Jitendrakumar Premjibhai Ladola Vs ITO (ITAT Rajkot)
ITAT restricts demonetisation cash deposit addition to 10% profit estimate; directs normal tax instead of Section 115BBE
Decision and scope of relief
The Income Tax Appellate Tribunal, Rajkot, restricted an addition of ₹12,03,500 for unexplained demonetisation-period cash deposits to ₹1,20,350, adopting an estimated net profit rate of 10%. It directed the Assessing Officer to apply normal income-tax rates instead of section 115BBE.
The Tribunal found that the assessee’s documents justified partial relief, although inconsistencies and the absence of audited accounts prevented complete deletion. Importantly, it expressly directed that the adjudication should not be treated as a precedent for any preceding or succeeding assessment year. The relief was therefore framed around the particular facts and evidence.
Background of the assessment
The assessee, an individual, filed his return on 11.09.2017, declaring total income of ₹2,54,880. The case was selected for limited scrutiny through CASS, and the assessee furnished electronic submissions in response to assessment notices.
The AO examined cash deposits aggregating ₹17,33,000 in various bank accounts during the relevant period. The assessee explained that these deposits came from an opening cash balance of ₹26,73,348 as on 01.04.2016, reflected in his books.
He attributed the balance to cash carried forward and withdrawals from bank accounts during the preceding financial year, including withdrawals from borrowed funds. He therefore contended that the deposits were explained and no addition was warranted.
AO estimated a lower opening cash balance
The AO questioned whether the substantial cash claimed by the assessee had actually remained available. He referred to loans obtained during financial year 2015-16, including ₹12 lakh from Vilasben Kansagara and ₹10.80 lakh from Vijayaben Patel, followed by cash withdrawals.
According to the AO, obtaining further loans indicated a need for funds and suggested that earlier cash resources had already been utilised. Nevertheless, he accepted ₹10.80 lakh as opening cash on 01.04.2016, giving the benefit of the last loan having been withdrawn shortly before year-end.
After considering intervening deposits, expenses and withdrawals, the AO treated ₹12,03,500 as unexplained money under section 69A. The assessee also challenged consequential taxation under section 115BBE.
CIT(A) relied on financial conduct
The CIT(A) confirmed the addition, finding the explanation inconsistent with ordinary financial conduct. Despite claiming a large unutilised cash balance, the assessee continued making small bank withdrawals.
The appellate authority also noted that the return for assessment year 2016-17 was filed on 12.01.2017, after demonetisation, because the books were reportedly not ready. It considered this circumstance relevant to the reliability of the opening cash figure.
The CIT(A) further reasoned that fresh borrowing while substantial cash allegedly remained idle weakened the explanation. It found inadequate contemporaneous corroboration and upheld the AO’s estimate as consistent with the surrounding circumstances and human probability.
Assessee relied on documentary evidence
Before the Tribunal, the assessee argued that he had supplied extensive supporting material, including returns, balance sheets, bank records, cash books and an earlier assessment order.
His representative submitted that the AO had not properly credited the opening cash balance and sought deletion of the entire addition. The evidence, according to the assessee, explained the funds available for redeposit.
The Revenue supported the assessment and the CIT(A)’s order. It maintained that the AO had already granted an appropriate benefit for opening cash and that no further relief was justified.
Tribunal granted partial relief
The Tribunal acknowledged that the assessee had furnished numerous documents, including bank statements, passbooks, cash books and a summary of cash transactions. These materials warranted consideration rather than outright rejection of his explanation.
However, it also observed that some documents were self-serving and the books were not audited. Consequently, the Tribunal declined to grant complete relief.
It instead considered taxation of a profit element appropriate. Referring to CIT Vs Williamson Financial Services [2007] 165 Taxman 638 (SC), it reiterated the distinction between gross receipts and taxable income. The cited principle was that the income-tax levy operates on income computed under the Act, rather than gross receipts as such.
