Bangalore ITAT Deletes ₹50 Lakh Section 69 Addition for Recorded Entries

Santosh Jaipal Vs ITO (ITAT Bangalore)

Summary: The assessee, who operated a petrol bunk under the name Harihara Filling Station and maintained audited books of account, challenged additions made for AY 2017-18 under Section 69 read with Section 115BBE of the Income-tax Act, 1961. The AO had made additions aggregating to ₹54 lakh, comprising ₹30 lakh treated as unexplained investment in respect of a gift from the assessee’s brother and ₹24 lakh in cash deposits during the demonetisation period. The books of account had not been rejected and no specific defects were identified. In relation to the ₹30 lakh gift, the assessee explained that his brother, Sandeep Jaipal, had directly made payments aggregating to ₹30.40 lakh to IOCL towards the assessee’s fuel purchases, of which ₹40,000 was repaid and ₹30 lakh was treated as a gift; the transaction was supported by banking entries, audited financial statements, ITR, capital account and ledger records. The Tribunal held that merely because the donor’s capital account was negative, it could not prima facie be concluded that the donor lacked capacity, particularly when the payments to IOCL were made through banking channels and the transactions were recorded in the books of both parties; the ₹30 lakh addition was accordingly directed to be deleted. With respect to ₹20 lakh deposited in National Co-operative Bank Ltd., the Tribunal noted that the assessee had produced the cash book, reconciliation of bank deposits, month-wise analysis of cash sales and deposits, sales and purchase abstracts, bank statements and ledger accounts, and that the bank account was reflected in the business balance sheet and the deposit was recorded in the books; since the AO had accepted the books and had not brought adverse material on record, the ₹20 lakh addition under Section 69 was deleted. The remaining ₹4 lakh deposit in Sir M. Visvesvaraya Co-operative Bank Ltd. was claimed for the first time before the Tribunal to belong to Santosh J. (HUF), a separate taxable entity having its own PAN, with the assessee acting as Karta; as the supporting evidence was produced for the first time before the Tribunal, the issue was remitted to the AO for verification, with a direction to delete the ₹4 lakh addition from the assessee’s individual assessment if the deposit was found to have been made in the HUF’s bank account. The appeal was therefore partly allowed for statistical purposes.

Entries Recorded in Accepted Books Cannot Be Treated as Unexplained Under Section 69: Bangalore ITAT Deletes ₹50 Lakh Addition

The assessee, who operated a petrol bunk under the name Harihara Filling Station, maintained regular books of account that were audited under Section 44AB. For AY 2017-18, the AO made additions aggregating to ₹54 lakh under Section 69 read with Section 115BBE, comprising a ₹30 lakh gift from the assessee’s brother and cash deposits of ₹24 lakh during the demonetisation period. The books were neither rejected under Section 145 nor were any specific defects identified.

Regarding the ₹30 lakh gift, the assessee explained that his brother, Sandeep Jaipal, had directly paid ₹30.40 lakh to IOCL through his bank account towards the assessee’s fuel purchases. Of this, ₹40,000 was repaid and the balance ₹30 lakh was treated as a gift. The payments were supported by bank entries, the donor’s audited financial statements, ITR, capital account and ledger recording the transaction as “Gift to Santosh Jaipal.”

The AO rejected the gift primarily because the donor had a negative capital balance and was irregular in filing returns. The ITAT held that a negative capital account, by itself, could not establish the donor’s lack of financial capacity, particularly when the payments were made directly to IOCL through banking channels and were duly recorded in both parties’ books. The donor’s assessment for the same year had also subsequently been completed accepting his returned income. Accordingly, the ₹30 lakh addition was deleted.

The AO had also added ₹20 lakh deposited in National Co-operative Bank during the demonetisation period. The Tribunal noted that the assessee had submitted the cash book, reconciliation of bank deposits, month-wise details of cash sales and deposits, sales and purchase abstracts, bank statements and ledger accounts. The bank account was disclosed in the business balance sheet, and the deposit was recorded in the regularly maintained books. Since the AO had accepted the books and brought no adverse material on record, an amount already recorded therein could not be treated as an unexplained investment under Section 69. The ₹20 lakh addition was therefore deleted.

The remaining ₹4 lakh deposit was claimed to belong to Santosh J. (HUF), a separate taxable entity having its own PAN, with the assessee acting only as Karta. As this contention and supporting evidence were produced for the first time before the Tribunal, the issue was restored to the AO for verification. The ITAT directed that if the deposit was found to have been made in the HUF’s bank account, it must be deleted from the assessee’s individual assessment.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This appeal at the instance of the assessee is directed against the order of the ld. CIT(A)/NFAC dated 30.10.2025 vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1082142020(1) passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2017-18.

