Hameed Abdul Vs ITO (ITAT Bangalore)
Cash Sales Cannot Be Cycled Into Unexplained Money u/s 69A Without Examining GST/VAT Records: ITAT Gives Cycle Trader a Fresh Opportunity
Summary: The assessee was a proprietor carrying on the business of trading in cycles & cycle spare parts under the name M/s Bharath Cycle, Mysore. He had not filed his return of income for AY 2018-19.
Based on information regarding certain high-value transactions & substantial cash deposits, reassessment proceedings were initiated after following the procedure prescribed u/s 148A of the Income-tax Act.
At the preliminary stage, the assessee filed a reply enclosing his computation of income & profit and loss account. He claimed that no return had been filed because his income was below the taxable limit. The AO was not satisfied with the explanation & proceeded to issue notice u/s 148, followed by notices u/s 142(1) calling for further details.
Notices Served, Time Sought—but Details Never Filed
The assessee did not comply with the notices u/s 142(1). The AO thereafter issued a show-cause notice proposing to complete the assessment u/s 144. Although the assessee sought additional time, the required details were not furnished.
Apart from electronic service through the portal, a notice sent by speed post was also duly served. The Department’s Verification Unit examined the assessee’s authorised representative & recorded his statement u/s 131(1)(d). The representative agreed to furnish the supporting particulars but ultimately failed to do so.
In the statement, the authorised representative acknowledged cash deposits of ₹1,43,64,400 & confirmed that the amount tallied with the information available with the Department.
AO Compares a Cash Year With a Cashless Year
The AO examined the assessee’s return for AY 2019-20 & noticed that the sales reported for that year had been received entirely through account-payee cheques, bank drafts or electronic clearing systems. The income disclosed in the preceding & subsequent years was also substantially lower when compared with the turnover claimed for AY 2018-19.
Since the assessee had not furnished documentary evidence explaining the nature & source of the cash deposits, the AO rejected the contention that they represented proceeds of cash sales.
The absence of cash sales in AY 2019-20 was used as a reason to disbelieve the existence of cash sales in AY 2018-19. Consequently, the entire cash deposit of ₹1,43,64,400 was treated as unexplained money u/s 69A.
CIT(A) Also Proceeds Ex Parte
The assessee challenged the addition before the CIT(A). Three hearing notices were issued, but none was responded to. In the absence of any representation or supporting evidence, the CIT(A) confirmed the assessment through an ex parte order.
The assessee then approached the ITAT.
A Special Business Opportunity Explains the Sudden Turnover
Before the Tribunal, the assessee explained that he was semi-literate & lacked the knowledge required to operate a computer, check emails or access the Income-tax portal independently. This was stated to be the reason for his non-appearance before the CIT(A).
On merits, the assessee submitted that during the relevant year he obtained a special opportunity to supply cycles & spare parts to a group of persons engaged in creating fitness awareness among the general public by organising tours in the hilly district of Kodagu.
The transaction resulted in a turnover of ₹2,92,09,331. Since the supplies were made to persons operating in rural areas, the sale proceeds were received in cash & subsequently deposited into the assessee’s bank account.
The assessee maintained that the cash deposits were not independent or unexplained credits but represented the banking of sale proceeds arising from his regular trading business.
Sales Already Disclosed Before GST & VAT Authorities
Significantly, the assessee contended that the relevant cash sales & deposits had been disclosed in the returns filed before the VAT & GST authorities, which were accepted by the respective departments.
Before the Tribunal, the assessee produced:
- statement of accounts;
- profit and loss account;
- VAT & GST returns for the relevant periods;
- purchase invoices issued by suppliers; &
- other supporting business records.
It was argued that disclosure of the sales before the indirect-tax authorities demonstrated that there was no intention to suppress the business transactions. Once the cash deposits were shown to represent recorded business sales, the provisions of s.69A could not be mechanically applied.
The assessee also relied upon decisions of the Chennai & Mumbai Benches of the ITAT concerning cash sales & additions u/s 69A.
Statutory Returns Cannot Simply Be Ignored
The ITAT observed that the assessee was admittedly engaged in the business of trading in cycles & spare parts. His specific explanation was that the cash deposits arose from cash sales made to an identified group operating in rural areas.
The Tribunal found that this explanation could not be brushed aside without verification, particularly when the assessee had produced VAT & GST returns disclosing the sales. The purchase invoices, financial statements & other records also prima facie supported the business explanation.
However, these documents had not been produced before or examined by either the AO or the CIT(A), as both proceedings were effectively completed without the assessee’s proper participation.
The Tribunal, therefore, refrained from deleting the addition outright. Instead, in the interest of justice, the orders of the lower authorities were set aside & the matter was restored to the AO.
The assessee was granted an opportunity to produce all documentary evidence demonstrating that the impugned cash deposits represented proceeds of genuine cash sales. The AO was directed to examine the evidence & decide the matter afresh in accordance with law.
The appeal was accordingly allowed for statistical purposes.
Legal Principle
Cash deposited in a trader’s bank account cannot be treated as unexplained money u/s 69A merely because similar cash sales were absent in the subsequent year. Where the assessee produces VAT/GST returns, purchase invoices, accounts & other records supporting the existence of cash sales, those statutory disclosures must be objectively verified. A different sales pattern in another year may create a doubt, but doubt cannot substitute examination of contemporaneous business records.
