Bangalore Nagaraj Vishwanath Vs ITO (ITAT Bangalore)
Bangalore ITAT: Addition Cannot Be Based on Gross Cash Deposits Alone Without Examining Cash Withdrawals, Cash Flow and Explanation
Bangalore ITAT deleted an addition of ₹60 lakh made towards unexplained cash deposits after holding that the assessee had satisfactorily explained the source of the deposits through documentary evidence.
Assessing Officer had treated ₹60 lakh out of total cash deposits as unexplained, observing that the assessee had deposited ₹99.28 lakh in cash during the year. The assessee explained that ₹13 lakh represented sale proceeds of two vehicles and ₹46 lakh belonged to his uncle, which was temporarily deposited in the assessee’s account due to technical issues in the uncle’s bank account and immediately remitted back through RTGS.
Before the Tribunal, the assessee produced additional documentary evidence, including:
- A Chartered Accountant’s certificate showing that the AO had incorrectly computed the total cash deposits, which were actually ₹80.37 lakh and not ₹99.28 lakh.
- Sale documents of the two vehicles establishing receipt of sale consideration.
- A notarised confirmation from the uncle, along with the bank trail showing that the ₹46 lakh belonged to him and was transferred back on the same day after deposit.
Tribunal observed that:
- The AO’s computation of cash deposits itself suffered from a factual error.
- The sale of vehicles was supported by delivery notes and sale receipts.
- The identity of the uncle, ownership of the cash, and the immediate RTGS transfer were established by documentary evidence.
- Addition cannot be made merely on the basis of gross cash deposits without considering cash withdrawals, cash flow, and the assessee’s explanation.
- Suspicion, however strong, cannot take the place of evidence.
Accordingly, the Tribunal held that the assessee had satisfactorily explained the source of the cash deposits and directed the Assessing Officer to delete the entire addition of ₹60 lakh, allowing the appeal.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal is filed by the assessee against the order of the CIT-A vide order dated 19/06/2025.
2. The only issue raised by the assessee is that the ld. CIT-A erred in confirming the order of the AO by sustaining the cash deposits of Rs. 60 lacs in the bank account of the assessee.
3. The facts in brief are that the assessee is an individual employed with M/s Iron Mountain Services Pvt Ltd. For the year under consideration, the assessee declared total income of Rs. 10,11,530/- in the return filed u/s 139(1) of the Act. The return was selected for limited scrutiny through CASS.
4. During the assessment proceedings, the AO noticed that the assessee in the year under consideration was employed with two companies namely M/s Iron Mountain Services Pvt Ltd as well as with M/s HCL. However, the assessee offered salary income only from the M/s Iron Mountain Services Pvt Ltd. Therefore, the AO added the salary income of Rs. 3,29,875/- drawn from M/s HCL to the total income of the assessee. Likewise, the AO noted that in the year under dispute, the assessee was also in the business of electronic items from which there were turnover of Rs. 7.45 lakh. Hence the AO added business income of Rs. 59,600/- being 8% of turnover.
4.1 Furthermore, the AO observed that during the year the assessee made cash deposit of Rs. 99,28,000/- in his bank account as well as made withdrawal of Rs. 45,89,000/-only. The substantial cash deposit of Rs. 13 Lakh and 46 Lakh was made as on 30-06-2016 and 6th October 2016 respectively. The assessee claimed that the source of impugned two cash deposit was out sale of vehicle and cash belonging to his uncle namely Mr. KC Chikkanaiah. However, the assessee claim was not accepted and accordingly, the AO after considering the assessee’s income from salary and business as well cash withdrawal and day to expenses added a sum of Rs. 60 lakh as unexplained investment on account of cash deposit.
5. The aggrieved assessee preferred an appeal before the learned CIT(A) challenging the addition of Rs. 60 lakhs on account of cash deposit. The assessee reiterated that out of total cash deposits, a sum of Rs. 13 lakh was deposited out of sale proceeds of old vehicle. Likewise, the sum of Rs. 46 lakhs deposited, belonged to his uncle and same was paid back to his uncle account on the same day through RTGS. The assessee contended that the remaining amount was out of withdrawal made from the bank. However, the learned CIT(A) rejected the assessee’s submission and confirmed the addition made by the AO.
6. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
7. The learned AR before us submitted paper book running from pages 1 to 151. In the statement of facts filed before us, it was submitted that the AO incorrectly computed the total cash deposits during the year at Rs. 99,28,000/- only. It was submitted that the actual cash deposit during the year stand at Rs. 80,37,000/- and withdrawal stand at Rs. 42,07,500/- only. In support of the correct amount of cash deposit and withdrawal, a certificate from auditor M/s Mallikarjun & Co. Chartered Accountant dated 11thJuly 2025 was filed which is available on pages 60 to 69 of the paper book.
7.1 Likewise, with respect to source of cash deposits, out of sale of old vehicle at OLX, it was submitted that vehicle Fiate Linea having registration No. KA51MD744 was sold to one Smt. Neha Bhargava for Rs. 3,65,000/- on 15th June 2016. Likewise, vehicle XUV 500 having registration No. KA51MH0773 was sold to Sobek Auto India Pvt Ltd (Olx Cashmycar) for Rs. 8.55 Lakh. In support of the claim copy of car delivery note, sale receipt and receipt from Olx Cashmycar is submitted which is available at pages 56 to 59 of the paper book.
