Sunil Kumar Vs ITO (ITAT Bangalore)
Reopened for a Car, Taxed for Cash Deposits: Karnataka Precedent Keeps Reassessment Alive
The car purchase that triggered reopening
In Sunil Kumar v. ITO, ITA No. 1428/Bang/2026, the Bengaluru Bench of the Income Tax Appellate Tribunal considered a reassessment that began with an inquiry into a ₹15.88 lakh car purchase but ended with an addition of ₹32,87,500 for cash deposits. The order, pronounced on 21 September 2026, concerns assessment year 2020–21.
The assessee had disclosed a hire purchase financing business. His original return declared total income of ₹10,60,060, with presumptive business income of ₹11,15,095 on gross receipts of ₹30,38,590 under section 44AD. Information available to the Assessing Officer showed that he had purchased a vehicle from Jubilant Autoworks Pvt. Ltd. for ₹15,88,000. The source of the purchase was not adequately established during the initial inquiry, and a notice under section 148 was issued on 29 March 2024.
In response, the assessee repeated the income declared earlier and later furnished the car purchase invoice and ICICI Bank car loan statement. The Assessing Officer accepted the explanation for the vehicle. During the reassessment, however, he noticed cash deposits of ₹32,87,500 in an ICICI Bank savings account. Holding that their source had not been explained, he added the full amount under section 69A and assessed total income at ₹43,47,560.
The case therefore presented two distinct questions. Could the Assessing Officer make an addition on cash deposits when no addition survived on the car purchase that led to reopening? If the reassessment could proceed, had the assessee’s explanation for the deposits been properly examined?
A jurisdictional argument meets a binding decision
The assessee challenged the reassessment on the ground that its sole addition concerned an issue different from the one for which the assessment had been reopened. He relied on CIT v. Jet Airways (I) Ltd. of the Bombay High Court and Ranbaxy Laboratories Ltd. v. CIT of the Delhi High Court. Those decisions supported his argument that, when the Assessing Officer makes no addition on the recorded reopening issue, he cannot sustain reassessment by adding income on another issue alone.
The Tribunal held that it was bound by the jurisdictional Karnataka High Court’s decision in N. Govindaraju v. ITO, 377 ITR 243. That decision had considered and distinguished the other High Court rulings cited in support of the assessee’s position. Applying N. Govindaraju, the Tribunal held that the Assessing Officer could make the cash deposit addition in the reassessment proceedings even though he ultimately accepted the source of the car purchase.
The assessee lost the challenge to the Assessing Officer’s power to examine the deposits. That finding did not establish that the deposits were unexplained; it meant their merits still had to be decided.
The cash book could not be ignored
On the merits, the assessee said that the deposits arose in the ordinary course of his hire purchase financing activity. According to him, he received cash instalments from customers, deposited them in the bank and subsequently paid amounts to the persons from whom funds had been borrowed. He maintained that he had furnished a complete cash book during assessment proceedings to explain the receipts.
The Assessing Officer made the addition without examining that cash book. The Commissioner (Appeals) also upheld the addition, observing that the assessee had sought to file additional evidence but had not actually furnished it. The Tribunal found that this overlooked the cash book already placed before the Assessing Officer. The evidence and the assessee’s explanation required examination before a finding could be reached on the source of ₹32,87,500.
The Tribunal did not, however, treat the cash book or the section 44AD return as conclusive proof. It noted that the nature of the business itself remained unclear. Was the assessee merely acting as an agent collecting instalments for others, or was he financing customers and earning interest? His basis for offering income at approximately 36.70% of gross receipts was also unexplained in light of the agency claim. The paper book did not resolve these questions, and neither lower authority had investigated them.
What happens on remand
The Tribunal restored the entire cash deposit issue to the Assessing Officer. The assessee must substantiate the nature of his business, identify the borrowers and explain the source of the cash received. The Assessing Officer must examine that material and decide the issue afresh after giving him an opportunity of being heard.
The ₹32,87,500 addition was neither deleted nor finally confirmed. The jurisdictional challenge failed, while the challenge to the unexamined addition resulted in a remand. The appeal was accordingly partly allowed for statistical purposes.
Author’s comment
The decision is useful for keeping reassessment jurisdiction and the merits of an addition separate. In Karnataka, the Tribunal followed N. Govindaraju and allowed examination of a newly noticed issue despite the absence of an addition on the original reopening issue. That did not relieve the Assessing Officer of the duty to consider the assessee’s existing evidence.
For the fresh proceedings, the central question is whose money the cash represented and why the assessee received it. A cash book may trace deposits, but the surrounding transactions must also show whether the receipts were the assessee’s own financing collections, amounts handled for others, or income from another source. Section 44AD does not answer that factual question by itself.
