Hyderabad ITAT Remands Section 69A Cash Deficit Addition for Verification

Venu Gopal Reddy Challa Vs DCIT (ITAT Hyderabad)

Peak Cash Deficit Must Be Verified: Conflicting Figures and Possible FD Duplication Warrant Fresh Examination

The legal principle

The Hyderabad Tribunal held that an addition based on a peak negative cash balance required fresh examination where the amount recorded by the CIT(A) did not match the assessee’s cash statement and a substantial fixed-deposit entry appeared to have been inadvertently included.

The Tribunal restored the ₹20,89,050 addition under section 69A to the Assessing Officer for verification of the cash statement, fixed-deposit records and the alleged cash received from the assessee’s wife.

It also restored the consequential penalty proceedings. Neither the addition nor the penalty was finally deleted on merits; both appeals were allowed for statistical purposes.

Background of the dispute

The assessee had not filed a return for Assessment Year 2013–14.

The Department received information regarding cash deposits of ₹1,87,71,400 in a savings bank account and salary receipts of ₹9,04,243. The Assessing Officer initiated reassessment proceedings and issued a notice under section 148 on 30 March 2021.

The assessee neither filed a return in response nor complied with the assessment notices. Consequently, the Assessing Officer passed an ex parte assessment order on 26 March 2022, under section 147 read with sections 144 and 144B.

The entire cash deposits were treated as unexplained money under section 69A. Together with the salary addition, total income was assessed at ₹1,96,75,643.

CIT(A) restricted the deposit addition to a cash deficit

Before the CIT(A), the assessee furnished submissions and supporting material, which were examined through remand proceedings.

The CIT(A) substantially reduced the section 69A addition from the entire deposits of ₹1.87 crore to ₹20,89,050, describing this as the peak negative cash balance on 4 October 2012.

The salary addition of ₹9,04,243 was sustained.

Before the Tribunal, the controversy was confined to the surviving ₹20,89,050 cash-deficit addition. The Tribunal’s remand therefore did not amount to reopening every component of the assessment.

Cash statement showed a different figure

The assessee pointed out that his daily cash statement reflected a negative balance of only ₹3,02,965 on 4 October 2012, rather than ₹20,89,050.

The Departmental Representative also acknowledged the discrepancy between the CIT(A)’s recorded figure and the amount appearing in the cash statement, while submitting that factual verification was necessary.

The Tribunal independently examined the statement and confirmed the mismatch.

This was material because the addition rested on the identified peak deficit. The figure adopted for taxation had to be reconciled with the very statement used to support it.

Possible duplication of a ₹26 lakh FD entry

The assessee further explained that an entry concerning the maturity of a ₹26 lakh fixed deposit, together with withdrawal of the same amount on 18 January 2013, had been inadvertently taken again in the cash statement.

According to counsel, the erroneous treatment produced a negative balance of ₹22,27,152 on that date. After correction, the peak negative balance would allegedly be only ₹3,02,965.

The Tribunal found that the entry appeared to have been included inadvertently in the manner suggested. However, it did not accept the corrected computation conclusively.

It held that the alleged duplication and its effect on the running balance and peak deficit had to be verified against the bank and fixed-deposit records.

Family-source explanations required supporting evidence

Alternatively, the assessee claimed that some deposits came from cash received from his wife and father-in-law.

The Tribunal rejected the father-in-law explanation on the material then available. No confirmation had been furnished, and the circumstances in which he allegedly provided cash for the assessee’s deposits had not been explained.

The wife’s alleged contribution required further verification. Her bank statement showed withdrawals but also deposits. It did not establish how much cash remained available after those transactions and household expenditure.

The Tribunal therefore required her cash-flow statement, rather than accepting bank withdrawals alone as proof that the money was available and transferred to the assessee.

Scope of the remand

The Assessing Officer was directed to verify the cash-balance statement, the fixed-deposit entry dated 18 January 2013 and the claim concerning cash received from the wife.

The assessee was required to furnish bank statements, fixed-deposit records, a reconciled cash statement, his wife’s cash-flow statement and supporting confirmations or evidence.

The Tribunal expressly stated that it expressed no final opinion on the amount, if any, assessable under section 69A.

