Sangameshwar Med Store Vs ITO (ITAT, Bangalore Bench)
Medical Store’s Demonetisation Deposit Deserves a Hearing, Not a Diagnosis in Absentia: ₹13.50-Lakh Addition u/s 69A Restored to CIT(A)—Bangalore ITAT
Summary: The Bangalore ITAT set aside an ex parte appellate order confirming an addition of ₹13.50 lakh u/s 69A in respect of Specified Bank Notes deposited during the demonetisation period. Since the assessee, a medical store, was now represented by counsel & wished to substantiate that the deposits arose from business sales, the Tribunal restored the appeal to the CIT(A) for de novo adjudication on merits, while directing the assessee to attend every hearing without further default.
No Return Filed for AY 2017-18
The assessee was carrying on business as a medical store. It did not file its original return of income u/s 139 for AY 2017-18.
Information gathered through data analytics & online verification under “Operation Clean Money” revealed that the assessee had made substantial cash deposits during the demonetisation period without filing a return.
The available data showed cash deposits aggregating to ₹13,50,000 between 09.11.2016 & 30.12.2016. This was the period during which the Government had withdrawn the legal-tender status of old ₹500 & ₹1,000 currency notes, commonly described as Specified Bank Notes.
Since no return had been filed, the AO issued a notice u/s 142(1), directing the assessee to furnish its return & explain the source of the deposits. The assessee did not respond.
Bank Confirmed Deposit of Old Currency Notes
To verify the transaction, the AO issued a notice u/s 133(6) to Almel Urban Co-operative Bank. Information furnished by the bank confirmed that the assessee had deposited ₹13.50 lakh in old Specified Bank Notes.
Further notices u/s 142(1) were issued & served upon the assessee seeking an explanation regarding the source of cash. However, the assessee did not respond to any of the statutory communications.
In the absence of a return, books of account, sales records or explanation, the AO concluded that the source of the deposit remained unexplained. The assessment was completed on a best-judgment basis u/s 144 by order dated 20.05.2019.
The entire cash deposit of ₹13,50,000 was treated as unexplained money u/s 69A. The amount was also subjected to the special tax treatment prescribed u/s 115BBE.
Assessee Claimed Deposits Represented Medical Sales
The assessee challenged the assessment before the CIT(A). Its substantive contention was that it was operating a medical store & that the cash deposited during demonetisation represented business receipts from sales, rather than unexplained money from an undisclosed source.
It further argued that it had never previously been assessed to income-tax & was unfamiliar with income-tax law, electronic proceedings & the procedure for responding to statutory notices. Due to this lack of familiarity, it had failed to respond during assessment proceedings.
However, despite being granted multiple opportunities by the CIT(A), the assessee again failed to appear or furnish any books, documents or supporting material to rebut the AO’s findings.
The CIT(A) therefore proceeded ex parte, dismissed the appeal & confirmed the addition of ₹13.50 lakh u/s 69A.
ITAT Granted One More Opportunity
Before the Tribunal, the assessee was duly represented by an advocate & expressed its intention to pursue the challenge on merits. The Tribunal took note of this change in circumstances.
Considering that the CIT(A)’s order had been passed ex parte due to the assessee’s non-appearance, the Tribunal held that the interests of justice would be served by granting one more opportunity to present the case properly.
Accordingly, the impugned appellate order was set aside & the matter was restored to the CIT(A) for fresh adjudication on merits. The CIT(A) was directed to consider all details, evidence & submissions that may be filed by the assessee.
The Tribunal also made it clear that no fresh order should be passed without granting both parties a reasonable & adequate opportunity of hearing.
The appeal was accordingly allowed for statistical purposes.
Remand Is an Opportunity, Not a Finding on Merits
The Tribunal did not delete the addition or hold that the deposited cash necessarily represented medical-store sales. It did not adjudicate the applicability of ss.69A or 115BBE.
The order merely restores the assessee’s right to place its factual case before the CIT(A). The assessee must now produce credible contemporaneous evidence demonstrating that the cash originated from disclosed business operations.
Relevant evidence may include books of account, daily sales records, purchase invoices, stock registers, VAT returns, bank statements, cash book, details of opening cash, sales pattern before & during demonetisation & evidence showing that the volume of cash deposits was consistent with the scale of the medical business.
The Tribunal simultaneously imposed a clear obligation upon the assessee to appear before the CIT(A) on every date of hearing without default. Thus, the assessee was granted another hearing but warned against repeating its earlier pattern of non-compliance.
The appeal was accordingly allowed for statistical purposes.
Author’s Comments
The decision follows a justice-oriented approach, but it should not be mistaken for acceptance of the assessee’s explanation. Merely carrying on a cash-generating business does not automatically establish that every demonetisation deposit represents recorded sales.