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

1. The order of the learned CIT(A), NFAC Delhi is arbitrary, against the provisions of law, Principles of Natural Justice and contrary to the facts of the case and is therefore unsustainable in law.

2. The Ld. CIT(A) erred in confirming the arbitrary addition of Rs. 54,00,000/- made u/s 69 in the Assessment order without considering the facts and circumstances of the case.

3. The Ld. CIT(A) failed to appreciate that the AO had incorrectly alleged noncompliance and failure to discharge the onus of proof despite the appellant having duly furnished the relevant primary evidences during the assessment proceedings.

4. The Ld. CIT(A) erred in upholding the order of the AO making addition of Rs.54,00,000/- accounted in the books u/s 69, without appreciating that the additions were made without the satisfaction of the very pre-conditions for invoking section 69, namely detection of unexplained investment outside the books.

5. The Ld. CIT(A) erred in dismissing the appeal without appreciating that the AO did not consider/examine all the details submitted and that did not reject the books of account u/s 145 of the Act and such addition leads to double taxation, thereby rendering the assessment order unsustainable in the eyes of law.

6. The Ld. CIT(A) whose powers are co-terminus with that of AO has dismissed the appeal without properly examining the details already available and without carrying independent, reasoned and speaking adjudication on merits of the issues.

7. The Ld. CIT(A) erred in confirming the addition of Rs.20,00,000/- u/s 69 towards cash deposits in the National Co-operative Bank Ltd, without appreciating that the said transactions were duly recorded in the regular books of account and the sources are fully explained.

8. The Ld. CIT(A) erred in confirming the addition of Rs. 4,00,000/- u/s 69 towards cash deposits in the Visveswarayya Co-operative Bank Ltd, without appreciating that the said transactions were duly recorded and explained in the accounts of Santosh Jaipal(HUF), where the appellant is the Kartha.

9. That the Learned CIT(A) erred in sustaining the addition of Rs.30,00,000/- being gift received from brother by invoking section 69, without appreciating that the AO has made addition purely based on suspicion, surmises and conjectures stating that the donor has negative capital balance and irregular in filing of the return, but has not brought any incriminating material, evidence, or adverse statement on record to controvert the genuineness, creditworthiness and identity of the donor.

10. The Ld. CIT(A) erred in not appreciating that the AO has wrongly initiated penalty proceedings u/s 271AAC(1) of the I.T. Act for the arbitrary additions made U/s 69 of the I.T. Act.

11. For the grounds stated above and for the grounds which may be permitted to be adduced at the time of hearing of the appeal it is prayed that the addition made in the assessment order be deleted and justice rendered.

12. The appellant craves leave to add, amend, substitute, alter or delete any of the grounds of appeal at the time of hearing.

3. The brief facts of the case are that the assessee is engaged in the business of operating a petrol bunk running under the name and style of “Harihara Filling Station”. The assessee filed his return of income for the AY 2017-18 on 28.03.2018 declaring total income of Rs.16,72,170/-. The sources of income are “income from business” and “income from other sources”. The assessee maintains regular books of accounts and the accounts are also audited as per the provisions contained in section 44AB of the Act. The return was thereafter processed by the CPC and accordingly intimation u/s 143(1) of the Act was passed accepting the income returned. Subsequently, the case of the assessee was selected for complete scrutiny and accordingly notices u/s 143(2) of the Act as well as 142(1) of the Act were issued to furnish the details of business, bank statements, cash book, sources for cash deposit, computation, financials, details of sales, details of TDS, details of expenses and details of capital receipts with proof. The assessee submitted his reply on various dates.

3.1 On perusal of the return of income for AY 2017-18, it was seen by the AO that the assessee is in receipt of gift for an amount of Rs.30,00,000/- from Shri Sandeep and accordingly SCN was issued to furnish the documentary evidences towards the receipts of gift from Shri Sandeep Jaipal amounting to Rs.30,00,000/- and the mode of receipt and confirmation with PAN. In reply, the assessee submitted the financial statement of Mr. Sandeep Jaipal who is also into the business of running petrol bunk along with copy of ITR V, capital account of Sandeep Jaipal. On perusal of the audited financials of Sri Sandeep Jaipal for AY 2017-18, the AO observed that capital account is in negative figure of Rs.1,36,53,365/-. Further, on perusal of the ITR filing records of Shri Sandeep Jaipal, it was observed by the AO that Mr. Sandeep is not regularly filing his returns. Further, the return for the AY 2017-18 was filed only on 14/05/2019. Again vide show cause notice dated 10.12.2019, the assessee was requested to furnish documentary evidences for the gift received from Mr. Sandeep. In response, the assessee stated that assessee had made purchases of fuel on various dates for an amount of Rs.30,40,000/- from IOCL and the payment for these purchases were made by Mr. Sandeep Jaipal who is the brother of the assessee. Further, the assessee had also submitted the extracts of various payments made to IOCL from the bank account of Sandeep Jaipal as below:

The AO noticed that a portion of this Rs.30,40,000/- was repaid in cash by Santosh Jaipal to Sandeep Jaipal and the balance was a gift received by Santosh Jaipal from Sandeep Jaipal. The AO in the absence of satisfactory explanation and non-furnishing of documentary evidence, treated the entire gift received from his brother Sandeep Jaipal amounting to Rs.30,00,000/-as unexplained investment u/s 69 r.w.s. 115BBE of the Act.

3.2 Further, on perusal of the submission made by the assessee vide letter dated 11.12.2019, the AO observed that total cash deposit during the period 09.11.2016 to 31.12.2016 was Rs.2,65,47,000/-. On perusal of the bank statement of the assessee, which were obtained u/s 133(6) of the Act, it was seen by the AO that the assessee had deposited following amounts during the period 09.11.2016 to 31.12.2016:-

Thus, the AO observed that the assessee had not disclosed an amount of Rs.24,00,000/-, which were deposited in the National Co-operative Bank Ltd. and in the Sir M. Visvesvaraya Co-op. Bank Ltd. and hence the cash deposit in the said accounts was treated as unexplained money u/s 69 r.w.s. 115BBE of the Act in the absence of proper explanation. Thus, the AO completed the assessment proceedings on a total assessed income of Rs.70,72,174/- vide order dated 21.12.2019.

4. Aggrieved by the assessment order passed u/s 143(3) of the Act dated 21.12.2019, the assessee preferred an appeal before the ld. CIT(A)/NFAC.

5. With regard to the addition of Rs.30,00,000/- claimed to have received from his brother Mr. Sandeep Jaipal, the ld. CIT(A)/NFAC held that the AO had examined all the relevant details and found that the alleged donor’s financial condition did not support the capacity to make the gift. Further, the capital account of the donor being in a negative balance, and the absence of any credible documentation such as gift deed, bank transfer proof, confirmation from the donor etc. clearly discredits the assessee’s claim. The plea that part of the payment was reimbursement also remains unsubstantiated, as there is no evidence linking the cash repayments with any bank transactions of the donor and accordingly held that the AO has rightly invoked the provisions of section 69 of the Act in respect of Rs.30,00,000/-, as the assessee failed to explain the nature and source of the money satisfactorily.

5.1 Now with regard to the difference of cash deposited during the period from 09.11.2016 to 31.12.2016 amounting to Rs.24,00,000/- in the National Co-operative Bank Ltd. and in Sir M. Visvesvaraya Co-operative Bank Ltd. treated as unexplained money u/s 69 r.w.s. 115BBE of the Act, the ld. CIT(A)/NFAC held that the AO had clearly established through bank verification that the deposits in question were not reflected in the books of accounts and no plausible explanation was offered for the source of cash. Thus, the plea that deposits represented business receipts remained unsubstantiated. The assessee did not produce supporting evidence such as day to day cash book, sales register or reconciliation statement between sales and deposits to substantiate his claim. Further, no material was filed to correlate the alleged cash sales with the dates and amounts of bank deposits. The factual matrix here shows clear failure of the assessee to explain the nature and source of deposit thereby attracting the provisions of section 69 r.w.s. 115BBE of the Act. The assessee has also not brought forth any new facts or evidence during the appellate proceedings to dislodge the findings of the AO and accordingly the ld. CIT(A)/NFAC dismissed the appeal of the assessee.

6. Again aggrieved by the order of the ld. CIT(A)/NFAC dated 31.10.2025, the assessee has filed the present appeal before this Tribunal.

7. Before us, the ld. A.R. of the assessee vehemently submitted that the assessee is running a petrol bunk and the books of accounts are audited by a Chartered Accountant. Further, the audited books of accounts of the assessee were accepted by the AO & no defects had been pointed out by the AO. During the course of assessment proceedings, the assessee submitted the return of income, capital account as well as the ledger account copy of the brother Mr. Sandeep Jaipal, however, the AO did not accept the contention of the assessee merely on the ground that Mr. Sandeep Jaipal is having negative capital and not filing his return of income regularly. Further, the ld. A.R. of the assessee drew our attention on page 198 to 221 of the paper book and vehemently submitted that for the same assessment order 2017-18, the AO had accepted the gift given by his brother to the assessee by passing the assessment order dated 21/03/2026.

