ITAT Deletes Section 69A Addition as Cash Deposits Represented Recorded Business Receipts

ITO Vs Moti Lal And Sons (ITAT Lucknow)

The Revenue appealed before the ITAT Lucknow against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] for Assessment Year 2017-18, whereby the CIT(A) deleted an addition of ₹1,11,02,500 made under section 69A of the Income-tax Act. The Revenue primarily contended that the CIT(A) had admitted additional evidence without obtaining a remand report under Rule 46A of the Income-tax Rules.

During the appeal, the assessee also filed an application under Rule 27 of the ITAT Rules seeking to raise additional grounds challenging the validity of the reassessment proceedings under section 147. The assessee contended that the reassessment was based on incorrect facts, borrowed satisfaction, and lack of independent application of mind by the Assessing Officer (AO), rendering the proceedings void. It also argued that section 69A was inapplicable because the cash deposits were duly recorded in its books of account.

The reassessment originated after the AO received information regarding cash deposits in a Punjab National Bank account. Initially, information suggested that the account belonged to an individual, who clarified during his own assessment that the account actually belonged to the assessee partnership firm. The AO found that cash deposits amounting to ₹1,11,02,500 had been made during the relevant financial year but were allegedly not reflected in the income tax return. A notice under section 148 was issued, followed by notices under section 142(1). As the assessee did not respond, the AO obtained the bank statement under section 133(6) from the bank and completed the reassessment under sections 147 and 144, treating the entire cash deposits of ₹1,11,02,500 as unexplained money under section 69A.

Before the CIT(A), the assessee explained that it was engaged in wholesale trading of sugar and related products, where cash receipts from customers were routinely deposited into the bank either on the same day or the following day. It submitted that the cash deposits formed part of its business receipts and were fully recorded in the regular books of account. The assessee also stated that the firm’s main working partner was elderly and unfamiliar with electronic communications, resulting in non-receipt of notices issued through email. It further pointed out that its tax audit report under section 44AB, audited financial statements, and return of income were already available on the Income Tax Portal and showed turnover exceeding ₹2 crore. The assessee furnished its cash book, sales register, and bank statements to demonstrate that the deposits represented business receipts and not unexplained money.

After examining the material, the CIT(A) found that the cash deposits arose from regular cash sales made during the course of the assessee’s sugar trading business. The bank account also reflected payments to various sugar mills towards purchases, supporting the explanation that the deposits originated from business receipts duly recorded in the books of account. Holding that the source of the cash deposits stood explained, the CIT(A) deleted the addition of ₹1,11,02,500 under section 69A.

Before the Tribunal, the Revenue argued that the CIT(A) had improperly relied upon the cash book, sales register, and bank statements, which constituted additional evidence admitted without complying with Rule 46A or obtaining a remand report from the AO. It therefore sought restoration of the matter to the AO.

The assessee submitted that the CIT(A) had correctly appreciated the evidence. It argued that the audit report and financial statements had already been filed with the return and were available to the AO. The assessee also sought to challenge the reassessment proceedings under Rule 27, relying on judicial precedents permitting legal grounds to be raised before the Tribunal.

FULL TEXT OF THE ORDER OF ITAT LUCKNOW

This is an appeal filed by the Department against the order of the ld. CIT, NFAC wherein the ld. CIT(A), vide his order under section 250 of the Income Tax Act, 1961 dated 16.01.2024, has allowed the appeal of the assessee against the orders passed by the Assessing Officer under section 147 r.w.s. 144 r.w.s. 144B for the A.Y. 2017-18 on 26.03.2022. The grounds of appeal are as under:-

“1. Under the facts and circumstances of the case, whether the CIT(A), NFAC has erred in law while allowing relief to the assessee without calling for remand report u/s 250(4) and thus admitting the additional evidences filed by the assessee in contravention to the conditions laid down in Rule 46A of the I.T. Rules, thereby denied the examination of the same by the Assessing Officer under Rule 46A(3) of I.T. Rules.

2. Under the facts and circumstances of the case, whether the CIT(A), NFAC took the additional/fresh evidences dehors to Rule 46A of the I.T. Rules. Reliance is placed on Income tax Reference No. 96 of 1987 in the case of Haji Lal Mohd Biri Vs. CIT(Central), Kanpur, Allahabad High Court dated 20.01.2005 and ITAT, Lucknow’s Order in ITA No. 624/LKW/2010 dated 28.05.2013 in the case of M/s. Yog International (P) Ltd Vs. PCIT(Central), Kanpur.

