ITAT Allows ₹20 Lakh Credit for Business Cash Deposits Against Section 69A Addition

Rakesh Kumar Vs ITO (ITAT Jaipur)

Cash Flow Comes From Turnover, Not Merely From Profit: ITAT Grants ₹20 Lakh Relief Against Demonetisation Deposit Addition

Summary: The Jaipur Bench of the ITAT has held that while examining the source of cash deposited by a small businessman, the availability of cash cannot be restricted merely to the net profit disclosed in the return. Business cash flow arises from the entire cycle of receipts & payments, including turnover, and not from profit alone. On this reasoning, the Tribunal granted the assessee relief of ₹20 lakh out of the addition of ₹25.66 lakh made u/s 69A in respect of cash deposited in his bank account.

The Tribunal also condoned a substantial delay of 247 days in filing the appeal, considering the assessee’s personal difficulties and the serious medical condition of his counsel.

Cash Deposits During Demonetisation Triggered Addition u/s 69A

The assessee was a small goldsmith carrying on jewellery business. He had not originally filed his return of income for AY 2017-18 and did not file a return even in response to notice u/s 142(1). The AO had information that the assessee deposited cash aggregating to ₹25,66,030 in his bank account, comprising ₹5,00,530 deposited before demonetisation and ₹20,65,500 deposited during the demonetisation period.

During the assessment proceedings, the assessee furnished a computation declaring total income of ₹2.46 lakh. This included presumptive business income of ₹2.70 lakh u/s 44AD on an asserted turnover of approximately ₹18 lakh, besides income from other sources and deductions u/s 80C & 80TTA.

The assessee explained that the cash deposited in the bank account came from earlier bank withdrawals, business collections and a business loan of ₹24.08 lakh.

The AO rejected the explanation. According to him, the business loan had been availed in September 2015, whereas the disputed deposits were made during November & December 2016. The assessee had not satisfactorily explained why such a large amount borrowed earlier would remain in cash for more than a year.

The AO further reasoned that the business profit of ₹2.70 lakh disclosed by the assessee would have been consumed in meeting household expenditure. He therefore concluded that no business cash was available for redeposit into the bank account. The entire sum of ₹25,66,030 was accordingly added as unexplained money u/s 69A.

Since the assessee did not comply with the notices issued in the appellate proceedings, the CIT(A) confirmed the addition.

247-Day Delay: Substantial Justice Prevails Over Technicality

The appeal before the ITAT was delayed by 247 days. The assessee explained that his wife had suffered a slipped disc after falling in the bathroom and remained confined to bed during treatment. At the same time, the counsel handling the matter was undergoing treatment for prostate disease and cardiac ailments. The counsel had undergone surgery and subsequently faced medical complications.

The assessee contended that he became aware of the appellate order only when he contacted his counsel for filing the income-tax return. Thereafter, the appeal was filed without further delay.

The ITAT relied upon the celebrated decision of the Supreme Court in Collector, Land Acquisition v. Mst. Katiji & Ors. [1987] 167 ITR 471 (SC). The expression “sufficient cause” must receive a liberal construction to advance substantial justice. When technical considerations compete with substantial justice, the latter ordinarily deserves preference.

The Tribunal noted that the Revenue had not established any falsity in the medical circumstances or the chronology furnished by the assessee. It therefore condoned the delay and proceeded to decide the appeal on merits.

Small Goldsmith’s Business Could Reasonably Generate Cash

The ITAT observed that the assessee was admittedly carrying on a jewellery business and had disclosed business turnover during the relevant year. However, neither the AO nor the CIT(A) recorded whether the business transactions were undertaken through cash or banking channels.

Considering that the assessee was a small businessman dealing in jewellery, it was reasonable to believe that a substantial part of his transactions could have been undertaken in cash. Consequently, the possibility that business collections and earlier bank withdrawals were subsequently deposited into the bank account could not be summarily ruled out.

There was no finding by the AO that the assessee’s sales were conducted only through cheques or that cash generated from business could not possibly have found its way into the bank account.

