Bank Deposit Additions Need Proof, Not Presumptions

Sunita Bhardwaj Vs ITO (ITAT Delhi)

Bank Deposits & Notional Rent Can’t Be Estimated Blindly: Delhi ITAT Orders Extensive Remand in Multi-Year Case

Delhi ITAT ‘G’ Bench in Sunita Bhardwaj Vs. ITO [ITA Nos. 1431/Del/2024 (AY 2016-17), 1430/Del/2024 (AY 2017-18) & 1429/Del/2024 (AY 2018-19), order dated 31.12.2025] partly allowed Assessee’s appeals holding that additions made on presumptions and estimates could not be sustained without proper verification. Tribunal upheld validity of reassessment for AY 2016-17 to AY 2018-19, holding that approval u/s 151 by Addl. CIT was valid as reopening was within four years under pre-amended law.

On merits, Tribunal found that additions of substantial bank deposits u/s 69A were made without examining Assessee’s consistent explanation that deposits represented earlier cash withdrawals, third-party accounts and loans duly supported by bank statements and sanction letters. Matter was restored to AO for fresh verification with direction to allow telescoping wherever applicable.

With respect to notional rental income from multiple properties, Tribunal held that properties used for professional purposes or already sold could not be subjected to notional rent and that rent already offered to tax could not be re-assessed. For remaining properties, AO was directed to compute annual value based on municipal circle rates and not on ad-hoc fair market value, following CIT Vs. Moni Kumar Subba (Delhi HC). Additions on LTCG were also remanded for verification of cost of acquisition and improvement. Appeals for all three years were thus partly allowed for statistical purposes with comprehensive remand directions

FULL TEXT OF THE ORDER OF ITAT DELHI

The above captioned three appeals are filed by the assessee against the separate orders of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, New Delhi [CIT(A) in short], passed u/s 250 of the Income Tax Act, 1961 (‘the Act’ for short) all dated 30.01.2024 for Assessment Years 2016­17 to AY 2018-19. Since, common issues are involved thus, they are disposed off by a single order.

2. First we take assessee’s appeal in ITA No.1431/Del/2024 for Assessment Year 2016-17. The assessee alongwith Form 36 filed detailed grounds of appeal and thereafter in terms of the order of the bench dt. 11.09.2024 has filed concise grounds of appeal which are as under:

1. That having regard to the facts and circumstances of the case, assumption of jurisdiction in initiating the proceedings u/s 147 and passing the impugned order u/s 147/144B and that too without complying with mandatory conditions u/s 147 to 151A as envisaged under the Income Tax Act, 1961, is bad in law and against the facts and circumstances of the case.

2. That in any case and in any view of the matter, assumption of jurisdiction u/s 147 and passing the impugned order u/s 147/144B, is illegal, bad in law and against the facts and circumstances of the case and the same is not sustaining on legal and factual grounds.

3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making aggregate addition of Rs.65,49,364/- on account of unexplained money u/s 69A and that too by recording incorrect facts and findings and without considering the submissions and evidences filed by the assessee and in violation of principles of natural justice.

4. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making aggregate addition of Rs.65,49,364/- on account of unexplained money u/s 69A is bad in law and against the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds.

5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in sustaining the action of Ld. AO to the tune of Rs.17,01,708/- on account of notional house property income and that too by recording incorrect facts and findings and without considering the submissions and evidences filed by the assessee and in violation of principles of natural justice.

6. That in any case and in any view of the matter, action of Ld. CIT(A in sustaining the action of Ld. AO to the tune of Rs. 17,01,708/- on account of notional house property income is bad in law and against the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds.

7. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in charging interest u/s 234A, 234B and 234C of Income Tax Act, 1961.

8. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”

3. Grounds of appeal No.1 & 2 taken by the assessee are with respect to the validity of initiation of reassessment proceedings u/s 147 of the Act as according to the assessee, the approval u/s 151 of the Act was granted by the Addl. CIT(A) and not by the PCIT.

4. Heard both the parties and perused the materials available on record. The case of the assessee is reopened in terms of the reasons recorded and approval granted u/s 151 of the Act on 30.03.2021. The necessary copy of the approval is placed in the paper book filed by the assessee. The case of the assessee is reopened within a period of four years from the end of relevant assessment year i.e. AY 2016-17 for the present appeal and as per the provisions as contained in section 151 of the Act as prevailing at the relevant time, approval is required be obtained from the Additional Commissioner of Income Tax which has been granted in the instant case, therefore, we find no force in the argument of assessee that the approval should be granted by PCIT. Section 151 of the Act stood amended w.e.f. 01.04.2021 wherein the approval from the PCIT is required in case of reopening within Four year from the end of relevant assessment year, therefore, we find that no error in the approval given by the Addl. CIT(A). Accordingly, the Ground of appeal No.1 and 2 taken by the assessee are dismissed.