7.1 Further, with regard to the cash deposited amounting to Rs.20,00,000/-, the ld. A.R. of the assessee vehemently submitted that the cash deposits were out of the sale proceeds of the petrol bunk business and all the transactions were duly recorded in the books of accounts and thus the sources were fully explained. Lastly, with regard to the cash deposits of Rs.4,00,000/-, the ld. AR of the Assessee submitted that the transaction was duly recorded & explained in the accounts of Santosh Jaipal (HUF), where the assessee is Karta of the HUF & accordingly prayed to delete the entire additions as made by the AO.

8. The ld. D.R. on the other hand, supported the orders of the authorities below and vehemently submitted that as the assessee could not establish the nature and source of the money satisfactorily, the AO rightly treated the same as unexplained money/unexplained investment u/s 69 r.w.s 115BBE of the Act.

9. We have heard the rival submissions and perused the materials available on record. The assessee is engaged in the business of operating a petrol bunk and maintained the books of accounts on day to day basis. Further, the books of accounts were audited by a Chartered Accountant as per provisions contained in section 44AB of the Act. We observed that the AO had accepted the books of accounts maintained by the assessee and no defects, inconsistencies or infirmities were pointed out either by the CA or by the AO.

9.1 Now with regard to the claim of receipts of gift from the brother Sri Sandeep Jaipal amounting to Rs. 30,00,000/-, the assessee during the course of assessment proceedings submitted the relevant portion of the audited financial statements of Mr. Sandeep Jaipal who is also into the business of running petrol bank along with the copy of ITR-V & the Capital Account of Sri Sandeep Jaipal to substantiate his claim. Before the AO, the assessee also stated that the assessee had purchased the fuel from the IOCL on various dates amounting to Rs. 30,40,000/- and the payments of which were made by his brother. The assessee had also produced the extract of the date wise payment amount made to IOCL from the bank account of his brother Sri Sandeep Jaipal & submitted that out of Rs.30,40,000/-, Rs. 40,000/- was repaid in cash by the assessee & the balance of Rs.30,00,000/- was a gift received from his brother. The AO merely stating that Mr. Sandeep Jaipal is not regularly filing his returns & the capital Account is in negative figure did not accept the contentions of the assessee. The ld. CIT(A)/NFAC also held that the capital account of the donor being in a negative balance and the absence of any credible documentation such as gift deed, bank transfer proof or confirmation from the donor clearly discredits the assessee’s claim. On perusal of the capital account of the business of the Donor Sri Sandeep Jaipal reproduced by the AO in paragraph 8 of the assessment order, we observed that the donor had declared the source of gift of Rs.30,00,000/- from the drawings of his proprietary business & clearly accounted the gift in his books of account as “Gift to Santosh Jaipal Rs.30,00,000”. Further, the assessee before the AO had stated the modus operandi of receiving such gift by submitting the extracts of details of payments made to IOCL from the bank account of his brother Mr. Sandeep Jaipal. We are of the considered opinion that both the authorities below without further examining these facts as submitted by the assessee rejected the contentions of the assessee merely by saying that no satisfactory explanation & documentary evidence furnished by the assessee. In our considered opinion merely because the capital account of the Donor is negative, prima facie it cannot be said that Donor’s financial condition did not support the capacity to make gift. In the present case, all the payments made to the IOCL by the brother of the assessee through his bank accounts for the purchases of fuel made by the assessee were only treated as gift & accordingly both the donor & the assessee has accounted all these transactions rightly in their respective books of accounts & therefore in our opinion the addition made as unexplained investment u/s 69 of the Act cannot be sustained especially when the assessee has clearly established the nature & sources of the receipts & these are recorded in the books of accounts. Further, we also observed that in case of the Donor Sri Sandeep Jaipal, the assessment u/s 143(3) r.w.s 250 of the Act for the same AY 2017-18 was completed on 21/03/2026 accepting the returned income (Placed at Pages 198- 221 of PB). In view of the above, we direct the AO to delete the entire addition of Rs.30,00,000/- as made u/s 69 of the Act. 9.2 Now with regard to the cash deposited during the period from 09.11.2016 to 31.12.2016 amounting to Rs. 20,00,000/- in the National Co-operative Bank Ltd. and Rs.4,00,000/- in Sir M. Visvesvaraya Co-operative Bank Ltd. treated as unexplained money u/s 69 r.w.s. 115BBE of the Act, the claim of the assessee before the authorities below was that the entire cash deposits were out of sales proceeds of the petrol bunk business and that all the transactions were duly recorded in the books of account. However, before us, the assessee claimed that the cash of Rs.20,00,000/- only were deposited in assessee’s savings Account which were out of the sale proceeds of the petrol bunk business & the balance cash deposits of Rs. 4,00,000/- was made in assessee’s HUF A/c having separate PAN-ABEHS7096D maintained with Sir M. Visvesvaraya Co-operative Bank Ltd & therefore cannot be added as unexplained money in the hands of the assessee being an individual. On perusal of the assessment order, we observed that the AO merely on the basis of difference found between assessee’s averment vide letter dated 11/12/2019 & on perusal of bank statements obtained u/s 133(6) of the Act had added the entire difference amount of Rs.24,00,000/- without citing any cogent reasons. On perusal of the order of the ld. CIT(A)/NFAC, we observed that the ld. CIT(A)/NFAC held that the deposits represented business receipts remained unsubstantiated. We take note of the fact that during the course of assessment proceedings, the assessee vide letter dated 11/12/2019 had submitted the details of bank accounts including the National Co-operative Bank A/c No. 25014/3 along with the cash book, reconciliation of bank deposits along with month wise analysis of cash sales and deposits along with the purchases/sales abstracts to substantiate the sources of cash deposits. In our considered opinion the AO without further examining & without brought in any adverse material on record proceeded to add the difference found between assessee’s averment vide letter dated 11/12/2019 & on perusal of bank statements obtained u/s 133(6) of the Act. Our view gets support from the facts that on verification of business balance sheet as on 31/03/2017, we found that the assessee had declared investment in the shares of the national Co- operative Bank amounting to Rs.8,40,000/-. The assessee had also declared bank balance of Rs.1,94,001.02 apart from OD A/c maintained with the National Co-operative Bank Ltd & Secured Loans of Rs. 6,47,24,580/-. Thus, the assessee had declared the accounts maintained with the national Co-operative Bank as part of the business balance sheet & without making entries in the books of account, the trial balance cannot be tallied. Before us, the assessee has also produced the cash book as well as the bank statement of the national Co-operative Bank submitted. Further, the assessee had also produced the copy of the OD statement and the ledger account evidencing the deposit of Rs.20,00,000/- which is completely ignored by the ld. CIT(A)/NFAC. Since, the amount of Rs. 20,00,000/- is duly recorded in the books of account, the addition as made u/s 69 of the Act cannot be sustained & accordingly we direct the AO to delete the entire addition of Rs.20,00,000/-. Thus, this ground of the appeal of the assessee is also allowed.

