Case Law Details
Venkateswarlu Chandu Vs DCIT (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has ruled in favor of the taxpayer in the case of Venkateswarlu Chandu Vs DCIT, deleting an addition of Rs.9,99,000/− that had been made under Section 69C of the Income Tax Act, 1961, as unexplained expenditure. The Tribunal concluded that the addition, which questioned cash payments made towards credit card bills, was based on mere doubt and suspicion rather than substantive evidence to rebut the declared source of the funds.
Background of the Assessment
The appeal relates to the assessment year 2017-18. The assessee, Venkateswarlu Chandu, had filed a return declaring a ‘NIL’ total income. The case was selected for Limited Scrutiny through the CASS system.
During the assessment proceedings, the assessee explained that he had earned agricultural income of Rs.23,10,000/− in cash from his property in Nellipudi Village, Andhra Pradesh. The assessee claimed that this cash was subsequently used to pay credit card bills through cash deposits made in his bank account in Delhi.
The Assessing Officer (AO) accepted the claim regarding the existence of the agricultural income. However, the AO was not satisfied with the explanation provided for the cash payments made against the credit card bills. Consequently, the AO added Rs.9,99,000/− to the assessee’s income under Section 69C—which allows for the addition of unexplained expenditure—on the grounds that the cash payments remained inadequately explained.
CIT(A) Upholds Addition Based on Improbability
The assessee challenged the AO’s order before the NFAC/CIT(A). The Commissioner of Income Tax (Appeals) agreed with the AO’s decision to sustain the addition, not by questioning the exemption of agricultural income itself, but by applying the “test of human probabilities and surrounding circumstances.”
The CIT(A) found the assessee’s explanation regarding the source of the cash payments to be unconvincing. The authority reasoned that it was “highly improbable” for the assessee to earn agricultural income in Andhra Pradesh, carry the cash over a distance of approximately 1,800 kilometers to Delhi, and deposit it there to pay credit card bills. The CIT(A) pointed out that the assessee could have easily deposited the cash at a bank branch closer to Nellipudi Village. The CIT(A)’s order also noted that some of the credit card payments were made in Hyderabad, Vijayawada, Guntur, and Secunderabad, further fueling suspicion regarding the necessity of transporting the bulk of the cash to Delhi.
The CIT(A) thus confirmed the addition, concluding that the assessee provided no probable explanation for transporting the cash over such a long distance, despite accepting the agricultural income as a source.
ITAT’s Findings and Judicial Principle
Before the ITAT, the Authorized Representative (AR) argued that the confirmation of the addition by the CIT(A) was flawed, relying on “doubt, suspicion, conjecture and surmises” and arbitrarily rejecting the explanation by applying the test of human probabilities without bringing any cogent evidence on record to prove the contrary.
The AR emphasized that the credit card payments were made from the agricultural income earned during the year, a source that was already accepted by the AO during the assessment proceedings and confirmed by the CIT(A) in his order.
The ITAT found merit in the assessee’s contention. The Tribunal highlighted that the source of the payment—the agricultural income—was not disputed by either the AO or the CIT(A). The sole basis for the addition was the presumption and suspicion related to the method and location of the cash deposit, specifically the act of carrying cash over a long distance to Delhi.
The Tribunal’s ruling aligns with the established judicial principle that an addition under Sections like 69C (unexplained expenditure) or 68 (unexplained cash credit) cannot be sustained merely on suspicion or an interpretation of circumstantial improbability. The onus shifts to the Revenue to provide concrete evidence to discredit or disprove the source of the funds claimed by the taxpayer, particularly when that source is accepted as legitimate or tax-exempt (as is the case with agricultural income).
The ITAT unequivocally held that since the source of the payment was undisputed and accepted, it constituted a sufficient explanation for the expenditure. The addition, made only on a “presumption basis,” was deemed untenable in law. Accordingly, the Tribunal allowed the assessee’s appeal and deleted the addition of Rs.9,99,000/−.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal has been filed by the Assessee against the order dated 24.04.2025 passed by the NFAC, Delhi for the assessment year 2017-18. The solitary issue raised in this appeal is relating to sustaining of addition of Rs. 9,99,000/- made by the AO u/s. 69C of the Act.
2. Brief facts of the case are that the assessee e-filed his return of income for the assessment year 2017-18 on 31.10.2017, declaring total income of NIL. Subsequently, the case was selected for Limited scrutiny through CASS and statutory notices were issued to the assessee. During the course of assessment proceedings, the Assessee submitted that he earned an agriculture income of Rs. 23,10,000/- and this receipt was deposited in cash to pay for the bills of credit care in his bank located in Delhi. On perusal of the submissions filed by the assessee it was observed by the AO that the assessee earned agriculture income in cash Nellipudi Village, Andhra Pradesh. In response to requisite notices, AO noted that assessee explained the agricultural income, but he failed to provide satisfactory reply for credit card payments made in cash. Therefore, the cash payments of Rs. 9,99,000/- made by the assessee against credit card bills was added to the income of the assessee for AY 2017-18 on account of explained expenditure as envisaged in Section 69C of the Act. Against the same, assessee preferred the appeal before the Ld. CIT(A), who agreed with the view of the AO that it is highly improbable for appellant to earn agriculture income at Nellipudi Village, Andhra Pradesh and bring cash all way from there to Delhi for depositing when he could have simply deposited from nearest bank branch from Nellipudi Village Andhra Pradesh for which the appellant gave no probable explanation as to why he got the cash all way 1800 kms from Nellipudi Village, Andhra Pradesh to Delhi. He noted that few payments were made at Hyderabad, Vijaywada, Guntur and Securderabad. Aggrieved, assessee filed the appeal before the Tribunal.
3. During the hearing, Ld. AR has submitted that Ld. CIT(A) erred in confirming the addition of credit card payments in cash of Rs. 9,90,000/- made by the AO u/s. 69C of the Act being unexplained expenditure merely on the basis of doubt, suspicion, conjecture and surmises by arbitrarily rejecting the explanation submitted the assessee in respect of source of payment of credit card in cash by applying the test of human probabilities and surrounding circumstances without brining any cogent evidence on record to prove the contrary. He further submitted that the said addition being unexplained expenditure without appreciating the fact that the said payments were made out of agriculture income earned during the year which was duly accepted by the AO during the course of assessment proceedings. Ld. DR relied upon the orders of the authorities below.
4. In view of the above, I find force in the contention of the AR that addition was made merely on the basis of doubt and suspicion by rejecting the explanation submitted by the assessee in respect of source of payment of credit card in cash by applying the test of human probabilities and surrounding circumstances without bringing any cogent evidence on record to prove the revenue’s stand. I further note that addition in dispute being unexplained expenditure is without appreciating the fact that the said payments were made out of agriculture income earned during the year which was duly accepted by the AO during the course of assessment proceedings and which was also reiterated by the Ld. CIT(A) in his order at page no. 2, which in my view, seems to be sufficient explanation for payment of credit card payment from the source of agricultural income. It is noted that the source of payment is not disputed and addition was made only on presumption basis, which is not tenable. In view of this factual matrix and in the interest of justice, in my considered opinion, the addition of Rs.9,99,000/- deserves to be deleted. I hold and direct accordingly. Resultantly, the ground raised by the assessee is allowed.
5. In the result, the instant assessee’s appeal is allowed.
Order pronounced in the Open Court on 12.09.2025
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