AO Confused Business Profit With Business Cash Flow

The most significant finding of the Tribunal concerns the distinction between profit and cash flow.

The AO assumed that since the assessee disclosed only ₹2.70 lakh as profit and that amount would have been required for household expenses, no cash could have remained available for deposit. The Tribunal found this reasoning to be devoid of merit.

In the words of the ITAT, it is a matter of “common knowledge and common sense” that business cash flow arises from all receipts & expenses and not merely from profit. If a businessman has turnover of ₹18 lakh, the cash inflow generated by such turnover must be considered while determining the availability of cash. The enquiry cannot be confined to the final profit component alone.

Profit represents the excess of receipts over allowable expenditure; it does not represent the total cash circulating through the business. Therefore, merely because the presumptive profit was modest, the AO could not conclude that the assessee had no business cash available.

The ITAT ultimately granted relief of ₹20 lakh against the addition of ₹25,66,030 and confirmed the balance addition of ₹5,66,030.

Author’s Comments

The decision lays down a practical proposition frequently overlooked in cash-deposit assessments: turnover generates cash; profit measures income. The two cannot be treated as interchangeable.

At the same time, section 44AD does not automatically establish that every bank deposit represents business turnover. The assessee must still demonstrate a reasonable nexus between the nature of business, disclosed turnover, cash withdrawals & subsequent deposits. Here, the assessee’s status as a small goldsmith and the absence of any finding that sales were exclusively through banking channels persuaded the Tribunal to allow substantial credit.

There is, however, an apparent drafting inconsistency in the order. Paragraph 13 speaks of allowing credit of ₹15 lakh, whereas the concluding paragraph grants relief of ₹20 lakh. Since the operative conclusion expressly grants relief of ₹20 lakh and confirms only the balance, the relief appears to be ₹20 lakh. Nevertheless, the assessee may prudently seek rectification u/s 254(2) to eliminate ambiguity at the stage of giving effect to the order.

Cases Discussed

• Collector, Land Acquisition Vs. Mst. Katiji & Ors. (167 ITR 471) (SC)

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, JAIPUR

The present appeal has been filed by the assessee against the order passed by the National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “Ld. CIT(A)”), dated 19.12.2024 under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2017-18.

2. The assesses appeal is delayed for filing by 247 days. An application seeking condonation of delay has been filed by the assessee, which reads as under:-

“Sub: Submission for condonation of delay in filing appeal of 247 days

It may please your honor,

The appellant is a petty shopkeeper (goldsmith) and his education is under primary school. The impugned order dated 15/01/2025 was confirmed by Ld. the CIT (A) was come in the knowledge the appellant on 19-Nov-2025. The appeal filing date was due on 15-Mar-2025. The appeal has been filed in 03-Dec-2025 resulting in delay of 247 days.

Your honor, the late filling the appeal reason was appellant’s facing family problem that appellant’s wife was suffering problem of Slip-disk due to felt down in bathroom in the month of Aug-2024 and was lying confined to bed during the treatment (Paper book page 1 to 2). In this condition appellant could not take updates from my counsel (affidavit produced). When I consulted to my counsel on dt. 19-Nov-2025 for filling ITR purpose then the assessed matter has come to my knowledge so immediate the appeal has been filed. Late filling the appeal reason was that the matter was handed over to my counsel (on page-2)for pleading but he was also under medical treatment of prostate and cardiac disease. Their prostate disease was operated on dt. 15-Oct. 2024 and post operation some complications were faced long time to him. He faced with cardiac problems also (paper book page no. 3 to 8). Doctors prescription date wide details are mentioned herewith.

Your honor, the counsel has suffered illness, the situation was out of control therefore the appeal could not be attended and pleaded. The Ld. CIT(A) confirmed the Ld. AO’s impugned assessment order. In contention against the impugned order this appeal has been filed.

The Appellant is a law-abiding citizen and had no intention to delay the proceedings. The delay was due to circumstances beyond control. The respondent does not acquire a vested right in the tax demand merely due to the delay.