3. Under the facts and circumstances of the case, the order of CIT(A), NFAC deserves to be set-aside.

4. The appellant craves to add, alter, delete, modify or withdraw any of the above grounds of appeal.”

2. Vide its application dated 17.08.2025, the assessee has sought permission to raise the following grounds under Rule 27 of the ITAT Rules, 1963, as under:-

“1. BECAUSE the entire re-assessment proceedings u/s 147 of the Income Tax Act, 1961 commencing from recording of reasons and concluding with passing of assessment order got wholly vitiated and consequently the assessment order deserved to be held as null and void.

2.1 BECAUSE reason to believe suffered from various infirmities owing to which assessment proceedings initiated u/s 147 of the Act are void-ab-initio and consequently, the assessment order passed is bad-in-law and without jurisdiction.

2.2 BECAUSE the reasons recorded for reopening of assessment u/s 147 of the Act are based on incorrect facts, borrowed satisfaction, and mere reference to cash deposits without any independent application of mind of the Assessing Officer and consequently the initiation of reassessment proceedings is illegal, void-ab-initio and unsustainable in law.”

3. BECAUSE on the facts and in the circumstances of the case, the provision of section 69A of the Act are not attracted and consequently the ld. CIT(A) should have deleted the addition of Rs. 1,11,02,500/- on this ground alone”.

3. The facts of the case are that the assessee had deposited a cash of Rs. 19,02,500/- in Punjab National Bank (P&B) during the financial year relevant to the assessment year 2017-18. The ld. AO received information that the cash had been deposited by Sh. Bijendra Kumar Rastogi. During the assessment proceedings of the Sh. Bijendra Kumar Rastogi, he informed that the impugned account did not belong to him but belonged to M/s Moti Lal and Sons in which he was a partner. The Assessing Officer noted that the assessee had deposited the cash in the bank account, but not shown the said deposits in its ITR. Accordingly, he issued notice under section 148. The assessee did not file a return in response to this notice. Thereafter, further notices were issued under section 142(1) on all the emails available on the ITBA system but the assessee did not furnish any reply. The ld. AO issued a notice under section 133(6) to Punjab National Bank asking them to provide the account statement of the assessee and in response the bank furnished the bank statement of the assessee that showed deposits of Rs. 1,11,02,500/-had been deposited by the bank during the financial year. Since the assessee did not file any responses to the notices, the AO proceeded to complete the assessment in a best judgment manner adding back this amount of Rs. 1,11,02,500/- under section 69A, after issuing the assessee the necessary show cause notices etc., prior to the passing of the assessment order.

4. The assessee was aggrieved at this order passed by Assessing Officer and accordingly went before the ld. CIT(A). Before the ld. CIT(A), it was pointed out that the assessee was involved in the business of wholesale trading of Sugar and related products, which involved cash receipts from buyers. As per the practice of the partnership firm, the amount collected as cash was deposited in the bank account or either the same of the following day, depending upon the cash requirement of the business. It was submitted that the amount of Rs. 1,11,02,500/- during the F.Y. 2016-17 were on account of business receipts of different natures. It was submitted by the assessee that in response to the show cause notice alongwith a draft assessment order, the assessee had submitted reply and stated that the cash deposits in the bank account were from the cash receipt / cash sales during the F.Y. 2016-17. It was submitted that the main working partner of the firm, Sh. Bijendra Rastogi was 75 years of age, not very tech savvy and not at all comfortable with email or Income Tax Portal. Hence, the notices issued by the Income Tax Department were not known to or received by him as the same was never physically sent at the postal address available with the Income Tax Department. It was further submitted that the AO had not considered the tax audit report under section 44AB of the Income Tax Act that had been filed alongwith the ITR on the Income Tax Portal and was available to the AO. The turnover of the firm was more than Rs. 2 Crores and hence tax audit was compulsory for the year. It was submitted that the AO was obliged to consider this report even while making an assessment under section 144. It was further submitted that the cash deposits of Rs. 1,11,02,500/- in the bank account was part of the total sales / turnover of the assessee firm which was Rs. 2,14,09,223/-. It was added that section 69A had no application in the facts and circumstances of the case because the money was recorded in the books of account which were duly maintained in the regular course of business and which had been audited by a duly qualified Chartered Accountant. The said audit report alongwith all financial statements had already been filed on the Income Tax Portal at the time of the filing of the ITR. Regarding non-production of books of accounts etc., the assessee submitted that since he had not received the notices, it could not be produced. However, in response to the show cause notice, a detailed reply had been filed, which had not been considered by the Assessing Officer. As part of this reply, the assessee filed a copy of his cash book which he held to be self-explanatory, a copy of his bank statement where the cash deposits were highlighted, a copy of the sale book for the year under consideration and prayed that the addition of Rs. 1,11,02,500/-, the addition may be deleted. The ld. CIT(A), upon consideration of the reply of the assessee, the cash book, the sales register and the bank statement found that the nature and source of a cash deposits were out of regular cash sales made by the assessee in the normal course of business of trading or sugar on various dates of small amounts. He further observed that from the bank account with Punjab National Bank, against the said cash deposits, payments had been made to sugar factories like Sarju Sahkari Chini Mills, Dalmia Chini Mills, Jawaharpur and Dalmia Chini Mills, Ramgarh, the Oudh Sugar Mills, the Kisan Sahkari Chini Mills etc., which were towards the purchase of sugar. Thus it was self-evident that the cash deposits made by the assessee during the relevant previous year was out of cash sales and business receipts of the assessee which had been duly recorded in the books of account maintained by the assessee. He, therefore, deleted the addition made by the Assessing Officer holding the source of impugned cash deposits of Rs. 1,11,02,500/- to be explained.