9.3 Now coming to the cash deposits of Rs.4,00,000/- made during the period 09/11/2016 to 31/12/2016 in Sir M Visvesvaraya Co-operative bank ltd., the assessee for the first time before us claimed that the deposit of Rs. 4,00,000/- pertains to M/s Santosh J (HUF) which is a separate taxable entity distinct from the individual assessee. Further, it is submitted that the said deposit of Rs.4,00,000/- was made on 30/12/2016 in the HUF Bank A/c maintained with Sir M Visvesvaraya Co-operative bank ltd and the HUF is duly assessed to tax under the separate PAN- ABEHS7096D. It is also submitted that the transaction is duly evidenced by the bank passbook, ledger account and the balance sheet of the HUF clearly establishing that the funds belong to the HUF. This, being so, in our considered opinion if the cash of Rs.4,00,000/- was deposited in bank account maintained with Sir M Visvesvaraya Co-operative bank ltd belonging to the HUF having PAN-ABEHS7096D where the assessee is only Karta, then the addition of Rs.4,00,000/- cannot be sustained in the hands of Individual assessee. However, since the facts as well the evidences are submitted for the first time before us, we deem it fit & proper to remit this issue to the file of the AO to verify the evidences produced before us & decide in accordance with law. Needless to say, a reasonable opportunity of being heard must be granted to the assessee. The assessee is also directed to produce all these evidences before to AO to substantiate his claim. We make it clear that in case the AO found that the cash of Rs.4,00,000/- was deposited in the Bank account of the HUF, then the AO is directed to delete the addition of Rs.4,00,000/- made in the individual capacity. It is ordered accordingly.

10. In the result, the appeal filed by the assessee partly allowed for statistical purposes.

Order pronounced in the open court on 24th Aug, 2026