Kumaravel HUF Vs ITO (ITAT Chennai)
Rule 46A Evidence Cannot Be Made Invisible—CIT(A) Must Examine HUF & Agricultural-Land Documents Before Confirming Section 69A Addition: Chennai ITAT
The Chennai ITAT has held that where an assessee files additional evidence under Rule 46A to prove its HUF status, ownership of agricultural lands & source of cash deposited during demonetisation, the CIT(A) cannot confirm the addition without even recording or dealing with the application.
Finding that the AO had also provided an inadequate effective opportunity during the scrutiny proceedings, the Tribunal restored the addition of ₹14,34,000 made u/s 69A for fresh examination.
The order is a remand & not deletion of the addition. The assessee must now substantiate the source of cash deposits before the AO through reliable evidence.
Facts of the Case
The assessee was an HUF which filed its return for AY 2017-18 on 25.12.2017, declaring taxable income of ₹1,000 & agricultural income of ₹4,69,800.
The return was selected for scrutiny because the assessee had deposited substantial cash during the demonetisation period.
During assessment, the assessee furnished its profit & loss account, balance sheet and certain particulars relating to agricultural income and expenditure.
The AO called upon the assessee to produce evidence concerning the formation of the HUF as well as documents supporting the agricultural income. According to the AO, only part of the required information was furnished.
AO Doubts Timing of HUF PAN & Bank Account
The AO noticed that the PAN in the status of HUF had been obtained on 23.11.2016, during the demonetisation period. A bank account in the HUF’s name was opened on 25.11.2016.
Old ₹500 & ₹1,000 notes aggregating to ₹14,34,000 were thereafter deposited into that account.
The AO held that the PAN had been obtained & the bank account opened merely to facilitate deposit of the specified bank notes.
He further observed that the assessee had not produced documentary evidence establishing creation of the HUF or copies of the title deeds relating to the agricultural lands. The source of agricultural income was also regarded as unproved.
The AO therefore treated the cash deposits as unexplained money & made an addition of ₹14.34 lakh u/s 69A.
Additional Evidence Filed Before CIT(A)
The assessee challenged the assessment before the first appellate authority.
In addition to written submissions, it filed an application dated 09.05.2025 under Rule 46A, seeking admission of additional evidence.
The documents included material supporting the existence of the HUF & title deeds concerning agricultural lands acquired between 2000 and 2012. The assessee also sought to establish that the lands were being used for agricultural activities.
It explained that the agricultural lands were situated in and around Pandiyampalayam & Perundurai and that the family continued to own and cultivate the lands.
The assessee also relied upon legal principles concerning the creation and recognition of an HUF.
CIT(A) Confirms Addition
The CIT(A) held that the assessee had not shown how agricultural income was generated.
According to him, no satisfactory material concerning purchases, agricultural expenditure, sale of agricultural produce or particulars of buyers had been furnished. He also observed that a deed concerning creation of the HUF had not been produced.
The CIT(A) concluded that the evidence was unreliable & did not satisfactorily explain the source of the demonetisation deposits. He accordingly confirmed the addition.
However, his order did not specifically discuss the application filed under Rule 46A or adjudicate the admissibility and evidentiary value of the additional documents.
Assessee’s Argument Before ITAT
The assessee contended that it was not afforded an adequate opportunity by the AO to present the complete evidence.
It further argued that the CIT(A) had completely failed to deal with the Rule 46A application, even though title deeds and other documents relevant to the HUF’s agricultural activity had been filed.
The additional evidence went directly to the reasons for which the AO had made the addition. Ignoring it resulted in denial of a meaningful appellate remedy & violation of natural justice.
Rule 46A Application Could Not Be Ignored
The Tribunal examined the appellate record & found that the assessee had filed a formal application under Rule 46A.
The application listed documents supporting the HUF’s existence & the use of its lands for agricultural activities. Title deeds relating to acquisitions made from 2000 to 2012 were also produced.
Despite this, the CIT(A)’s findings contained no discussion of the Rule 46A application. There was no reasoned decision admitting or rejecting the documents, nor any evaluation of their relevance to the source of the deposits.
The Tribunal observed that the CIT(A) had not even recorded the fact that additional evidence had been filed.