7.2 Regarding the cash deposit of Rs. Rs. 46 lakhs, it was submitted that there were some unforeseen technical failures at his uncle bank account (Karnataka Bank). Therefore, cash was deposited into his bank account which was immediately transferred to his uncle account through RTGS. In support a copy of notarized MOU dated 7th October 2016 from his uncle was submitted stating that cash belonged to him (the uncle) which he has duly offered to tax in his return for A.Y. 2017-18. Accordingly, it was contended that the impugned cash deposit cannot be treated as income of the assessee. if any addition is required to be made as per the provisions of the Act with respect to cash amount of Rs. 46 lakhs, it shall need to be made in the hand of his uncle Mr. KC Chikkanaiah being the right person.
7.3 Without prejudice the above submission on merit of the addition, it was also contended that it was a case of limited scrutiny. The AO exceeded his jurisdiction by converting the same into complete scrutiny without getting necessary approval from higher authority.
7.4 The learned Departmental Representative (DR) supported the orders of the Assessing Officer as well as the learned CIT(A). It was submitted that the assessee had failed to discharge the primary onus cast upon him under the Act to satisfactorily explain the source of the substantial cash deposits made in his bank account. The learned DR, therefore, prayed that the order of the learned CIT(A) be upheld.
8. We have heard the rival submissions of both the parties and perused the materials available on record. The only issue for our consideration is with respect to the addition of Rs. 60,00,000 made by the AO on account of cash deposits in the bank account of the assessee. The facts show that the AO observed cash deposits of Rs. 99,28,000 in the bank account of the assessee and cash withdrawals of Rs. 45,89,000 during the year. The AO further noticed two major cash deposits of Rs. 13,00,000 and Rs. 46,00,000. The assessee explained that the deposit of Rs. 13,00,000 was out of sale proceeds of old vehicles and the deposit of Rs. 46,00,000 belonged to his uncle, namely Shri K.C. Chikkanaiah, which was immediately transferred to the account of the said uncle through RTGS. The AO did not accept the explanation of the assessee. The Ld. CIT(A) also confirmed the addition.
8.1 Before us, the assessee has filed a paper book containing documents and evidences. From the certificate of M/s Mallikarjun & Co., Chartered Accountants, dated 11.07.2025, it is seen that the total cash deposits during the year were Rs. 80,37,000 and not Rs. 99,28,000 as taken by the AO. The cash withdrawals were shown at Rs. 42,07,500 only. Thus, at the threshold itself, the computation made by the AO suffers from factual mistake.
8.2 With respect to the alleged cash deposit of Rs. 13,00,000, the assessee has furnished documentary evidence to show that Fiat Linea vehicle bearing registration No. KA51MD744 was sold to Smt. Neha Bhargava for Rs. 3,65,000 on 15.06.2016. The assessee has also filed documents to show that XUV 500 bearing registration No. KA51MH0773 was sold to Sobek Auto India Pvt. Ltd. / OLX Cashmycar for Rs. 8,55,000. The copies of delivery note, sale receipt and OLX Cashmycar receipt support the explanation of the assessee. Therefore, the source of cash deposit to this extent stands reasonably explained.
8.3 With respect to the cash deposit of Rs. 46,00,000, the assessee has explained that the said cash belonged to his uncle Shri K.C. Chikkanaiah. Due to technical issues in the bank account of the uncle maintained with Karnataka Bank, the cash was deposited in the bank account of the assessee and immediately transferred to the uncle through RTGS on the same day. The assessee has filed a notarized memorandum / confirmation dated 07.10.2016 from the uncle stating that the cash belonged to him and that the same was offered in his return of income for A.Y. 2017-18. The bank trail also supports the explanation that the money did not remain with the assessee and was immediately transferred to the account of the uncle. Once the identity of the person, the nature of receipt and the immediate transfer are supported by documentary evidence, the said amount cannot be treated as unexplained money of the assessee merely because the cash was first deposited in his bank account.
8.4 It is also settled that the addition cannot be made merely on the basis of gross cash deposits without considering the cash withdrawals, cash flow and the explanation of the assessee. In the present case, substantial withdrawals were available. The assessee has also explained the major deposits by filing supporting evidence. The AO has not brought any independent material to show that the cash deposits represented undisclosed income of the assessee. Suspicion, howsoever strong, cannot take the place of evidence.
8.5 Considering the totality of facts and circumstances, we hold that the assessee has satisfactorily explained the source of cash deposits. The addition of Rs. 60,00,000 made by the AO and confirmed by the Ld. CIT(A) is, therefore, not sustainable. Accordingly, the AO is directed to delete the addition of Rs. 60,00,000. Hence, the ground of appeal of the assessee is allowed.
9. In the result, the appeal of the assessee is hereby allowed.
Order pronounced in court on 6th day of August, 2026