Cases Discussed
- N. Govindaraju v. Income-tax Officer, Ward-8(2), Bangalore, [2015] 60 taxmann.com 333 (Karnataka) / [2015] 233 Taxman 376 (Karnataka) / [2015] 377 ITR 243 (Karnataka) / [2015] 280 CTR 316 (Karnataka) — binding jurisdictional precedent followed to uphold the Assessing Officer’s power to make an addition on another issue despite no addition on the original reopening issue.
- CIT v. Jet Airways (I) Ltd., [2011] 331 ITR 236 (Bom.) — distinguished by the Karnataka High Court in N. Govindaraju.
- Ranbaxy Laboratories Ltd. v. CIT, [2011] 336 ITR 136 (Delhi) — distinguished by the Karnataka High Court in N. Govindaraju.
- CIT v. Adhunik Niryat Ispat Ltd., [2011] 63 DTR 212 (Delhi) — distinguished in N. Govindaraju.
- CIT v. Mohmed Juned Dadani, [2014] 355 ITR 172 (Guj.) — distinguished in N. Govindaraju.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, BANGALORE
1. The Assessee has filed this appeal against the appellate order dated 7 January 2026 passed by the National Faceless Appeal Centre, Delhi [the learned CIT(A)] for assessment year 2020-21, dismissing the Assessee’s appeal against the reassessment order dated 6 January 2025 passed under section 147 read with section 144B of the Income Tax Act, 1961 [the Act] by the National Faceless Assessment Centre, Delhi [the learned AO].
2. The Assessee has raised the following grounds of appeal:
1. The order passed by the learned Commissioner of Income Tах (Appeals) under section 250 of the Act, is opposed to law, equity, weight of evidence, natural justice, probabilities, and facts and circumstances of the appellant’s case.
2. The appellant denies himself liable to be assessed to a total income of Rs. 43,47,560/- as against the returned income of Rs. 10,60,060/- on the facts and circumstances of the case.
3. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the learned Assessing Officer has not made any addition on the issues for which the assessment was reopened and thereby had no jurisdiction to make additions on other issues and consequently, the assessment order passed under section 147 r.w.s 144B of the Act is without jurisdiction on the facts and circumstances of the case.
4. The order passed by the learned Commissioner of Income Tax (Appeals) is passed without considering the evidences furnished by the appellant and consequently the said order is in violation of principles of natural justice and bad in law on the facts and circumstances of the case.
5. The learned Commissioner of Income Tax (Appeals) erred in holding that the appellant has not furnished the details in response to eight notices, when in fact only four notices were issued and the appellant has in fact furnished the details and consequently the order passed by the learned Commissioner of Income Tax (Appeals) is perverse on the facts and circumstances of the case.
6. The learned Commissioner of Income Tax (Appeals) erred in law and facts in confirming the addition of Rs. 32,87,500/- being the cash deposits without considering the cash book furnished explaining the source for cash deposits on the facts and circumstances of the case.
7. The learned Commissioner of Income Tax (Appeals) is not justified in holding that the appellant has not furnished evidences like vouchers, bills, the ledgers etc. without appreciating that the appellant has declared income at 36.70% under presumptive basis under section 44AD of the Act and consequently there is no statutory requirement to maintain books of accounts on the facts and circumstances of the case.
8. The learned Commissioner of Income Tax (Appeals) is not justified in law in upholding the charging of interest under section 234B and 234D of the Act in respect of assessment made under section 147 r.w.s. 144B of the Act on the facts and circumstances of the case.
9. The learned Commissioner of Income Tax (Appeals) is not justified in law in upholding the charging the interest under section 234B and 234D of the Act and further the calculation of interest under section 234B and 234D of the Act is not in accordance with law since the rate, method of calculation, quantum is not discernible from the order of assessment on the facts and circumstance of the case.
10. The appellant craves leave to add, alter, modify, delete or substitute any or all of the grounds and to file a paper book at the time of hearing the appeal.
11. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.
3. Briefly stated, the Assessee is an individual who filed his return of income on 10 January 2021 declaring total taxable income of ₹10,60,060. He disclosed his business as hire purchase financing, reported gross turnover of ₹30,38,590, and offered income of ₹11,15,095 under the presumptive taxation scheme. The learned Assessing Officer noted information that, during the relevant year, the Assessee had purchased a vehicle from Jubilant Autoworks Pvt. Ltd. for ₹15,88,000, but the source of the purchase was not established. Accordingly, notice under section 148 of the Act was issued on 29 March 2024. In response, the Assessee filed his return on 30 April 2024 reiterating the same income and later, on 30 July 2024, submitted the car purchase invoice and ICICI Bank car loan statement. Since no further reply was filed, notice under section 133(6) of the Act was issued to Jubilant Autoworks Pvt. Ltd. seeking details of the car purchase and the ICICI Bank loan.
