Bandepal Mohammad Mehaboob Vs ITO (ITAT Bangalore)
Cash Deposit Cannot Be Treated as Unexplained Merely Because Retention of Earlier Withdrawals Appears Improbable: Bangalore ITAT
The assessee, a pensioner, deposited approximately ₹10.40 lakh in cash during the demonetisation period. He explained that the amount represented accumulated cash withdrawals made during FYs 2013-14 to 2016-17 for construction of a house. Due to family issues, the construction was prolonged and the unutilised cash was retained and later deposited into the bank. The AO rejected the explanation as practically improbable and treated the deposit as unexplained under section 68, while the CIT(A) sustained it under section 69A with consequential taxation under section 115BBE.
The Bangalore ITAT held that the explanation could not be rejected merely because retention of cash for a lengthy period appeared improbable. However, earlier cash withdrawals by themselves would not conclusively establish that the same cash remained available on the date of deposit.
The Tribunal admitted additional evidence comprising the construction plan, architect’s supervision certificate, leave-salary records, pension documents and treasury cheque, since these went to the root of the controversy. It restored the matter to the AO to verify the cash-flow statement, bank withdrawals, pension and leave-salary receipts, construction and household expenditure, utilisation of withdrawals and the actual cash available on the dates of deposit.
The AO was directed to consider the explanation objectively and not reject it merely on suspicion, surmise or the time gap between withdrawal and redeposit. The applicability of section 115BBE was also restored for determination based on the outcome of the principal addition.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal is filed by the Assessee against the order of Ld. ADDL JCIT (A) Madurai vide DIN: ITBA/APL/S/250/2025-26/1083391285(1) dated 08-Dec-2025 for the Assessment Year 2017-18.
2. The present appeal filed by the assessee, pertaining to A.Y. 2017-18, is directed against the order of the learned Commissioner of Income Tax Appeals ADDL/JCIT(A)- Madurai (hereafter the Ld. CIT(A)) passed under section 250 of the Income Tax Act,1961 (hereafter the Act).
3. The only interconnected issue raised by the assessee is that the learned CIT(A) erred in treating the cash deposit of Rs. 10,04,000/- as unexplained credit u/s 68 of the Act and taxing the same as per section 115BBE of the Act.
4. The relevant facts are that the assessee is an individual who, for the year under consideration, declared income of Rs. 2,59,090/- from pension and other sources. The return was selected for scrutiny to verify the cash deposit of Rs. 10,40,000/- during the demonstration period.
4.1 The assessee explained the sources of the impugned cash deposit as cash accumulated and withdrawn over the period of F.Y. 2014-15 till 8 November 2016. However, the AO did not accept the assessee’s explanation on account of practical possibility and in the absence of supporting documents. Hence, the AO treated the cash deposit of Rs. 10,40,000/- during demonetisation as an unexplained credit under section 68 of the Act and added the same to the total income of the assessee.
5. The aggrieved assessee preferred an appeal before the Ld. CIT(A).
6. Before the learned CIT(A), it was contended that the AO had not properly considered the assessee’s explanation. It was claimed that during the assessment, it submitted that cash was withdrawn from the bank for the purpose of construction. Several construction-related expenses were incurred through cash payments as well as payments through the banking channel. Therefore, the remaining cash in hand withdrawn for the ongoing construction was deposited into a bank account due to demonetisation. The AO, without properly considering the explanation and cash flow statement for F.Y. 2013-14 to 2016-17, treated the cash deposit as unexplained credit merely on the basis of surmise and conjecture. However, the learned CIT(A), after considering the assessee’s submission and cash flow statements, confirmed the addition made by the AO by observing as under:
On analysis of year wise fund available statements for the above period, it is seen that the cash balance was increased from Rs.3,31,710/- to Rs.10,91,813/- from the FY 2013-14 to FY 2015-16. For the cash in hand, the appellant has submitted the reason that the construction was happening for years due to some family issues of the appellant. Hence, the appellant had a lot of cash and the same was deposited during the demonetization period. Relevant to construction, the appellant has not submitted any material evidence either during the assessment proceedings or during the appellant proceedings. Hence, it is seen that the appellant has not substantiated with necessary supporting documents to explain the source of cash deposit of Rs.10,04,000/- made during the demonetization period with SBN currency. In view of the above, the AO’s action in making the addition of Rs.10,04,000/- treating the said cash deposits as unexplained cash investments u/s 69A is found to be correct. Hence, the said addition of Rs.10,04,000/- made in the assessment order is confirmed.
7. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
8. The learned AR before us filed a paper book running from pages 1 to 112, which included additional evidence comprising a copy of the construction plan and architectural supervision certificate, a copy of the cheque issued by the District Treasury, Bellary, a copy of the leave salary slip and letter issued by the Principal Accountant General (A&E), Karnataka, Bengaluru, finalising the pension claims. These additional evidences are placed at pages 27 to page 31 of the paper book. Hence, the ld. AR prayed for the deletion of the addition.
The learned DR, on the other hand, opposed the admission of the additional evidence and submitted that the documents now furnished before the Tribunal were not produced before the AO during the assessment proceedings. It was contended that the assessee had failed to satisfactorily establish the nexus between the earlier cash withdrawals and the cash deposited during the demonetisation period. The learned DR further submitted that mere withdrawal of cash in earlier years could not establish its availability after a substantial lapse of time, particularly when the assessee had incurred construction and other household expenses. Accordingly, the learned DR supported the orders of the lower authorities and prayed for dismissal of the grounds raised by the assessee.
9. We have heard the rival contentions and carefully perused the materials available on record. The interconnected grounds raised by the assessee relate to the addition of ₹10,40,000 representing cash deposited during the demonetisation period and the consequential application of section 115BBE of the Act.
9.1 The assessee explained that the cash deposited in the bank was out of cash withdrawals made during the earlier financial years. According to the assessee, the amounts were withdrawn for construction of a house. The construction continued for a considerable period due to certain family issues. The amount which remained unutilised was kept as cash in hand and was subsequently deposited in the bank during the demonetisation period. The assessee had also furnished a cash-flow statement for the financial years 2013-14 to 2016-17 in support of its explanation. However, the AO rejected the explanation mainly on the ground that it was not practically possible for the assessee to retain such cash for a long period and that sufficient supporting documents were not furnished.
9.2 The Ld. CIT(A) also confirmed the addition on the ground that the assessee had not furnished supporting evidence relating to the construction activity. The Ld. CIT(A), however, did not examine the availability of cash with reference to each withdrawal, the financial position of the assessee, the cash-flow statement, the construction expenditure incurred through banking channels and cash, and the amount of cash which remained unutilised.
9.3 Before us, the assessee has filed a paper book containing additional evidence, including the construction plan, architectural supervision certificate, cheque issued by the District Treasury, leave salary slip and the communication issued by the Principal Accountant General (A&E), Karnataka, finalising the pension claims. These documents have a direct bearing on the source and availability of the cash claimed to have been deposited in the bank.
9.4 In our considered view, the explanation of the assessee cannot be rejected merely on the ground that retention of cash for a long period appears to be improbable. At the same time, the mere existence of earlier cash withdrawals cannot automatically establish that the same cash remained available with the assessee on the date of deposit. The matter requires proper verification of the withdrawals, other sources of cash, construction expenditure, household expenditure and the cash balance available on the respective dates.
9.5 The additional evidence filed before us goes to the root of the matter and is necessary for deciding the issue correctly. Since these documents were not examined by the AO, we consider it appropriate, in the interest of justice, to admit the additional evidence and restore the issue to the file of the AO for fresh adjudication.
9.6 The AO shall examine the cash-flow statement furnished by the assessee in the light of the bank statements, pension and leave salary receipts, construction plan, architectural certificate, construction-related expenditure and all other supporting documents. The AO shall verify the dates and amounts of cash withdrawals, the utilisation of such withdrawals, the reasonable household expenditure and the actual availability of cash on the date of deposit. The explanation of the assessee shall be considered objectively and shall not be rejected merely on the basis of suspicion, surmise or the time gap between the withdrawals and the deposit.
9.7 The assessee shall furnish all the relevant documents and explanations as may be required by the AO and shall fully cooperate with the proceedings. The AO shall provide a reasonable opportunity of being heard to the assessee and shall pass a speaking order in accordance with law. We make it clear that we have not expressed any opinion on the merits of the addition and all the contentions of both sides are left open.
9.8 Since the addition itself has been restored to the file of the AO for fresh adjudication, the issue relating to the application of section 115BBE of the Act is also restored and shall be decided depending upon the outcome of the examination of the principal addition. Accordingly, the grounds raised by the assessee are allowed for statistical purposes.
10. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 12th August, 2026