Ten per cent estimate and normal taxation
Considering the amount involved and inconsistencies in the evidence, the Tribunal adopted an ad hoc net profit estimate of 10% of ₹12,03,500.
This resulted in a sustained addition of ₹1,20,350, reducing the disputed addition by ₹10,83,150. The Tribunal considered that estimate sufficient to address the evidentiary shortcomings and protect the Revenue’s interest.
It specifically directed that the sustained amount be taxed at normal rates, not under section 115BBE. The assessee’s appeal was accordingly partly allowed.
Express limitation on the ruling
The Tribunal did not accept the entire claimed opening cash balance or find every supporting document conclusive. Its relief rested on an estimated profit addition despite the remaining inconsistencies.
Crucially, the order expressly excludes precedential treatment for other assessment years. Accordingly, it does not establish a general rule that unexplained cash deposits must always be restricted to 10% or taxed at normal rates.
Cases Discussed
- CIT Vs Williamson Financial Services [2007] 165 Taxman 638 (SC) — Relied upon for the distinction between gross receipts and income chargeable to tax.
- CIT v. Shivakami Co. (P) Ltd. — Cited before CIT(A); distinguished in the appellate order reproduced by the Tribunal.
- Umacharan Shaw & Bros v. CIT — Cited before CIT(A); distinguished in the appellate order reproduced by the Tribunal.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
Captioned appeal filed by the assessee, pertaining to assessment year (AY) 2017-18, is directed against the order passed under section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 15.11.2025 by the National Faceless Appeal Centre (NFAC), Delhi/Commissioner of Income Tax (Appeals) [in short ‘Ld.CIT(A)’] which in turn arises out of an assessment order passed by the Assessing Officer (in short ‘AO’) u/s. 143(3) of the Act, dated 18.12.2019.
2. Grounds of appeal raised by the assessee are as follows:
1. The learned ADDL/JCIT (A)-3 Mumbai, erred in confirming action of the ITO WD 1(1)(2), Rajkot in making addition of Rs.12,03,500/- by treating cash deposits made in bank account during demonetization period as unexplained money u/s
2. Alternatively, without prejudice to ground no. 1, the learned ADDL/JCIT (A)-3 Mumbai, erred in upholding the action of the assessing officer by failing to appreciate that the A.O.’s calculation of estimating opening cash on hand and treating Rs.12,03,500/- as unexplained money was without any basis.
3. The assessee craves leave to add, amend, alter and withdraw any ground of appeal anytime up to the hearing of this appeal.
3. Succinctly, the factual panorama of the case is that assessee before me is an Individual. The assessee e-filed return of income on 11.09.2017, declaring total income of Rs.2,54,880/- The return was processed u/s. 143(1) of the Act and the case was selected for scrutiny through CASS under Limited Scrutiny. Accordingly, notice u/s. 143(2) of the Act was issued on 14.08.2018 and the same was duly served upon the assessee. Notice/s u/s 142(1) of the Act issued on 13.02.2019 and served upon the assessee, along with questionnaire for further proceedings of the case and submission of details. In response to the above notices, the assessee filed e-submission/s as called for during the course of assessment proceedings. The Assessing Officer noted that the assessee deposited cash aggregating to Rs. 17,33,000/- in various bank accounts during the relevant period. In the course of assessment, the assessee contended that the source of such deposits was out of opening cash in hand of 26,73,348/- as on 01.04.2016, as reflected in his books of account. The assessee explained that the said cash balance consisted of following:
(i) Rs. 14,96,764/- carried forward from A.Y. 2016-17, and
(ii) further amounts withdrawn from the bank accounts during F.Y. 2015-16 out of loans aggregating 20,80,000/-obtained from two persons, viz: Smt. Vilasben Kansagara and Smt. Vijayaben Patel. Therefore, assessee submitted before the assessing officer that no addition should
