Hemant Keshavrao Barsagade Vs ITO (ITAT Nagpur)
Cash Withdrawn Earlier Cannot Be Treated as Unexplained Investment Merely Because Assessee Changed His Explanation: ITAT Nagpur
The Nagpur Bench of the Income Tax Appellate Tribunal has held that an investment cannot be treated as unexplained under section 69 where the assessee demonstrates the availability of sufficient cash withdrawn from disclosed bank accounts before making the investment. The Tribunal granted relief notwithstanding the fact that the assessee had initially offered a different explanation regarding the source of the investment.
Consequent to the deletion of the quantum addition, the Tribunal also deleted the penalty imposed under section 271(1)(c).
The decision was rendered in the case of Hemant Keshavrao Barsagade v. ITO, Ward-1, Chandrapur, concerning Assessment Year 2013-14.
Delay of More Than 600 Days Condoned
The assessee filed two appeals before the Tribunal. One appeal challenged the quantum addition, whereas the other challenged the consequential penalty.
There was a delay of 606 days in filing the quantum appeal and 602 days in filing the penalty appeal. The assessee filed applications for condonation of delay supported by affidavits.
After considering the explanation and hearing both sides, the Tribunal found that the delay was neither intentional nor deliberate. Following the liberal approach laid down by the Supreme Court in Collector, Land Acquisition, Anantnag v. Mst. Katiji & Ors. [1987 (2) SCC 107] and Inder Singh v. State of Madhya Pradesh [(2025) INSC 382], the Tribunal condoned the delay in the interest of justice and admitted both appeals for adjudication.
Facts Relating to the Investment
The assessee was an individual who had not originally filed his return of income for AY 2013-14. The reassessment proceedings were initiated on the basis of information that the assessee had invested ₹11,25,000 with M/s Wasankar Wealth Management Limited.
During the reassessment proceedings, the Assessing Officer found that ₹1,25,000 had been paid through a cheque dated 08.12.2012. The explanation for this amount was accepted.
Regarding the remaining amount of ₹10 lakh, the assessee initially stated that he had obtained a cash loan of ₹10 lakh from Mr. Devendra Meshram against the mortgage of an immovable property. However, the assessee could not produce the necessary evidence to establish the nature and source of the alleged cash loan.
The Assessing Officer consequently treated ₹10 lakh as an unexplained investment under section 69 read with section 115BBE. Against the returned income of ₹2,77,000, the total income was assessed at ₹12,77,000.
Changed Explanation Before CIT(A)
Before the CIT(A), the assessee offered a different explanation. He contended that the investment had been made out of cash withdrawn from his disclosed bank accounts.
The assessee stated that he had withdrawn ₹8 lakh from his IDBI Bank account and ₹3.75 lakh from his State Bank of India account before making the investment. Thus, aggregate cash withdrawals of ₹11.75 lakh were available to explain the cash investment of ₹10 lakh.
The CIT(A), however, rejected the fresh explanation, apparently because it was different from the explanation furnished before the Assessing Officer, and confirmed the addition.
The assessee therefore approached the Tribunal.
Findings of the Tribunal
Before the Tribunal, the assessee again produced the bank account details. On examining the accounts, the Tribunal found that the assessee had in fact withdrawn amounts of ₹8 lakh and ₹3.75 lakh from the bank accounts maintained with IDBI Bank and State Bank of India before making the disputed investment on 08.12.2012.
The Tribunal also noticed that the opening balance in the assessee’s IDBI Bank account as on 01.04.2012 was ₹9,70,491. The bank accounts were disclosed accounts, and the withdrawals appearing therein were not disputed by the Department.
The Tribunal acknowledged that the assessee had changed his explanation. Initially, the assessee claimed that the source was a cash loan obtained against mortgage of property, whereas subsequently he claimed that the investment was made from withdrawals from his own bank accounts.
However, the Tribunal held that the changed explanation, by itself, could not justify the addition when the documentary evidence established the actual availability of funds. The disclosed bank accounts showed that sufficient cash had been withdrawn before the date of investment.
Accordingly, the Tribunal accepted that the assessee had sufficient cash in hand out of withdrawals from his own bank accounts to explain the investment of ₹10 lakh. The addition was therefore deleted and the findings of the CIT(A) were reversed.
Penalty Under Section 271(1)(c) Deleted
The Assessing Officer had also imposed a penalty of ₹2,11,710 under section 271(1)(c) in respect of the alleged concealed income of ₹10 lakh.
Since the underlying quantum addition had been deleted, the Tribunal held that the penalty had “no legs to stand.” Consequently, the penalty of ₹2,11,710 was also deleted.
Both appeals filed by the assessee were accordingly allowed.
Author’s Comments
The ruling is significant because it recognises the difference between a false explanation and an incorrect or subsequently revised explanation supported by independent documentary evidence.
Ordinarily, a material change in the assessee’s explanation creates doubt and calls for strict verification. However, suspicion arising from an inconsistent explanation cannot override reliable evidence. If disclosed bank accounts establish that sufficient funds were withdrawn before the investment, the explanation must be examined on its merits.
At the same time, a mere earlier cash withdrawal does not automatically prove its availability on the subsequent date. The assessee must ordinarily demonstrate a reasonable cash trail and show that the withdrawn amount was not spent or utilised elsewhere. The time gap between withdrawal and investment, the assessee’s cash-flow position, surrounding transactions and absence of contrary utilisation are relevant considerations.