5. Grounds of appeal Nos. 3 & 4 are with respect to the addition of Rs. 65,49,364/- made by holding the bank deposits as unexplained money u/s 69 of the Act.

6. Heard both the parties and perused the materials available on record. The claim of the assessee is that all the deposits in the bank account are out of the professional receipts/ cash withdrawals made from time to time by the assessee and, therefore, no addition should be made on this account. Assessee further claimed that certain cash deposits which were treated as belonging to the assessee of M/s Capital Maintenance Corporation (M/s CMC) which is proprietorship firm of the one Sh. Yashpal Singh and assessee has no relation whatsoever with whom, therefore, the banks account pertaining to Yashpal Singh and the deposits made in its bank account. It is also claimed by the assessee that various deposits are related to the loans taken by the assessee and copies of the relevant statements/loan sanctioned letter are also filed in the paper books placed before us. After considering the facts, it is seen that assessee since beginning of the proceedings claimed that the deposits include the cash withdrawn earlier, pertained to the third party and also amount of loans taken by her however, lower authorities have failed to verify the contention of the assessee. We thus, in the interest of justice, remand this issue to the file of the AO for verification of the claim made by the assessee and decide a fresh after providing reasonable opportunity of being heard to the assessee. With these directions, grounds of appeal No 3 & 4 of the assessee are partly allowed for statistical purposes.

7. Grounds of Appeal Nos. 5 and 6 are with respect to the addition of Rs.17,01,708/- made on account of notional rental income from the house properties owned by the assessee. The AO has made the addition of notional rent of Rs.42,54,272/- from total 13 (thirteen) properties owned by the assessee, by taking the fair market value of these thirteen properties tabulated at page 11 of the order at Rs. 1215,50,625/- and by taking 5% of the sum as fair rental value and reduced the standard deduction u/s 24 of the Act and made the addition of balance amount of Rs.42,54,272/-. In first appeal, Ld. CIT(A) though confirmed the action of the AO however, has reduced the fair market value of these properties to Rs.4,86,20,250/- and by taking 5% as same fair rental value worked out the fair rental value at Rs. 24,31012/-, and after allowing the standard deduction @ 30%, restricted the additions to Rs.17,01,708/-.

8. Heard both the parties and perused the material available on record. The claim of the assessee is that out of the 13 properties at Serial No.1 to 9 are used by the assessee for her professional purposes and part of the same were sold in earlier years and necessary capital gains were also declared in the return of income filed for the respective assessment years. In respect of properties 12 & 13 of the table at page 11 of the assessment order, it is claimed that assessee has already disclosed rental income of Rs.13,20,000/- (10,20,000 + 3,00,000) in the return of income and also admitted by the AO at page 8 of the assessment order. After considering these facts, we find that claim of the assessee that properties at Serial No.1 to 8 of the table at page 11 of the assessment order were either sold or used by the assessee for her professional purposes therefore, the same could not be considered for the purpose of computing the fair rental income.

8.1 Regarding the remaining properties, since the assessee has already disclosed rental income from the property at Serial No.12 & 13, the AO cannot make further addition on account of notional rent from these two properties.

8.2 The remaining properties at Serial No.10 & 11 of the table appearing at page 11 of the assessment order, claim of the assessee is that AO has taken fair market value on estimate basis however, the same should be done on the basis of Circle Rate fixed by the Municipal Corporation. After considering the facts, we direct the AO to work out the market value based on the circle rate declared by Municipal Corporation. This view is duly supported by the judgement of Hon’ble Jurisdictional High Court in the case of CIT vs, Moni Kumar Subba and others reported in [2011] Taxman.com 195 (Delhi). Accordingly we remand this issue ot the file of the AO and direct the AO to compute the fair market value of these properties on the basis of Municipal valuation and take 5% of the same as notional rental value and after allowing the standard deduction of 30%, compute the income towards notional rent from these properties. With these directions, grounds of appeal No.5 & 6 taken by the assessee are partly allowed for statistical purposes.

9. Grounds No.7 is with respect to charging of interest u/s 234A, 234B and 234C which is consequential in nature.

10. In the result, the appeal of the assessee is partly allowed.

ITA No.1430/Del/2024 for Assessment Year 2017-18

11. This appeal is pertaining to Assessment Year 2017-18 wherein grounds of appeal No. 1 and 2 are with respect to validity of the initiation of proceedings u/s 147 of the Act on the ground of approval u/s 151 of the Act.