We have relied on under mentioned cases decided to condone the delay filling appeals are as follows;

1. Collector Land Acquisition V/s Mst. Katiji& Ors. (167 ITR 471) (SC)The Supreme Court laid down that “sufficient cause” should be interpreted liberally to advance substantial justice. A “pedantic” approach should be avoided, and the focus should be on justice rather that technicality.

2. Maya Shikshan Prashashan Sansthan V/s ITO (ITAT, Agra) (2025): The ITAT condoned a delay of 3.5 years (over 1000 days), highlighting that in an adversarial justice system, no party should be denied the opportunity of participating in the process of justice, especially when the first appeal was dismissed solely on limitation.

3. ITAT, Delhi (2025) has given their view in decided case in appeal no. ITA No. 3230/DEL/2024: Reiterated that the courts should not proceed with the tendency of finding fault with the cause shown and reject the petition by a slipshod order.

Your honor, denying to condone the delay would cause irreparable loss to the appellant and leave the appellant without a remedy on merits.

Prayer

It is respectfully prayed that the delay of 247 days in filling the appeal be condoned in the interest of justice.

3. Ld. DR, on the other hand, vehemently opposed the condonation of delay contending that the reason brought out by the assessee reflected laxity on his part in pursuing the remedy of filing appeal and therefore the delay ought not to be condoned.

4. We have heard both the parties. The law governing condonation of delay is now well settled. The Hon’ble Supreme Court in Collector, Land Acquisition, Anantnag & Anr. v. Mst. Katiji& Ors.(1987) 167 ITR 471 (SC) laid down that the expression “sufficient cause” occurring in the Limitation Act should receive a liberal construction so as to advance substantial justice. The Court held that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. The Court further observed that there is no presumption that delay is deliberate or occasioned on account of culpable negligence or mala fides and that ordinarily a litigant does not stand to benefit by lodging an appeal belatedly.

5. Considering the averments made by the assessee before us, we are of the view that the assessee has adduced sufficient cause for the delay in the filing of the present appeal before us,. He has sufficiently demonstrated the delay to have occurred due to unforeseen personal circumstances and the adverse medical condition of his consultant , which prevented him from acting forthwith to file appeal against the order of the Ld.CIT(A) in time. A date wise summary of the unforeseen circumstances was filed . No infirmity/falsity in the facts have been pointed out by the Revenue. In view of the same we condone the delay of 247 days in the filing of the present appeal before us. Order was pronounced in the Open Court.

6. At the outset, it was stated that the solitary issue in the present appeal related to the addition made to the income of the assessee u/s. 69A of the Act treating the cash found deposited in the bank account of the assessee amounting Rs. 25,66,030/- as unexplained money on account of the source of the same remaining unexplained.

7. Briefly stated that the assessee originally did not file any return of income for the impugned year. Even in response to notice issued u/s. 142(1) of the Act, no return was filed by the assessee. The AO was in possession of information that the assessee had deposited cash in his bank account amounting to Rs. 25,66,030/- out of which Rs. 5,00,530/- was deposited before the demonetization period and Rs. 20,65,500/- during the demonetization period. Accordingly, the AO issued notice to the assessee u/s 142(1) of the Act to frame assessment. During the course of assessment proceedings, the assessee filed computation of total income for the impugned year declaring income at Rs. 2,46,000/-, which comprised of Rs. 2,70,000/- being income earned from business declared on presumptive basis as per section 44AD of the Act and income from other sources of Rs. 5,856/- and claimed deduction against the said incomes u/s. 80C and 80TTA of the Act of Rs.29,826/-. The assessee was asked to explain the source of cash deposited in the bank account, to which the assessee stated that the cash was deposited out of cash withdrawn from the bank and out of business loan taken of Rs. 24,08,956/-. The AO rejected the assessee’s explanation of the source of cash deposited noting that business loan was taken more than a year back in September 2015 and the deposit of cash was made in the month of November-December 2016 and the assessee had no explanation for keeping cash loan for such a long period. The AO further noted that assessee had returned business income of Rs. 2,70,000/- under 44AD against a total turnover of 18 lakhs. Noting the business income so returned, he concluded that the entire income must have been consumed to sustain his family as household expenses and accordingly held that there was no cash available with the assessee from his business for explaining the source of cash deposited in the bank account. The AO thus rejected the explanation of source of cash deposited and treated the cash deposits of Rs. 25,66,030/- as unexplained money and added the same to the total income of the assessee u/s. 69A of the Act.