4. However, assessing officer rejected the above contention of the assessee and observed that as per the stand taken by the assessee, assessee had cash balance of Rs.14,96,764/-, as on 01.04.2015, raised his cash balance during the F.Y. 2015-16 to Rs.26,73,348/- by way of bank withdrawals and two loans obtained on 01.07.2015 from one Ms. Vilasben Kansagara Rs. 12,00,000/- and on 21.03.2016 from Ms. Vijayaben Patel Rs.10,80,000/-, which were also subsequent cash withdrawals from bank. However, at the time of obtaining the second loan of Rs.10,80,000/-, the assessee was in need of funds, and therefore obtained this second loan. It is only fair in the circumstances of the case that the assessee utilised this fund and therefore had very less cash balance left with him on 31.03.2016. Still giving the assessee the benefit of the fact that this loan and its subsequent withdrawal from the bank account was only 10 days before 31.03.2016, it can be accepted that the said fund may still be with him, although the more likely possibility is that even this amount is utilised by the assessee, since he has obtained this loan on 21.03.2016 and immediately withdrawn the same. However, taking a holistic view of the facts and circumstances of the case, the assessing officer assess the cash-in-hand balance as on 01.04.2016 at Rs.10,80,000/-. The assessee has made cash deposit transactions into his bank account & other expenses to the tune of Rs.6,58,000/- and withdrawn cash of Rs.1,07,500/- from bank between 01.04.2016 and 09.11.2016. Therefore, after giving the benefit of peak credit & assessed cash in hand, the amount of cash deposits of Rs.12,03,500/- was treated as unexplained money within the meaning of section 69A of the Income Tax Act, 1961 and the same was added to the total income of the assessee.
5. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has confirmed the action of the
“5.3. However, on close scrutiny of the factual matrix and material on record, I find the explanation to be unconvincing and inconsistent with the normal course of human conduct and financial prudence. Despite showing a large cash balance of 26.73 lakh as on 31.03.2016, the assessee continued to make small cash withdrawals of 500, 5,000, 14,000 etc. from bank accounts during the subsequent year. Such conduct is wholly inconsistent with the existence of an unutilized cash balance of 26 lakh. This contradiction clearly indicates that the so-called opening cash balance was merely a paper entry created to explain the cash deposits made during demonetization.
5.4. Further, the assessee has himself admitted that the return for A.Y. 2016-17 was filed belatedly on 12.01.2017, well after the demonetization period on the ground that the books were not ready. This admission lends credence to the finding of the Assessing Officer that the accounts were prepared after the event and there existed a clear possibility of manipulation in recording of cash balance as on 31.03.2016. The belated filing of the return, coupled with absence of any contemporaneous evidence to substantiate the existence of such large cash on hand, renders the explanation of the assessee unreliable.
5.5. It is further seen that the assessee had borrowed substantial amounts of 12,00,000/- and 10,80,000/- during F.Y. 2015-16 despite claiming to have already held large cash balances. Such borrowing itself establishes that the assessee was in need of funds and that his so claimed cash resources were not available. A prudent businessman would not borrow fresh funds and incur interest burden while keeping huge idle cash. This aspect alone is sufficient to rebut the assessee’s claim that the entire cash continued to remain unutilized up to 31.03.2016.
5.6. The Assessing Officer, after considering these aspects in detail, reasonably estimated the genuine cash in hand as on 01.04.2016 at 10,80,000/-, being the amount of the last loan withdrawn shortly before year-end, and after allowing credit for withdrawals and expenses, treated 12,03,500/- as unexplained money under section 69A. I find this approach to be fair, logical, and fully consistent with the surrounding circumstances and human probability. The assessee has not produced any contemporaneous evidence such as daily cash book entries supported by primary records, nor any independent confirmation regarding retention of cash. Mere production of self-prepared books of account without corroborative evidence cannot be treated as conclusive proof of availability of cash.