The connected penalty matter was also restored for fresh adjudication in accordance with law, depending on the outcome of the quantum proceedings.

Author’s comments

A peak calculation is only as reliable as its underlying entries. Duplication of a substantial transaction or adoption of an incorrect balance can distort the result, even where the daily statement appears arithmetically detailed.

Equally, an FD maturity credited to a bank account and its subsequent cash withdrawal must be recorded according to their actual movement. The same funds cannot be counted twice.

The family-source discussion is practically useful. A relative’s withdrawal establishes withdrawal; it does not automatically establish available cash or its transfer to the assessee. A dated cash flow and transaction-specific confirmation provide the necessary link.

The order grants an opportunity to establish the correct position. It does not endorse either the CIT(A)’s ₹20.89 lakh figure or the assessee’s proposed ₹3.03 lakh deficit.

FULL TEXT OF THE ORDER OF ITAT HYDERABAD

These two appeals are filed by Shri Venu Gopal Reddy Challa (“the assessee”), feeling aggrieved by the separate orders passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) Delhi (“Ld. CIT(A)”) both dated 15.10.2025 for the A.Y. 2013­14. Since the issues raised by the assessee in these two appeals are inter-related, for the sake of convenience, these were heard together and are being disposed of by this common and consolidated order.

ITA No. 524/HYD/2026:

2. The assessee has raised the following grounds of appeal:

1. The learned CIT A erred in law and on facts in sustaining the addition of Rs.20,89,050/- under section 69A based on the AO remand report, without appreciating the fact that deposits were explained by prior withdrawals and family savings including spouse’s withdrawals.

2. That the appellant has a salary income of Rs.9,04,243 from NTT Data India Enterprises Application services Pvt Ltd and TDS deducted by employer was 49,553/- there is no revenue loss to the department as entire tax was deducted from the salary.

3. The learned CIT A erred in law and on facts in finding out the peak negative cash balance of Rs.20,89,050/- on 04.10.2012 without considering the prior year cash withdrawals and family savings, which were done for the specific purpose of building a residential house, and also without giving the benefit of appellants spouse income who is also a working Govt Teacher, and appellants father in law agricultural income and his cash gifts, appellant and spouse constitute a single family unit and cash withdrawals were used for common family purposes.

4. The learned CIT(A) arbitrarily treated withdrawals below 20,000 as personal drawings and not treated them as part of prior cash withdrawals, but in actuality she used to incur the house hold expenses of the family and the addition made is based on presumptions and conjectures.

5. That the appellant is in urge before the Hon ble Bench to appreciate the appellants cash flow working inclusive of preceding year cash withdrawals, wherein the peak negative balance would be 2,63,065 and if family savings and spouse and father in law cash withdrawals is considered then it could be zero and the additions made by the CIT A is not tenable.

6. That the appellant is in urge before the Hon ble Bench, there is a 69 days of delay in filing the appeal before the bench the reason is appellant mother in law who is dependent on the appellant have undergone the Knee replacement and appellant is taking care of her mother in law and could not concentrate on day to day activities, based on the humanitarian grounds requesting the Hon ble Bench to allow the appeal and kindly condone the delay.

7. Reopening of case u sec 147, having been issued beyond the permissible time limit prescribed under Section 149, the same is barred by limitation and void ab initio. The reopening is therefore without jurisdiction, invalid in law, and liable to be quashed.

8. That the AO erred in treating the has a salary income of Rs.9,04,243 from NTT Data India Enterprises Application services Pvt Ltd and TDS deducted by employer was 49,553/- there is no revenue loss to the department as entire tax was deducted from the salary and the addition of the same is not valid.

9. That the appellant is in urge before the Hon ble Bench that the act of CIT Appeals in up helding the penalty order under section 271(1)(c) on 15-10­2025 with a penalty of 7,00,274 Rs. where there is no concealment of income and no unexplained deposits based on the above facts and such penalty under section 271(1)(c) is not a valid addition.

