Akshat Loyalka Vs ITO (ITAT Jaipur)
ITAT Jaipur Directs Fresh Examination of Cash Deposits in Akshat Loyalka Case; Upholds Reassessment Initiation
Jaipur: The Income Tax Appellate Tribunal (ITAT), Jaipur Bench, in a ruling pronounced on May 27, 2025, addressed an appeal by assessee Akshat Loyalka against the Income Tax Officer (ITO) concerning the reopening of assessment proceedings and a subsequent addition of Rs. 12,30,000 under section 69A of the Income Tax Act, 1961, for unexplained cash deposits. While the tribunal dismissed the challenge to the initiation of reassessment proceedings, it remanded the matter of the cash deposit addition back to the Commissioner of Income Tax (Appeals) [CIT(A)] for a fresh decision, citing the need for a more thorough examination of the assessee’s claims and evidence.
The case, Akshat Loyalka Vs ITO, involved two primary grievances. The first (Grounds 1 & 2) contested the legality of initiating reassessment proceedings under sections 147/148 of the Income Tax Act. Mr. Loyalka’s representatives argued that the Assessing Officer (AO) acted on “mere suspicion” and lacked a valid “reason to believe” that income had escaped assessment.
However, the ITAT, after reviewing the material on record and the information available to the AO, found no merit in these contentions. The tribunal observed, “The law is well settled that while initiating the reassessment proceedings reasons to believe or information cannot be found at fault saying that the same was insufficient. It is not the stage to reach to a conclusion but the AO is required only to form a prima facie belief as to escapement.” This principle, established through various judicial pronouncements, underscores that the threshold for reopening an assessment is the formation of a preliminary belief by the AO, not conclusive proof of income escapement at the initial stage. Consequently, these grounds were dismissed.
The second and more substantial part of the appeal (Ground 3) pertained to an addition of Rs. 12,30,000 made by the AO under section 69A of the Act, which deals with unexplained money. The AO had questioned cash deposits made into Mr. Loyalka’s bank account during the previous year relevant to Assessment Year 2016-17.
Mr. Loyalka’s explanation was that the deposited cash originated from prior withdrawals from his own bank account. This explanation was rejected by the AO on several grounds. The AO noted time gaps between the dates of cash withdrawal and subsequent redeposit. Furthermore, the AO dismissed the cash book presented by the assessee, stating it was unaudited and therefore unacceptable, despite acknowledging that Mr. Loyalka was not statutorily required to maintain an audited cash book.
The AO also questioned the assessee’s claimed household expenditure of Rs. 20,000 per month, deeming it unjustifiably low for an individual of Mr. Loyalka’s high net worth. The order detailed Mr. Loyalka’s financial standing, including his role as a partner in three firms (Noble Dyers, Shyam Sunder Minerals, Associated Exports) from which he received substantial profits, his position as a trustee in M/s P S Loyalka Charitable Trust, and income from capital gains and other sources. The AO estimated household expenses at Rs. 1,25,000 per month, implying that any withdrawn cash was likely utilized for these expenses rather than being available for redeposit.
The AO further pointed to a past instance, during assessment proceedings for AY 2017-18 related to demonetisation period deposits, where Mr. Loyalka’s explanation for cash sources was similarly rejected. This, the AO argued, indicated a pattern of “showcasing utilisation of cash withdrawals for any reason, which suits his purpose best” and allocating lesser amounts towards household expenses. The AO found it “improbable, unrealistic and astonishing that a prudent person will withdraw money from his bank account only for depositing it on later date.” An alternative submission by the assessee, suggesting the withdrawals and subsequent deposits were to create fictitious bank transactions for obtaining finance, was also dismissed by the AO as an admission of an illegal act intended to deceive banks. Based on these observations, the addition of Rs. 12,30,000 was made.
The CIT(A) subsequently upheld the AO’s decision, stating that Mr. Loyalka had not substantiated the source of the cash deposits with sufficient documentary evidence either before the AO or during the appellate proceedings. The CIT(A) emphasized that the onus was on the assessee to satisfactorily explain the source of receipts to prevent them from being treated as income.
Before the ITAT, Mr. Loyalka’s representative reiterated that the source of the Rs. 12,30,000 cash deposit was duly explained with the help of a regularly maintained cash book and bank statements, which allegedly demonstrated sufficient cash in hand from prior withdrawals on the dates of deposit.
The ITAT, in its analysis, expressed partial disagreement with the CIT(A)’s finding of a “complete lack of documentary evidences.” The tribunal noted that the CIT(A) himself had referred to the cash flow statement submitted by the assessee. The ITAT also observed that the alleged gap of 15 to 20 days between withdrawal and redeposit, highlighted by the AO, was a point that the CIT(A) had also seemed to reject as a conclusive basis for addition.
Crucially, the ITAT found the AO’s contention regarding the utilization of withdrawn cash towards household expenses to be “quite vague.” The tribunal stated, “The onus was upon the AO to have established utilization towards household drawings from undisclosed sources, which has not been done as no separate addition was made.”
Given the “contrary claims… on the factual aspect as regards the availability of the funds with the help of the cash flow statement,” the ITAT deemed it desirable for the CIT(A) to have conducted a more thorough examination of the assessee’s contention. Therefore, invoking the principles of natural justice, the ITAT restored the matter concerning the Rs. 12,30,000 addition to the file of the CIT(A) for a fresh decision, with a directive to consider the ITAT’s observations.
As a consequence of this restoration, Grounds 4 and 5 of the appeal were rendered academic and did not require separate adjudication. The appeal was thus “allowed for statistical purposes,” meaning the matter is remitted back to the lower appellate authority for re-evaluation based on the tribunal’s directions. The final outcome on the cash deposit addition will depend on the CIT(A)’s fresh assessment of the evidence.
Assesseeby : Shri Mahendra Gargieya, Advocate & Shri Hemang Gargieya, A