5. The Department is aggrieved at this order of the ld. CIT(A) and has accordingly come before us. Sh. R.R.N. Shukla, Addl CIT DR (hereinafter referred to as the ld. DR) representing the Revenue invited our attention to the grounds of appeal read with the order of the ld. CIT(A) pointed out that the assessee had filed his cash book, his sales register and his bank statement for the first time before the ld. CIT(A) and the ld. CIT(A) had proceeded to consider those evidences and make them the basis for his order without calling for the remand report under section 250(4) and thus he had admitted the additional evidences filed by the assessee in contravention to the conditions laid down in Rule 46A of the Income Tax Rules thereby impeding examination of the same by the Assessing Officer in Rule 46A(3). The ld. Addl CIT DR further pointed out that the said order of the ld. CIT(A) was in violation of the judgment of the Hon’ble Allahabad High Court in the case of Haji Lal Mohd. Biri vs. CIT (Central) in IT Reference No. 96 of 1987 and also the ITAT Lucknow’s order in the case of M/s Yog International (P.) Ltd. vs. PCIT (Central) Kanpur in ITA No. 624/LKW/2010. Accordingly, he prayed that since the ld. CIT(A) had not afforded the Department an opportunity to examine this evidence, he could not have made it the basis for granting relief to the assessee. He, therefore, prayed that the matter may be remanded to the file of the Assessing Officer.

6. On the other hand, Sh. P.K. Kapoor, C.A. (hereinafter referred to as the ld. AR) pointed out that the ld. CIT(A) was perfectly within his rights to pass the order that he had because he had examined all the records and come to a conclusion that no part of the cash deposits was unexplained. The ld. AR further pointed out that since the audit report and financial statements filed by the assessee were already before the ld. AO therefore, the ld. AO ought to have taken into account before making a best judgment assessment and adding back the entire amount of cash deposits that have been made. The ld. AR pointed out that even the simple observations that could be madITAT Deletes Section 69A Addition as Cash Deposits Represented Recorded Business Receiptsse from a perusal of the bank statement i.e., that the entire cost of goods had been paid to various sugar mills would have made it evident to the AO that the cash deposits were in response to the sales which have been disclosed by the assessee in its audited accounts and financial statements. Thus, there was no reason for the ld. CIT(A) to refer this matter back to the ld. AO and he was perfectly justified in deciding the issue on its merits at his level. The ld. AR also pointed out that the case had been reopened on incorrect set of facts and therefore, he sought liberty to challenge opening of the reopening of the assessment proceedings by filing an application under Rule 27 of the Income Tax (Appellate Tribunal) Rules. It was submitted that under Rule 27, a legal plea / ground which was not raised by the assessee before the lower authorities could be raised at any stage of the proceedings, particularly before the ITAT and in this regard, he placed reliance on the following case authorities:-

i. DCIT vs. Jubiliant Enpro Pvt. Ltd. in ITA No. 560/DEL/2010

ii. Arundhati Bal Krishna and Anr vs. CIT reported in 138 ITR 245 Guj

It was further submitted that the decision of the ITAT Delhi had been followed by the ITAT Lucknow in the case of ITO-6(1), Kanpur vs. Arti Security and Services Limited reported in (2021) 123 taxman.com 395 (Lucknow-Trib). Accordingly, it was prayed that these grounds may be admitted and since the case had been reopened on incorrect facts, borrowed satisfaction and reference to cash deposits without any independent application of mind by the Assessing Officer therefore, the entire assessment proceedings may be declared illegal, void ab initio and unsustainable in law.