Since the documents concerned the very grounds on which the assessee’s explanation was rejected, they required proper consideration before the addition could be sustained.
Opportunity Before AO Was Also Inadequate
The Tribunal also examined the chronology of the scrutiny assessment.
Notice u/s 143(2) was issued on 17.09.2018. However, the detailed notice u/s 142(1) calling for information was issued only on 09.08.2019, while the assessment u/s 143(3) was completed on 24.12.2019.
In the overall circumstances, the Tribunal found merit in the assessee’s contention that it had not received a proper effective opportunity to produce all supporting material before the AO.
The requirements of natural justice & fair play therefore justified granting one further opportunity.
ITAT’s Decision
The Tribunal restored the entire issue concerning the ₹14.34 lakh cash deposit to the AO.
The AO was directed to consider the evidence produced by the assessee regarding the existence of the HUF, ownership and cultivation of agricultural lands & source of the cash deposits. He must thereafter decide the issue afresh in accordance with law.
The assessee was directed to furnish all necessary documents & cooperate with the proceedings.
The appeal was allowed for statistical purposes.
Author’s Comments
The facts undoubtedly warranted close scrutiny because the HUF’s PAN was obtained & its bank account opened during demonetisation shortly before old notes of ₹14.34 lakh were deposited.
But suspicious timing cannot justify ignoring documentary evidence. The appellate authority must first decide the Rule 46A application & then evaluate whether the title deeds, agricultural records, crop details and sale evidence credibly establish the source.
Further, an HUF ordinarily arises from personal law & family status; it is not invariably “created” only through a formal deed. Nevertheless, the assessee must establish that the alleged funds genuinely belonged to the HUF rather than its individual members.
In short, the timing of the bank account may raise an eyebrow—but Rule 46A evidence cannot be shut out before the source of the old notes is judicially examined
Cases Discussed
- Nirmal Singh and Others of the Hon’ble Punjab and Haryana High Court [Cr No. 3791 of 2013 (O&M) dated 01.05.2014]
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, CHENNAI BENCH
1. This appeal by the assessee is against the order of the Commissioner of Income-tax (Appeals), Addl/ JCIT(A)-1, Chandigarh (in short “FAA”) passed u/s. 250 of the Income-tax Act, 1961 (the Act) dated 20.03.2026 for assessment year 2017-18.
2. The assessee is a HUF and filed the return of income for assessment year 2017-18 on 25.12.2017 admitting a total income of Rs.1,000/- and agricultural income of Rs.4,69,800/-. The case was selected for scrutiny for the reason that the assessee has made cash deposits during demonetisation period. The assessee furnished profit and loss account, balance sheet and details of agricultural income and expenditure. The Assessing Officer called on the assessee to furnish details of evidence for the formation of HUF status and also details pertaining to the agricultural income. The assessee furnished part of the details called for by the Assessing Officer. The Assessing Officer after considering the submissions of the assessee held that the PAN for HUF status is obtained only during the demonetisation period for the purpose of opening bank account and making deposit of SBN. The Assessing Officer further held that the assessee failed to produce documentary evidence for creation of HUF and has not furnished the copy of deeds in respect of the agricultural land holding. Accordingly, the AO held that the assessee has not discharged the onus of proving the source for cash deposit and made an addition of Rs.14,34,000/- u/s. 69A of the Act towards cash deposits. Aggrieved, the assessee filed further appeal before the FAA. Before FAA, the assessee reiterated the submissions made before the Assessing Officer. The assessee in addition filed a petition under Rule 46A of the Income-tax Rules, 1962 (hereinafter “the Rules”) (page 98 to 101 of paper book). The FAA however dismissed the appeal by holding that:
“5.3 The assessing officer has not accepted the version of the appellant for the cash deposited during demonetization because of the following reasons:
i. The assessee has obtained the PAN for HUF status on 23.11.2016 and has opened the bank account on 25.11.2016 for the status of HUF and the Old High Denomination currencies of Rs. 500/- and Rs.1000/- only were deposited to the tune of Rs. 14,34,000 in the bank account of the assessee.
ii. the assessee has not furnished any documentary evidences for the creation of HUF and has not furnished the copy of the deeds in respect of the agricultural land holdings and has not proved the sources for the agricultural income derived. In this connection, it was confirmed that the assessee has created the above mentioned documents for the purpose of depositing the old currencies of Rs. 500/- and Rs.1000/- notes to the tune of Rs. 14,34,000/- in the bank account of the assessee during demonetization period.