At the same time, a cash deposit cannot be taxed solely because it was made in Specified Bank Notes. Its source must be tested against the surrounding business records. If sales were already recorded & included in business income, taxing the corresponding cash once again u/s 69A may result in duplication. Conversely, unsupported sales created only after detection may not withstand scrutiny.
The assessee has now received one final procedural lifeline. The medical store must produce its records—because even a genuine explanation needs documentary dosage.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT BANGALORE
The assessee has filed the present appeal against the impugned order dated 30/04/2026, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2017-18.
2. In this appeal, the assessee has raised the following grounds: –
1. The orders of the authorities below in so far as they are against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned CIT[A]/NFAC is not justified in disposing off the appeal ex-parte without giving fair and reasonable opportunity of being heard under the facts and in the circumstances of the appellant’s case.
3. Without prejudice to the above, the learned CIT[A] erred in upholding the assessment order passed u/s 144 of the Act without appreciating that the appellant was never assessed to tax in the past and that the appellant could not respond to the notices issued in course of the assessment proceedings due to its lack of familiarity with income tax law and procedure and therefore, the learned CIT[A] ought to remanded the matter for fresh consideration u/s. 251[1][a] of the Act under the facts and circumstances of the appellant’s case.
4. Without prejudice to the above, the learned CIT[A] is not justified in upholding the addition of Rs. 13,50,000/- as unexplained Income u/s.69A of the Act, in respect of the amounts / cash deposited by the appellant in the bank account during the period of demonetization without appreciating that the appellant was running a medical store and the cash deposits were made out of the sales under the facts and in the circumstances of the appellant’s case.
4.1 The learned NFAC/CIT[A] is not justified in upholding the invocation of the provisions of section 115BBE and taxing the aforesaid addition at the rate of 60% under the facts and in the circumstances of the appellant’s case.
5. Without prejudice to the right to seek waiver with the Hon’ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s.234-A, 234-B and 234-C of the Act, which under the facts and in the circumstances of the appellant’s case and the levy deserves to be cancelled.
6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.
3. We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that for the year under consideration, the assessee did not file his original return of income under section 139 of the Act. Accordingly, notice under section 142(1) of the Act was issued directing the assessee to furnish his return of income. However, the assessee failed to respond to the said notice. On the basis of data analytics and information gathered during the phase of online verification under “Operation Clean Money”, it was observed that the assessee has deposited substantial cash in his bank account during the demonetisation period, but has not filed his return of income for the year under consideration. The available data further revealed that the assessee has made cash deposits of INR 13.50 lakh between 09/11/2016 to 30/12/2016. Accordingly, to determine the source of cash deposit, notices under section 142(1) of the Act were issued and served on the assessee. However, the assessee did not respond to the statutory notices. On the basis of information received from Almel Urban Co-Operative Bank, pursuant to notice issued under section 133(6) of the Act, it was noticed that the cash was deposited by the assessee in old Specified Bank Notes. As the assessee did not respond to any of the notices and thus the source of cash deposit remained unexplained, the Assessing Officer (“AO”) completed the assessment on a best judgment basis and vide order dated 20/05/2019 passed under section 144 of the Act, and added the entire sum of INR 13,50,000 deposited by the assessee in cash as income of the assessee under section 69A of the Act.
4. It is evident from the perusal of the impugned order passed by the learned CIT(A) that despite grant of multiple opportunities, the assessee failed to respond to the hearing notices and did not furnish any material/documents to controvert the findings of the AO. Accordingly, the learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and upheld the addition made by the AO under section 69A of the Act. Being aggrieved, the assessee is in appeal before us.
5. Having considered the submissions and perused the material available on record, in the present case, at the outset, it is evident that the learned CIT(A) has passed the order ex parte due to the non-appearance of/on behalf of the assessee. Now, in the appeal before us, the assessee is duly represented by the learned AR and wishes to pursue the litigation against the addition made by the AO. Therefore, in view of the above, we are of the considered opinion that, in the interest of justice, the assessee be hereby granted one more opportunity to represent its case on merits before the learned CIT(A). Consequently, we set aside the impugned order and restore the matter to the file of the learned CIT(A) for de novo adjudication of the appeal on merits, after considering all the details/submissions as may be filed by the assessee. Needless to mention, no order shall be passed without affording a reasonable and adequate opportunity of hearing to the parties. Further, the assessee is directed to appear before the learned CIT(A) on all dates of hearing as may be fixed without any default. Accordingly, the grounds raised by the assessee are allowed for statistical purposes.
6. In the result, the appeal by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 31-Aug-2026.