10. The appellant craves leave to amend or alter grounds at the time of hearing.

PRAYER

The appellant respectfully prays that the Hon’ble Tribunal may kindly delete the addition of 20,89,050/- as unexplained deposits And salary income and penalty under section 271(1)(c) for Rs. 7,00,274 and grant such other reliefs as deemed fit in the interest of justice.

3. The brief facts of the case are that the assessee is an individual, had not filed his return of income under section 139 of the Income Tax Act, 1961 (“the Act”) for the A.Y. 2013­14. On the basis of information regarding cash deposits of Rs. 1,87,71,400/- in his savings bank account and salary receipts of Rs. 9,04,243/-, the Assessing Officer (“AO”) initiated proceedings under section 147 of the Act and issued notice under section 148 of the Act dated 30.03.2021. The assessee neither filed any return in response to that notice nor responded to the any of the notices issued by the AO during the assessment proceedings. The AO, therefore, passed an ex parte assessment order dated 26.03.2022 under section 147 read with sections 144 and 144B of the Act by treating the entire cash deposits of Rs. 1,87,71,400/- as unexplained money under section 69A of the Act and making addition on account of salary income of Rs. 9,04,243/-, determining total income of the assessee at Rs. 1,96,75,643/-.

4. Aggrieved with the order of the AO, the assessee filed appeal before the Ld. CIT (A). The Ld. CIT(A), after considering the assessee’s submissions and the AO’s remand report, restricted the addition under section 69A of the Act to Rs. 20,89,050/- on the basis of a peak negative cash balance stated to arise on 04.10.2012. Further, the Ld. CIT(A) sustained the addition of Rs. 9,04,243/- on account of salary income. Accordingly, the Ld. CIT (A) partly allowed the appeal of the assessee.

5. Aggrieved by the order of the Ld. CIT (A), the assessee is in appeal before us. At the outset, the Learned Authorized Representative (“Ld. AR”) submitted that the solitary issue arises out of the grounds of appeal of the assessee is the addition of Rs.20,89,050/- under section 69A of the Act sustained by the Ld. CIT (A). In this regard, the Ld. AR submitted that the daily cash balance statement placed at page nos. 24 to 27 of the paper book shows an entry relating to maturity of a fixed deposit of Rs. 26,00,000/- and a cash withdrawal of the same amount on 18.01.2013. According to him, the maturity amount have been inadvertently taken again in the cash statement, resulting in a negative balance of Rs. 22,27,152/- on that date. He submitted that, upon correction, the peak negative cash balance would be only Rs. 3,02,965/- on 04.10.2012. In the alternative, the Ld. AR submitted that certain cash deposits were made out of cash received from the assessee’s wife and father-in-law. He referred to their bank statements and other documents of the assessee’s wife and father-in-law placed at page nos. 30 to 39 of the paper book and contended that, upon considering those sources, no addition would survive. Accordingly, the Ld. AR prayed before the Bench to delete the addition of Rs.20,89,050/-.

6. Per contra, the Learned Departmental Representative (“Ld. DR”) referred to para no. 6.3.8 of the order of the Ld. CIT(A) and submitted that, although the Ld. CIT(A) recorded a peak negative cash balance of Rs. 20,89,050/- on 04.10.2012, the assessee’s cash statement at page nos. 24 to 27 shows a negative balance of Rs. 3,02,965/-on that date. He submitted that this discrepancy requires factual verification. As regards the alleged cash received from the father-in-law, the Ld. DR pointed out that the explanation before the Ld. CIT(A) concerned cheques received from friends and relatives, and that no confirmation from the father-in-law has been furnished in support of the present claim. As regards the assessee’s wife, the Ld. DR submitted that her bank statement shows withdrawals but also cash deposits, including deposits of Rs. 12,000/- on six occasions and Rs. 6,000/- on two occasions. According to him, the bank statement alone does not establish that cash was available with her for the assessee’s deposits, particularly after household expenses. Accordingly, the Ld. DR prayed before the Bench to uphold the order of the Ld. CIT (A).