4. During reassessment proceedings, the learned Assessing Officer further observed from the Form 26AS statement that the Assessee had deposited cash of ₹32,87,500 in savings bank account No. 6857 with ICICI Bank. The Assessee was asked to explain the source of these cash deposits but did not respond or furnish supporting evidence. Consequently, the learned Assessing Officer made an addition of ₹32,87,500 under section 69A of the Act.
5. However, the Assessing Officer accepted the Assessee’s explanation regarding the purchase of the car. Accordingly, reassessment order under section 147 read with section 144B of the Act was passed on 6 January 2025 determining total income at ₹43,47,560, with the sole addition relating to cash deposits of ₹32,87,500.
6. Aggrieved by the reassessment order, the Assessee preferred an appeal before the learned CIT(A). In the written submissions, the Assessee contended that the addition was made on an issue that did not form the basis for reopening the assessment and, therefore, could not be sustained. Reliance was placed on the decisions of the Hon’ble Bombay High Court in CIT v. Jet Airways (I) Ltd. [331 ITR 236] and the Hon’ble Delhi High Court in Ranbaxy Laboratories Ltd. v. CIT [336 ITR 136]. The Assessee submitted that the addition related to an entirely new issue, unconnected with the reasons recorded for reopening, and hence could not have been made in reassessment proceedings.
7. On merits, the learned CIT(A) noted that the Assessee had not produced evidence despite eight notices. Although the Assessee claimed that he was prevented by sufficient cause from filing additional evidence relating to the cash deposits before the learned Assessing Officer and filed an affidavit seeking admission of such evidence, no additional evidence was actually furnished. The learned CIT(A), therefore, decided the issue on merits against the Assessee.
8. On the jurisdictional contention, the learned CIT(A) held that the Assessing Officer may assess or reassess income in respect of any issue that has escaped assessment and comes to his notice subsequently. Accordingly, the Assessee’s appeal was dismissed.
9. Aggrieved by the order of the learned CIT(A), the Assessee is in appeal before us. The learned authorised representative, Shri Mounesh Sarkar, Advocate, filed a paper book and submitted that the learned CIT(A) ignored the cash book furnished by the Assessee explaining the source of the cash deposits. He further submitted that the Assessee had declared income at 36.70% on a presumptive basis under section 44AD of the Act and, therefore, was not statutorily required to maintain books of account. According to him, no unaccounted money was deposited in the Assessee’s bank account. The Assessee was carrying on the business of hire purchase, and the instalments received from customers were deposited in the bank account and thereafter paid to the financiers. The learned authorised representative contended that the reassessment order is void ab initio, having been passed without jurisdiction and contrary to settled principles of law. He submitted that the addition relates to an issue that neither arose from, nor had any nexus with, the information forming the basis for reopening the assessment under section 148 of the Act and, therefore, exceeded the jurisdiction of the learned Assessing Officer. He accordingly prayed that the reassessment order be quashed and that the addition of ₹32,87,500 made under section 69A of the Act be deleted in full, being unsupported by cogent evidence, lacking factual basis, and contrary to the statutory framework governing reassessment.
10. The learned Departmental Representative strongly supported the orders of the lower authorities. He submitted that the Assessee failed to furnish any explanation or evidence regarding the source of the cash deposits in the bank account. Therefore, according to him, there was no infirmity in the orders of the lower authorities in making and sustaining the addition of ₹32,87,500, being the cash deposited in the Assessee’s bank account. He further submitted that the Assessee had not disclosed before the lower authorities the source from which the cash was received or the basis on which any amount was paid to another party.
11. We have carefully considered the rival submissions and perused the orders of the lower authorities. In the present case, the assessment was reopened to verify the Assessee’s purchase of a motor vehicle, the source of funds for such purchase, and the interest income earned by the Assessee.
