharged the primary onus under Section 68 and had even explained the “source of source.” If the AO continued to doubt the creditworthiness of Mr. Kalita, the AO could have taken appropriate action in the creditor’s case; there was no justification for invoking Section 68 in the assessee’s hands when the nature and source stood supported by complete evidence. The entire ₹32.25 lakh addition was deleted.
On the remaining ₹9.45 lakh cash-deposit addition, the Tribunal made an important observation that ITR-3 did not provide a mechanism for furnishing the financials of business concerns whose income was offered under Section 44AD or of agricultural activities. Therefore, merely considering the personal cash balance disclosed in the return did not reflect the assessee’s complete cash position.
The assessee demonstrated availability of cash from Banjarik Farm (agricultural activity), Kundil Dairy and personal sources through separate and consolidated cash statements. The Tribunal also noted evidence of substantial agricultural land and cultivation of areca nut, cashew, mango, black pepper, banana, pineapple, fodder and seasonal vegetables. It therefore held that sufficient cash was available to explain the demonetisation-period deposits and deleted the balance ₹9.45 lakh addition as well.
FULL TEXT OF THE ORDER OF ITAT PANAJI
The captioned appeal at the instance of assessee pertaining to A.Y. 2017-18 is directed against the order dated 08.07.2025 framed by National Faceless Appeal Centre, Delhi arising out of Assessment Order dated 27.12.2019 passed u/s.143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
2. Assessee has raised following grounds of appeal :
“1) The order of Hon. CIT(A) is bad in law, passed without jurisdiction and without following the principles of natural justice.
2) The Hon. CIT(A) has erred in sustaining the additions made by the AO u/s. 68 of the Income Tax Act 1961, without considering the fact that the provision of section 68 are not applicable to the case.
3) The Hon. CIT(A) has erred in sustaining the addition of Rs.32,25,000/- as unexplained cash credit, without verifying the facts and the submission made by the assessee.
4) The Hon. CIT(A) has erred in partly sustaining the addition of Rs.9,45,881/from the total addition of Rs.27,61,264/ made by the AO, without considering the facts of the case.
5) The Hon. CIT(A) has erred in sustaining the addition of Rs.945881/- which pertains to the AY2016-17.
6) With these and such other grounds that may be urged at the time of hearing the appellant prays for relief sought for.”
3. Brief facts of the case are that the assessee is an individual and e-filed return of income for A.Y.2017-18 on 10.02.2018 declaring income of Rs.24,16,620/-. Case selected for scrutiny through CASS followed by serving valid statutory notices u/s.143(2) and 142(1) of the Act. After considering the submissions of the assessee ld. Assessing Officer made two additions; firstly u/s.68 of the Act at Rs.32,35,000/- on account unexplained cash credit and secondly for unexplained cash deposit at Rs.27,61,264/- and also invoked section 115BBE of the Act and assessed income at Rs.84,02,884/-.
4. Aggrieved assessee preferred appeal before ld.CIT(A) but failed to succeed on the grounds raised u/s.68 of the Act at Rs.32,25,000/- and on the second ground for unexplained cash deposit assessee got part relief as ld.CIT(A) sustained the addition only at Rs.9,45,881/- as against Rs.27,61,264/-made by the Assessing Officer. Now the assessee is in appeal before this Tribunal.
5. Ld. Counsel for the assessee referring to the written submissions filed before ld.CIT(A) and paper book from pages 1 to 10 and other documents filed in the paper book from pages 11 to 22 submitted that the addition for Rs.32,35,000/- is uncalled for because the loan has been received from Mr.Pulak Kalita through banking channel. It is submitted that no cash was deposited prior to issuance of cheque to the assessee. Mr. Pulak Kalita is well known to the assessee and they have joint bank account. PAN details were also filed and that Mr. Pulak Kalita is a Farmer and has around 9336 sq.mtrs of Agricultural land at Barpeta, Assam and in support document have also been filed. Based on this information, it is claimed that nature and source of the unsecured loan is explained and therefore no addition is called for.
6. For the next issue regarding unexplained cash deposit sustained by ld.CIT(A) at Rs.9,45,881/- it is claimed that in the return only the personal income tax return details are filed therefore only bank balance appearing in the personal name is mentioned. However, the assessee is also doing business of dairy in the name of Kundil Dairy and has also income from Agriculture in the Banjarik Farm and the balance appearing in its books as on 01.04.2016 also needs to be considered. It is also submitted that even the cash deposits during the year is sufficiently explained by the Cash Inflow received from the Banjarik Farm, Kundil Dairy and the cash in hand available with the assessee. In other words, even if the opening balance is considered, assessee has sufficient cash in order to explain the cash deposit.