5.4 During the course of appellate proceedings the appellant submitted written submission wherein stated that the entire agriculture lands held by the appellant are Pandiyampalayam is 4258 and it is a Gram Panchayat covering geographical area of in Perundural village and Pandiyampalayam village. The population of 953.58 hectares. Perundurai population is 24930 and is a town panchayat. This is only to highlight the fact that the population and land area are also corroborating the carrying on of agricultural operations. The assessee continues to hold and cultivate assessee had furnished reply on creation of HUF and also had cited a legal the lands till date. Appellant has only agricultural income source. Further, the precedent in support of the status of HUF. But the appellant has not submitted in reply that how to generate income and what is source of generate of agriculture income. The appellant has not submitted any supporting documents regarding generation of income i.e. sale and purchase of agricultural product and details of buver of agriculture product. The assessee has also not submitted the copy of deed of HUF which was created during the time of demonetization.
5.5 The submissions of the appellant have been examined however the same are not tenable as there is no corresponding proof of the purchases and expenses of agriculture product. Further the appellant has not submitted any credible source of deposit of cash of Rs. 14.34.000/- in the bank account during demonetization.
5.6 In view of the above, it is held that the evidences filed by the appellant during the course of appellate proceedings are not reliable and they do not extend any credibility to the deposit of cash in the bank account or the genuineness of the business transaction. Further, the AO had made clear observation in the assessment order that the source of the cash deposit could not be verified. Hence, the AO has rightly held the cash deposited in the bank during demonetization as appellants own money.
5.7 In view of the discussion in the preceding paragraphs, I am constrained to concur with the AO’s findings of fact and decisions thereof, more particularly in the absence of any meaningful and worthwhile submissions/documentations even during the instant appellate proceedings, to counter effectively the position adopted by the AO on the concerned issues and reduced in writing in the assessment order. It is trite that an appellate authority is essentially called upon to balance the two sides of an argument presented before him as held in Nirmal Singh and Others of the Hon’ble Punjab and Haryana High Court [Cr No. 3791 of 2013 (O&M) dated 01.05.2014]. The additions made by the AO are sustained. As a result, all grounds of appeal are dismissed.”
3. We heard the parties and perused the material available on record. The primary contention of the ld.AR is that the assessee was not given proper opportunity of being heard by the AO and that the CIT(A) has not considered the additional evidence submitted by the assessee under Rule 46A of the Rules. We notice that the assessee vide letter dated 09.05.2025 has filed an application under Rule 46A of the Rules before the CIT(A) submitting the list of documents in support of the creation of HUF and also to substantiate that the land is being used for agricultural activities. We further notice that the assessee has also submitted the title deeds of the agricultural lands acquired from 2000 till 2012. However, from the perusal of the findings of the CIT(A) as extracted hereinabove, we notice that the CIT(A) has not considered any of the documentary evidence furnished by the assessee. In fact, the CIT(A) has not even recorded anything with regard to filing of additional evidence under Rule 46A of the Rules by the assessee. We also notice that the Assessing Officer has issued the notice u/s. 143(2) of the Act on 17.09.2018 but has issued notice u/s. 142(1) of the Act only on 09.08.2019 and has completed the assessment u/s. 143(3) of the Act on 24.12.2019. Therefore, there is merit in the contention of the ld.AR that the assessee was not given proper opportunity of being heard by the Assessing Officer. Considering the over all facts and circumstances of the case, we
are of the view that the assessee need to be given one more opportunity in the interest of natural justice and fair play. Accordingly, we remit the impugned issue back to the Assessing Officer with a direction to consider the evidence filed by the assessee to substantiate the source for cash deposits and decide the issue in accordance with law. The assessee is directed to file the necessary documents before the Assessing Officer and cooperate with the proceedings. It is ordered accordingly.
4. In result, appeal of the assessee is allowed for statistical purposes.
Order pronounced on 10th day of September, 2026 at Chennai.