In the present case, the Tribunal was satisfied with the disclosed bank accounts, the substantial opening bank balance, the withdrawals made during the year and their availability before the investment. The Department apparently did not bring any material on record to establish that the withdrawn cash had been utilised for some other purpose.
The ruling also reiterates that once the substantive addition is deleted, a penalty levied solely with reference to that addition cannot survive. Further, the condonation of a delay exceeding 600 days demonstrates that courts and tribunals generally prefer substantial justice where the delay is bona fide, properly explained and not deliberate.
Cases Discussed
- Collector, Land Acquisition, Anantnag v. Mst. Katiji & Ors. [1987 (2) SCC 107]
- Inder Singh v. State of Madhya Pradesh, judgment dated 21.03.2025 [(2025) INSC 382]
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT NAGPUR
These appeals by the assessee are directed against the separate orders of Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi (for short, “CIT(A)”) both dated 28.03.2024 passed u/sec. 250 of the Income Tax Act, 1961 (for short, “Act”) which are arising out of rectification order dated 24.02.2023 passed u/sec. 154 r.w.s. 147 of the Act and penalty order dated 19.09.2022 passed u/sec. 271(1)(c) of the Act by the ITO, Ward-1, Chandrapur for the Assessment Year (A.Y.) 2013-14 respectively.
2. Registry has informed that there is a delay of 606 days in ITA No. 58/NAG/2026 and 602 days in ITA No. 99/NAG/2026 in filing the present appeals. Applications for condonation of delay along with affidavits are placed on record. Perusal of the same and after hearing both the sides, I find that the delay is neither intentional nor deliberate and therefore, in the interest of justice and taking guidance from the judgments of Hon’ble Apex Court in the case of Collector Land Acquisition, Anantnag vs. Mst. Katiji & Ors [1987 (2) SCC 107] and also in the case of Inder Singh vs. State of Madhya Pradesh dated 21.03.2025 [(2025) INSC 382)], I hereby condone the delay and admit the appeals for adjudication.
3. Grievance of the assessee in ITA No.58/NAG/2026 is against the addition of Rs. 10,00,000/- for unexplained investment u/sec. 69 r.w.s. 115BBE of the Act with M/s. Wasankar Wealth Management Ltd. (WWML) and in ITA No. 99/NAG/2026 is against the levy of penalty of Rs. 2,11,710/- for concealment of particulars of income of Rs. 10,00,000/-
4. I have heard the rival submissions and perused the material placed before me. Firstly, I take up quantum addition of Rs.10,00,000/- for the alleged unexplained investment u/sec. 69 r.w.s. 115BBE of the Act. I find that assessee is an individual, and for the year under consideration, did not file return of income. Reopening assessment proceedings were initiated based on the information about investment of Rs.11,25,000/- by the assessee with WWML. Ld. Assessing Officer (AO) observed that out of Rs. 11,25,000/-, assessee gave a cheque of Rs. 1,25,000/-, dated 08.12.2012 and the same was accepted, however, for the remaining sum of Rs. 10,00,000/-, assessee stated that he has taken cash loan of Rs. 10,00,000/- from Mr. Devendra Meshram against mortgage of immovable property. But in absence of necessary details, assessee could not explain the nature and source of loan in cash of Rs.10,00,000/- which resulted into addition for the said amount and against the returned income of Rs. 2,77,000/-, income assessed at 12,77,000/-. Thereafter assessee preferred appeal before the Ld.CIT(A) and made a new argument submitting that assessee has withdrawn cash of Rs. 8,00,000/- on 15.06.2012 from IDBI Bank and Rs.3,75,000/- from State Bank of India on 07.12.2012 and the said cash withdrawn from the declared bank accounts, assessee gave a sum of Rs. 10,00,000/- for making investment with WWML. However, Ld.CIT(A) disregarded this contention and confirmed the action of the Ld. AO.
5. Before this Tribunal, assessee again filed the details of bank accounts and on perusal of the same, I find that an amount of Rs.8,00,000/- and Rs.3,75,000/- has been withdrawn by the assessee on 15.06.2012 & 08.06.2012 from the bank accounts held with IDBI & State Bank of India. The alleged investment has been made on 08.12.2012 and therefore, the cash withdrawn during the year prior to the alleged investment is sufficient to explain the source of investment of Rs.10,00,000/-. Admittedly, the assessee has changed his statement, but since the bank accounts are duly disclosed and transactions appearing in these bank accounts and further considering the fact that the opening balance on 01.04.2012 in IDBI bank stood at Rs. 9,70,491/-, I find merit in the contention of the learned counsel for the assessee. Therefore, I am inclined to hold that since the assessee had sufficient cash in hand available out of cash withdrawn from his own bank accounts, during the year and prior to the date of making alleged investment, to explain the source of cash investment made with WWML, therefore no addition for unexplained u/sec. 69A is called for. Finding of Ld.CIT(A) is reversed and the addition of Rs. 10,00,000/- is hereby deleted and the effective grounds of appeal raised by the assessee are allowed.
6. So far as ITA No.99/NAG/2026 is concerned, the same relates to levy of penalty u/sec. 271(1)(c) of the Act on the concealed income of Rs. 10,00,000/-. But, since the quantum addition of Rs. 10,00,000/- has been deleted, the impugned penalty levied u/sec. 271(1)(c) of the Act at Rs. 2,11,710/- has no legs to stand and the same is hereby deleted. Effective grounds of appeal raised by the assessee are allowed.
7. In the result, both the appeals filed by the assessee are allowed.
Order pronounced on 10th September, 2026 under Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963