7. We have heard the rival submissions and perused the material available on record. We have gone through para nos. 6.3.8 and 6.3.9 of the order of the Ld. CIT(A), which is to the following effect:

6.3.8. The assessee has explained that the cash deposits were made out of earlier withdrawals from the same bank accounts, earnings from salary, and certain cheque deposits received from friends and relatives, stating that the motive behind such deposits and withdrawals was a proposed property purchase that did not materialize. However, as recorded in the remand report, the assessee has not produced any supporting documentary evidence for the alleged property transaction or for the utilization of earlier cash withdrawals. The Assessing Officer has also noted that small withdrawals of less than Rs. 20,000/- were made regularly and considered as personal drawings. On analysis of the bank statements, it is seen that even if the explanation regarding redeposit of earlier withdrawals is accepted, the assessee has a peak negative cash balance of Rs.20,89,050/- on 04.10.2012, representing unexplained cash deposits for which no satisfactory explanation has been provided.

6.3.9. Considering the facts of the case, the reconciliation done in the remand proceedings, and the reasonable explanation of the assessee to the extent of earlier withdrawals, it is held that the addition of Rs.1,87,71,400/- made in the assessment order was excessive and not fully supported by the facts on record. Accordingly, the addition is restricted to the extent of Rs.20,89,050/-, being the peak negative cash balance representing unexplained cash deposits, and the balance amount is directed to be deleted.

8. On a perusal of the above, we find that the addition of Rs. 20,89,050/- has been sustained by the Ld. CIT (A) on the basis of a peak negative cash balance stated to exist on 04.10.2012. We have also examined the cash balance statement submitted by the assessee placed at page nos. 24 to 27 of the paper book, which is to the following effect:

9. On perusal of the above, we find that the above statement shows a negative cash balance of Rs. 3,02,965/- on 04.10.2012. There is, therefore, a discrepancy between the figure recorded by the Ld. CIT(A) and the figure appearing in the assessee’s statement. It requires factual verification. We further find that the entry concerning the maturity of a fixed deposit of Rs. 26,00,000/- on 18.01.2013 appears to have been taken inadvertently in the cash statement in the manner pointed out by the Ld. AR. Whether that entry has been duplicated, and its effect on the running cash balance and the peak negative balance, must also be verified against the relevant bank and fixed deposit records.

10. Further, the assessee’s explanation regarding cash allegedly received from his father-in-law cannot be accepted on the material presently available. No confirmation from the father-in-law has been filed, and the circumstances in which he would deposit or provide cash for deposit in the assessee’s bank account have not been explained. Accordingly, the said claim is rejected. Further, the claim concerning cash received from the assessee’s wife also requires verification. Her bank statement, by itself, does not establish how much cash remained available with her after other deposits, withdrawals and household expenditure. The assessee has not furnished her cash flow statement to substantiate the amount allegedly provided to him.

11. In these circumstances, we set aside the addition of Rs. 20,89,050/- sustained under section 69A of the Act and restore this issue to the file of the AO for fresh examination. The AO shall verify the cash balance statement, the entry relating to the fixed deposit on 18.01.2013, and the assessee’s claims concerning cash received from his wife. The assessee is directed to furnish the relevant bank statement and fixed deposit records, a reconciled cash statement, his wife’s cash flow statement, and such confirmation and supporting evidence as he relies upon. The AO shall afford the assessee a reasonable opportunity of being heard and decide the issue afresh in accordance with law. We express no final opinion on the amount, if any, liable to be added under section 69A of the Act.

12. In the result, the appeal of the assessee is allowed for statistical purposes.

ITA No.525/Hyd/2026:

13. The present appeal arises out of the penalty proceedings consequential to the quantum assessment, which is the subject matter of appeal in ITA No. 524/Hyd/2026. We have set aside the quantum appeal in ITA No. 524/Hyd/2026 to the file of the Assessing Officer for fresh examination. Since the present penalty proceedings are consequential to and dependent upon the outcome of the quantum proceedings, we deem it appropriate to set aside the impugned order of the Ld. CIT(A) and restore the penalty matter also to the file of the AO for fresh adjudication in accordance with law, depending upon the outcome of the quantum proceedings.

14. In the result, the appeal of the assessee in ITA No. 525/Hyd/2026 is allowed for statistical purposes.

15. To sum up, both the appeals of the assessee filed by the assessee are allowed for statistical purposes.

Order pronounced in the Open Court on ^9th October,2026.