7. We have duly considered the facts and circumstances of the case and the submissions made by both parties. We note that the notice under section 148 was duly served upon the assessee through email which was available on record and the assessee did not file a return of income in response to the said notice. We also ascertained and discovered that the assessee had not filed any objection to the issue of the said notice under section 148. Neither did the assessee raise the question of the maintainability of notice under section 148 in the appeal before the ld. CIT(A) or while filing the grounds of appeal before us. These additional grounds seeking the annulment of the assessment have been filed for the first time on 20.08.2025 purportedly under Rule 27 of the ITAT Rules, 1963. A simple perusal of Rule 27 of the ITAT Rules, 1963 show that a respondent may support the order appealed against even on any of the grounds decided against him, even though he may not have filed an appeal or cross objection against the appeal filed by the opposite party. However, the said rule can only be used to support the judgment of the first Appellate Authority on any ground. There may be a case where the party raises more than one ground before the ld. First Appellate Authority but secures relief on only one ground. Having secured relief, it may not find it worth its while to challenge the order on a ground of appeal that was not decided in its favour or not decided at all. However, if the relief given to the party is challenged, then this rule provides the said party an opportunity to support the order of the ld. First Appellate Authority on any ground and even raise issues before the Tribunal that had been decided against it by the First Appellate Authority. However, in our view, the assessee is not entitled to raise a ground which would work adversely to the appellant and put the appellant in a position that is worse than if he had not appealed at all, as the same would not be a defense to the appeal itself, but may affect the validity of the entire proceedings. Grounds raised under Rule 27 could only be entertained for the purposes of sustaining the order in appeal and dismissing the appeal and cannot be made use of to disturb or set aside the order in favour of the assessee. Such a view has been held by the Hon’ble Bombay High Court in B.R. Bamasi vs. CIT (1972) 83 ITR 223, wherein the Hon’ble High Court held that the assessee could only use Rule 27 to sustain the order of the AAC, but not to get further relief and have the assessment annulled. Further the Hon’ble Delhi High Court in the case of CIT vs. Divine Infracon Pvt. Ltd. (2015) 64 taxman.com 472 pointed out that by virtue of the said rule, a respondent before the Tribunal can support the decision appealed against not only on the grounds decided in favour of the respondent but also on grounds decided against it. However, Rule 27 of the said rules would not extend to permitting the respondent to expand the scope of an appeal and assail the decision on issues, which were not the subject matter of the appeal. Therefore, in consideration of the above, since the assessee has not raised the issue of maintainability of proceedings of 147 in the appeal before the ld. CIT(A), he would not in our opinion be entitled to raise the same under Rule 27 of the ITAT Rules for the purposes of seeking annulment of the assessment order. Accordingly, grounds no. 1, 2.1 and 2.2 raised under Rule 27 are dismissed as being out of the scope of Rule 27. As regards, ground no. 3, we note that since the ld. CIT(A)has held the cash deposits to be explained, he has, in effect, already ruled in favour of the assessee in this regard. Accordingly, the same is admitted for consideration.

8. In consideration of this ground and the grounds of appeal raised by the Department, we note that in its reply to the ld. AO on 25.03.2022, the assessee had provided the breakup of and an explanation for the cash deposits and requested opportunity for video conferencing, if further explanation was required. But the ld. AO proceeded to pass the order on the next day without affording such opportunity. It is also observed from the assessment order that the Bank statement had been obtained by the assessing officer under section 133(6) and examined for determining the amount of cash deposited in the said bank account. Thus, the said bank statement is not additional evidence. If we consider the order of the Ld. CIT(A), we find that the Ld. CIT(A) has, after considering that the payments made out of that same bank account had all been made to sugar factories towards the purchase of sugar, recorded his finding that the cash deposits made by the assessee in the relevant assessment year were out of business receipts of the assessee and were therefore explained. Of course, the said finding was validated by examination of books, which was admittedly not before the AO. But it is observed that the assessee had filed its audit report along with all financial statements along with the returns dated 30.10.2017. Thus, these were available to the assessing officer. These demonstrated that the assessee firm had sales/turnover amounting to Rs 2,14,09,233 /- on account of sale of sugar i.e., much more than the cash deposits. Had the said material been perused by the A.O. the addition could not have been made under section 69A, as the breakup and explanation for the deposits, the bank statement and the financial statements would have demonstrated that the credits were on account of cash sales and could only be regarded as unexplained money if that explanation and the financial statements were found to be defective or if the cash deposits were over and above the quantum of sales already disclosed in the return. There is no finding in the assessment order on either issue. Accordingly, since the addition could not have been made u/s. 69A, the decision of the ld. CIT(A) to delete the addition is upheld. Therefore, since a procedural shortcoming by the ld. CIT(A) cannot save the addition u/s 69A, the said appeal is fit to be dismissed.

9. In the result, the appeal of the Revenue is dismissed.

Order pronounced in the open court on 4.06.2026.