5.7. The reliance placed by the assessee on judicial precedents like CIT v. Shivakami Co. (P) Ltd. and Umacharan Shaw & Bros v. CIT is misplaced in view of the clear factual discrepancies and the implausible cash flow pattern in this case. The decisions cited lay down general propositions against addition on pure conjecture, whereas in the present case the addition is supported by cogent reasoning and demonstrable inconsistencies in the assessee’s own explanation.
5.8. Likewise, the reliance on CBDT Instruction No. 3/2017 does not advance the income, withdrawals, and closing cash balance, which has been duly done, yet, after considering the assessee’s past income and withdrawals, the AO rightly held that the cash balance of 26.73 lakh was not realistic vis-à-vis the declared income levels.
5.9. In view of the above detailed discussion, I am of the considered opinion that the assessee has failed to satisfactorily explain the nature and source of the cash deposits. The explanation offered is neither plausible nor supported by credible evidence. The findings of the Assessing Officer are based on sound reasoning and deserve to be upheld.
5.10. Accordingly, the addition of 12,03,500/- made under section 69A of the Income-tax Act, 1961, is hereby confirmed. The ground of appeal stands dismissed.
6. In the result, the present appeal of the assessee is hereby dismissed”.
6. Further, aggrieved, the assessee is in further appeal before the Tribunal.
7. Learned Counsel for the assessee, submitted that during the assessment proceedings, the assessee has furnished all the possible evidences before the Assessing Officer, such as, copy of income tax return, copy of balance sheet, copy of assessment order of assessment year 2015-16, copy of cash book, copy of bank book and other details and evidences pertaining to previous year and subsequent years were submitted. The Ld. Counsel also stated that Assessing Officer did not give credit of opening cash balance. The Assessing Officer has partly accepted the claim of the assessee and sustained the addition to the tune of Rs.12,03,500/-. However, the entire addition needs to be deleted.
8. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer and stated that assessing officer had already given benefit of opening cash balance. Therefore, assessee does not deserve further relief and therefore appeal of the assessee may be dismissed.
9. I have heard, both the parties and carefully gone through the submission put laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. I note that t he issue for adjudication pertains to the addition of Rs.12,03,500/- made by the Assessing Officer under section 69A of the Income-tax Act, 1961, on account of unexplained cash deposits during the demonetization period. I note that during the assessment proceedings the assessee has submitted plethora of documents and evidences, such as copy of return of income, balance-sheet, copy of bank statement, bank passbook, cash book and the summary of cash transaction etc, before the Assessing Officer. However, I note that some of the documents and evidences are self -servicing documents and evidences and books of accounts of the assessee are not subject to audit. Therefore, full relief should not be given to the assessee. However, the profit element may be taxed in the hands of the assessee. Taxing the receipts only has never been the motto of the Income-tax Act. In this regard, the observation of the Supreme Court in CIT v. Williamson Financial Services [2007] 165 Taxman 638 (SC) is reproduced below:
“It is important to bear in mind that u/s 4, the levy is on total income of the assessee computed in accordance with and subject to the provisions of the Income Tax Act. What is chargeable to tax under the Income Tax Act is not the gross receipt but the income under the Income Tax Act. The tax is on income but not on gross receipts.”
10. Therefore, to protect the interest of the revenue, and considering the smallness of the amount an ad-hoc, estimated addition should be made in the hands of the assessee. Hence, I find that while the case of the assessee merits some relief, at the same time entire relief cannot be permitted to the assessee. In my view the ends of justice would be met, if a net profit rate of @10% of Rs.12,03,500/-, which comes to Rs.1,20,350/-, is adopted, since the same would take care of the inconsistencies, in the various documents and evidences submitted before the lower authorities. Therefore, in order to plug the leakage of revenue, I direct the of income tax ( not under section 115BBE of the Act). It is also made clear that instant adjudication shall not be treated as a precedent in any preceding or succeeding assessment year.
11. In the result, the assessee’s appeal is partly allowed.
Order is pronounced in the open Court Today on 16/10/2026.