12. Ground No. 1, 2 are general in nature, no arguments were advanced. Ground No. 9 is consequential in nature, ground No. 10 and 11 are also general. All these grounds of appeal are dismissed
13. The reasons recorded show that the learned Assessing Officer received information under the e-Verification Scheme, 2021 framed under section 135A of the Act. The information indicated that, for assessment year 2020-21, the Assessee had purchased a motor vehicle for ₹15,88,000, reported under section 206CL, and had interest income of ₹6,28,340, reported under section 194A, aggregating to ₹22,16,340. In response to notices issued under section 133(6) on 29 November 2022, 21 December 2022, and 23 January 2023, the Assessee replied on 24 March 2023 that the interest income had been declared under the head “Profits and gains of business or profession,” as he was engaged in hire purchase financing and had offered income of ₹11,15,095 on gross receipts of ₹30,38,590 under section 44 AD. Although the break-up of interest income was not furnished, the Assessing Officer noted that TDS had been claimed on the interest income and, therefore, prima facie accepted the explanation on that issue. However, regarding the motor vehicle purchased from Jubilant Auto works Pvt. Ltd., the Assessee merely stated that TCS had been claimed in the return and did not furnish the purchase invoice, ledger account, bank statement, or any other evidence explaining the source of ₹15,88,000. The Assessing Officer, therefore, held that the source of investment in the motor vehicle remained unexplained and that income chargeable to tax to that extent had escaped assessment. On this basis, and in view of clause (d) of the first proviso to section 148A read with clause (i) of Explanation 1 to section 148 of the Act, the Assessing Officer concluded that it was a fit case for issue of notice under section 148.
14. It is undisputed that the learned Assessing Officer did not make any addition in respect of the motor car purchase. However, during reassessment proceedings, he noticed cash deposits in the Assessee’s bank account and made an addition on that basis. The Assessee explained that the deposits did not represent unaccounted income, as he was engaged in the business of hire purchase financing. According to the Assessee, the amounts deposited in the bank account represented loan repayments received from customers, which were subsequently paid to the persons from whom funds had been borrowed.
15. Thus, although the assessment was reopened in relation to the motor car purchase, no addition was made on that issue. The addition was instead made on a different ground, namely cash deposits in the bank account. The question before us is whether the Act permits the Assessing Officer to make such an addition in reassessment proceedings when no addition is ultimately made on the issue for which the assessment was reopened.
16. We find that this issue is squarely covered against the Assessee by the decision of the Hon’ble jurisdictional Karnataka High Court in N. Govindaraju v. Income-tax Officer, Ward-8(2), Bangalore [2015] 60 taxmann.com 333 (Karnataka) / [2015] 233 Taxman 376 (Karnataka) / [2015] 377 ITR 243 (Karnataka) / [2015] 280 CTR 316 (Karnataka), dated 1 July 2015. In that decision, the Hon’ble High Court distinguished CIT v. Jet Airways (I) Ltd. [2011] 331 ITR 236 (Bom.), Ranbaxy Laboratories Ltd. v. CIT [2011] 336 ITR 136 (Delhi), CIT v. Adhunik Niryat Ispat Ltd. [2011] 63 DTR 212 (Delhi), and CIT v. Mohmed Juned Dadani [2014] 355 ITR 172 (Guj.). Respectfully following the binding jurisdictional precedent, we hold that the learned Assessing Officer committed no error in making the addition for cash deposits in the Assessee’s bank account in the reassessment proceedings, even though the assessment was reopened to verify the motor car purchase and the source of funds for that purchase. Accordingly ground No. 3 – 5 of the appeal of the assessee are dismissed.
17. On the merits of the addition, we find that, during the assessment proceedings, the Assessee submitted a complete cash book before the learned Assessing Officer to explain that the cash deposits represented amounts received from various customers in the ordinary course of his hire purchase financing business. However, the learned Assessing Officer did not examine this material.
18. It is also relevant to note that the learned CIT(A) did not consider the Assessee’s explanation or the details furnished in the form of the cash book. Therefore, the order of the learned CIT(A) cannot be sustained on this issue. The learned CIT(A) merely observed that the Assessee had filed an affidavit seeking permission to produce additional evidence, but did not examine the evidence already placed on record.
19. As regards the addition made in the hands of the Assessee, he has stated that he carries on the business of hire purchase financing and that cash received from various borrowers was deposited in his bank account and thereafter paid to the persons from whom funds had been borrowed. The Assessee has also offered income by applying the provisions of section 44AD of the Act and has declared income at 36% of gross receipts. However, the basis for offering income at that rate is not clear, particularly if the Assessee claims to have acted merely as an agent. It is also possible that the Assessee was financing the parties and earning interest thereon. These facts are not available before us, and they are not evident from the paper book filed by the Assessee. The lower authorities also did not investigate or examine these aspects.
20. In view of the above, we restore the entire issue to the file of the learned Assessing Officer. The Assessee shall substantiate before the learned Assessing Officer the nature of his business, the names of the borrowers, and the source from which the cash was received. It is for the Assessee to explain the amounts received and the sources thereof. The learned Assessing Officer shall examine the same and decide the issue afresh after providing the Assessee an opportunity of being heard. Accordingly, Ground Nos. 6 and 7 of the Assessee’s appeal are restored to the file of the learned Assessing Officer.
21. In the result, the appeal filed by the Assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 21st September, 2026.