8. On appeal before Ld. CIT(A), no compliance was made by the assessee even after various notices were issued to him. The Ld. CIT(A) therefore confirmed the order of AO.

9. Aggrieved by the same, the assessee has come up before us and has raised the following grounds of appeal:-

1. The Ld. CIT (A) has erred in :- (1) uphold the assessment under section 144 of the Income tax Act. 1961 despite the facts is that entire information was submitted before Ld. AO during the assessment proceedings

2. Sustaining additions of Rs.25,66,030.00 under section 69A of IT Act. 1961 despite the fact is that deposited amount into bank was emanated from appellant regular business receipts and explainable from records produced before L’d AO.

3. Not provide natural justice to the appellant because no notices were received by appellant through / by post or person or media, (4) the appellant seeks kind permission to add, amend, alter, substitute any grounds of appeal before or at the time of hearing of the appeal.

10. Before us, Ld. Counsel for the assessee reiterated the same contention made before the AO stating that the source of cash deposit in bank was both from the cash withdrawn from his bank and also from the turnover of the business of the assessee of Rs. 18 lakhs.

11. On the other hand, Ld. DR relied on the orders passed by the lower authorities.

12. We have heard both the parties and perused the material placed on record. The issue for adjudication is the addition made to the income of the assessee on account of cash found deposited in his bank account of Rs.25,66,030/- the source of which remained unexplained. It is an admitted fact that assessee was carrying on business and had returned profits from the same to tax on a turnover of Rs. 18 lakhs. The mode in which business transactions were undertaken, i.e cash/cheque is not recorded as a matter of fact in the orders of the authorities below. The assessee admittedly is a small businessman dealing in jewellery and it is reasonable to believe that the business transactions were primarily undertaken in cash. The assessee dealing in cash in his business and also withdrawing cash from his bank account and it cannot be ruled out that the some collection from his business in cash and some withdrawals made in cash were subsequently deposited in his bank account. There is no reason/basis to hold that the entire cash generated in his business was retained by the assessee and not deposited in his bank account. It is not the case of Revenue that assessee’s business transaction were done only by cheque and there is no finding by the AO to the effect that assessee could not possibly deposit cash generated from his business in his bank account.

13. Therefore, considering the fact that the assessee’s turnover from his business during the year was admittedly 20 lakhs and there was some cash withdrawals also in his bank account, it is just and proper to give credit for the cash deposited in the bank account by the assessee to the extent of Rs. 15 lakhs. The balance of the cash deposited in the bank account, we hold remains unexplained and addition made to such extent is confirmed.

14. The AO basis’s for rejecting assesses explanation is found to be devoid of any merits. According to the AO/CIT(A) the assessee did not have sufficient profits and the profits available must have been utilized to meet his household expenses and hence there was no cash available with the assessee for depositing in his bank account. It is common knowledge and common sense that the cash flow in businesses is on account of all receipts and expenses and not of profit alone. And therefore the assessee having shown turnover of Rs.18Lacs during the year, it is the inflow of cash on account of this turnover which is to be considered for determining the availability of cash at any time for deposit in bank and not the profits. Therefore the basis with the Revenue for rejecting assessees contention is found to be devoid of merits and is hence rejected by us.

15. We conclude therefore by holding that the assessee is granted relief of Rs.20,00,000/- against the addition made of Rs.25,66,030/- on account of unexplained cash deposited in his bank account. The balance addition is confirmed.

16. In the result, the appeal filed by the assessee is partly allowed.

Order pronounced in the open court on 15-09-2026