7. On the other hand, ld. DR supported the order of ld.CIT(A).
8. We have heard the rival submissions and perused the record placed before us. The first issue for our consideration is addition made by the Assessing Officer u/s.68 of the Act at Rs.32,25,000/-. We observe that the alleged sum has been received from Mr. Pulak Kalita. Bank statement of Mr. Pulak Kalita is placed at page 12 and it is a joint account held by Mr. Pulak Kalita and the assessee. The alleged sum includes an amount of Rs.18.50 lakh given to Mr. S. C. Baruah and Ms. Nisha Baruah who are the parents of the assessee. Confirmation letters from Mr. S.C.Baruah and Ms. Nisha Baruah are placed are record which indicates that actually that the loan has been given to Mr. S.C.Baruah and Ms. Nisha Baruah but unsecured loan has been booked in the books of assessee’s Son. Confirmation of Mr. Pulak Kalita is also filed to this effect. Section 68 can be invoked if the assessee is unable to explain the nature and source of the same credited in the books to the satisfaction of the Assessing Officer. We find that the assessee in order to discharge primary onus has furnished the copy of bank statement of Mr. Pulak Kalita who is well known to him and the account is a joint bank account with the assessee. There are no cash deposits in the bank account of Mr. Pulak Kalita and rather there are credit entries through banking channel prior to issuance of cheque to the assessee. Assessee has also furnished the copies of Agricultural land holding of Mr. Pulak Kalita and source of Agricultural income. Therefore, the source of source has also been explained by the assessee and there was nothing more left with the assessee to place before the Assessing Officer. In this case, Assessing Officer was not satisfied with the creditworthiness of Mr. Pulak Kalita. He could have easily taken action in the case of Mr. Pulak Kalita but certainly there was no reason to invoke section 68 of the Act in the case of assessee who has explained with complete evidence the nature and source of the alleged sum of Rs.32,25,000/-. Therefore, in our considered view, no addition u/s.68 of the Act is called for. Grounds of appeal Nos.2 and 3 raised by the assessee are allowed.
9. As regards the Grounds of appeal No.4 and 5 about the addition for unexplained cash deposit sustained by ld.CIT(A) at Rs.9,45,881/-, we have gone through the record and find that in Income Tax Return-3 there is no mechanism for the assessee to furnish financials of the business concerns income from which is offered u/s.44AD of the Act or the assessee has earned income from Agricultural activity. In this case, assessee has claimed that cash balance as on 01.04.2016 is Rs.10,89,991/- whereas ld. Assessing Officeer has only taken note of the cash in hand appearing in the Income Tax Return in the personal name at Rs.1,44,190/-. However, assessee with the help of requisite details has demonstrated that there is cash in hand as on 31.03.2016 at Rs.8,98,740/- and Rs.50,141/- in the proprietorship concern Banjarik Farm (Agricultural income) and Kundil Dairy (income declared u/s.44AD of the Act respectively. Assessee has also filed Cash statement of self as well as Proprietorship concern and also combined cash statement placed at page 14 to demonstrate that even after the deposit of the alleged cash during the demonetization period, cash in hand which available with the assessee is much more than the opening balance. This chart shows that closing cash in hand as on 31.10.2016 is Rs.44,36,957/- and the alleged cash deposit referred by the Assessing Officer is Rs.27,61,264/- and therefore the difference of Rs.16,75,693/- is much more than the cash in hand of Rs.10,89,891/- claimed by the assessee. Assessee has further filed copy of the land holding for carrying out the Agricultural activity placed at pages 16 to 19 and also the certificate from Village Panchayat Dongurli Thane, Sattari, Goa certifying that Banjarik Farm owned by the assessee is holding land under Sy.No.18/0 admeasuring area of 91200 sq.mt and Sy.No.19/0 admeasuring area 46150 sq.mtrs situated at Naneli Village and that the said lands are under cultivation of plants including Areca nut, Cashew, Mango, Black pepper, Banana, Pineapple, Green fodder grass and seasonal vegetables. All the details clearly indicate that assessee had cash in hand from other activities of Dairy farm and Agricultural activity and taking them into consideration we find that the assessee had sufficient cash in hand to explain the source of the alleged cash deposit Therefore, the impugned addition of Rs.9,45,881/- stands deleted. Finding of ld.CIT(A) is set aside and Grounds of appeal Nos,. 4 and 5 raised by the assessee are allowed.
10. Remaining grounds raised by the assessee are general in nature which do not warrant any adjudication.
11. In the result, the appeal of the assessee is allowed.
Order pronounced on this 28th day of July, 2026.