12. The facts and arguments put forth by both the parties are identical to what was made in Assessment Year 2016-17 before us. Since in AY 2016-17, while deciding this issue, we have already taken a view that the AO has rightly initiated the reassessment proceedings u/s 147 of the Act, thus, by following the observations made therein which are mutatis mutandis applicable to the fact of the present appeal, these grounds of appeal taken by the assessee are dismissed.

13. Ground of appeal Nos. 3 & 4 taken by the assessee are with respect to the addition of notional rental income on house properties owned by the assessee. Admittedly the facts and observations made by both the lower authorities are identical and the arguments put forth by the assessee and Ld. Sr. DR are the same as were made in Assessment Year 2016-17, therefore, by following the observations made by us while remanded back this issue to the file of the AO in Assessment Year 2016-17 in ITA No.1431/Del/2024 which are mutatis mutandis applied to the facts of the present appeal also, we remand back this issue to the file of AO with the same directions. Accordingly, these grounds of appeal are partly allowed for statistical purposes.

14. Grounds of appeal No. 5 & 6 are with respect to the addition of Rs.1,72,85,088/- made u/s 69A of the Act towards bank deposits by holding the same as unexplained money of the assessee. Admittedly identical issues were raised by the assessee in Assessment Year 2016-17 in grounds of appeal No. 3 & 4 in ITA NO. 1431/Del/2024 where we have remanded this issue back to the file of the AO with certain directions. Thus, by following our observations made in Assessment Year 2016-17 in ITA No.1431/Del/2024 which are mutatis mutandis applicable to the facts of present appeal, this issue is remand back to the file of AO with the same directions as given therein. The grounds of appeal No. 5 & 6 are Partly allowed for statistical purposes.

15. Grounds of appeal No.7 is with respect to the addition of Rs.97,00,000/- made on account of long term capital gain.

16. Heard both the parties and perused the materials available on record. The Ld. CIT(A) in para 11 of the order has observed that the assessee has claimed the costs of property at Rs. 42.00 lacs, registration charges of Rs.2,52000/- and cost of improvement of 15.00 lacs, however, no details whatsoever were filed in support of these claims either before the AO and before the Ld. CIT(A). Looking to these facts and in the interest of justice, this issue is remanded back to the file of AO for verification of the claim made by the assessee. The assessee is also directed to file all the necessary evidences with respect to the costs of acquisition and costs of improvement before the AO. With these directions, this ground of appeal is partly allowed for statistical purposes.

17. The ground of appeal No.8 & 9 are with respect to the addition made on account of deposits in the bank account. We have already remanded back the assessee’s grounds of appeal No.5 & 6 wherein additions of similar nature for deposits in bank accounts were remanded back to the file of AO for necessary verification of the fact whether the said bank accounts belonged to assessee and further directed to allow the telescoping of the bank withdrawal made prior to deposits of funds. Accordingly, following the same directions, these ground of appeals are partly allowed for statistical purposes.

18. Ground of appeal No.10 is general in nature and needs no adjudication.

19. Ground of appeal No. 11 is with respect to charging of interest u/s 234A, 234B, and 234C which is consequential in nature.

ITA No.1429/Del/2024 (Asst. Year 2018-19)a.

20. All the grounds of appeal taken by the assessee have already been dealt with in ITA No.1430/Del/2024 for Assessment Year 20117-18 wherein we have already dismissed the grounds of appeal No. 1 & 2 with respect to the validity of initiation of proceedings u/s 148. Admittedly the facts are identical thus following the same observations as made in AY 2016-17 herein above, grounds of appeal Nos. 1 & 2 taken by the assessee are dismissed.

21. The remaining grounds of appeal Nos. 2 to 8 are regarding the additions towards bank deposits, notional rental income from house property and income from long term capital gain. Admittedly facts are identical as existed in AY 2017-17 and AY 2017-18 in ITA Nos. 1431/Del/2024 and 1430/Del/2024 respectively, and both the parties have made the common submissions, therefore, by following the same observations made in ITA No. 1430/Del/2024 for Assessment Year 2017-18 and in ITA No. 1429/Del/2024 for AY 2016-17 which are mutatis mutandis applicable to the facts of the present appeal also, we remanded back these issues to the file of the AO for fresh adjudication with the same directions. Accordingly, grounds of appeal Nos. 3 to 8 raised by the assessee are partly allowed for statistical purposes.

22. In the result appeal of the assessee is partly allowed.

23. In the final result, the appeals for Assessment Years 2016-17, 2017-18 and 2018-19 in ITA No.1431/Del/2024, ITA No.1430/Del/2024 and 1429/Del/2024 respectively are partly allowed for statistical purposes.

Order pronounced in the open court on 31.12.2025.