List of Cases Discussed / Relied Upon
The assessee also relied upon decisions of the Chennai & Mumbai Benches of the ITAT concerning cash sales & additions u/s 69A. The supplied order does not identify the names of those decisions.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 14/07/2025 in respect of the A.Y. 2018-19.
2. The brief facts of the case are that the assessee is a trader in cycles and its spare parts. During the year, the assessee had not filed his return of income. Based on the information that the assessee had entered into the high value transactions, to examine the source of cash deposits made by the assessee, proceedings were initiated by sending notice u/s. 148 of the Act after complying with the provision 148A of the Act. At that time, the assessee filed a reply and also enclosed the income calculation sheet and profit & loss account and submitted that since his income was below the taxable limit, he has not filed his return of income. The AO not satisfied with the reply had proceeded to issue notice u/s. 148 and thereafter notice u/s. 142(1) was issued seeking the various details as per the notice. The assessee had not responded to the said notices. Thereafter, the AO had issued the show cause notice u/s. 144 of the Act for which the assessee sought for time to file his reply. In addition to the notice issued through the portal, notice was also sent through speed post which was duly served on the assessee. Since the assessee had not responded, through the verification unit of the department, the AR of the assessee appeared and a statement recorded u/s. 131(1)(d) of the Act. The Ld.AR of the assessee agreed to submit the details but no details were furnished by him. The AO relied on the statement given by the Ld.AR of the assessee in which he has accepted that the assessee had made cash deposit of Rs. 1,43,64,400/- and confirmed that the said amount tallies with the data available with the Department. The AO further perused the ITR filed by the assessee for the A.Y. 2019-20 and found that the assessee had made entire sales through account payee cheque or account payee bank draft or bank electronic clearance system. On that basis, the AO had concluded that the assessee had not disclosed the cash deposits in its return of income. The AO had also verified the previous year and the subsequent year ITR filed by the assessee which is very low when compared to the turnover effected for the A.Y. 2018-19. Therefore, the AO in the absence of any satisfactory explanation in respect of the nature and sources of cash deposit, arrived a conclusion that the assessee had not offered cash deposits for taxation and therefore, treated the same as unexplained money u/s. 69A of the Act. The AO had not accepted the plea that the cash deposits are from the cash sales effected by him since there was no cash sales effected by the assessee in the A.Y. 2019-20. Finaly the AO had confirmed the addition made u/s. 69A of the Act.
3. As against the said order, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) had issued three hearing notices but the assessee had not responded to the said notices and therefore, the Ld.CIT(A) had confirmed the order of the AO ex-parte.
4. As against the said order, the present appeal has been filed by the assessee before this Tribunal.
5. At the time of hearing, the Ld.AR submitted that the assessee is in the business of trading of cycles and its spare parts and the assessee is a semiliterate and do not have knowledge to operate the computer and check the emails on his own and therefore, he has not appeared before the Ld.CIT(A). The Ld.AR further submitted that during the A.Y. the assessee got an opportunity to do a business with a group of persons who are into creating fitness awareness among the general public by arranging the detours in the hilly district of Kodagu and supplied the cycles and spare parts to them and through the said business, he had achieved a turnover of Rs. 2,92,09,331/- and all of the sale proceeds were received in cash which were deposited into his bank account and therefore, the assessee is having all the details about the sales and the cash deposits which would be produced before the authorities below. The Ld.AR further submitted that the cash deposited into the bank account were declared in the GST and VAT returns which were accepted by the respective authorities. The Ld.AR also relied on the VAT and GST returns filed for the A.Ys. 2017-18, 2018-19 and 2019-20 and submitted that there is no intention to suppress the said income to the Department. The Ld.AR further submitted that the invoking of section 69A to the cash deposits is not correct and prayed to allow the appeal. The Ld.AR also filed the copies of the Statement of account, P&L account and the returns filed under the VAT and GST Acts and also the purchase invoices issued by the sellers. The Ld.AR also relied on the Coordinate Bench orders of Chennai and Mumbai Tribunals and prayed to allow the appeal.
6. The Ld.DR submitted that the assessee had not cooperated with the Department even though high value transaction was effected by him and also submitted that not even a return of income was filed by the assessee and also not appeared before the Ld.CIT(A) with the supporting documents and therefore, the orders of the lower authorities may be confirmed.
7. We have heard the arguments of both sides and perused the materials available on record.
8. From the facts narrated by the assessee, we found that the assessee is a trader in cycles and cycle spare parts and all the cash deposits are against the cash sales effected by him during the A.Y. to a specific group of persons in rural areas and therefore, the sales amounts were received in cash and deposited into his bank account. It is the further case of the assessee that all the cash sales and its deposits are properly reported to the VAT and GST authorities and therefore, the allegation that the assessee had unexplained money is not correct.
9. We have perused the documents furnished by the assessee along with the appeal and we are of the view that the submission made by the assessee could not be simply ignored since the assessee had submitted the returns under the VAT and GST Acts disclosing the sales effected by him. The other documents submitted by the assessee would also supports the contention of the assessee. But unfortunately, the documents are not verified by the AO as well as by the Ld.CIT(A).
10. Considering the facts on hand and also to render justice, we are inclined to set aside the orders of the lower authorities and grant an opportunity to appear before the AO and produce the documents to show that the cash deposits are nothing but the cash sales effected by the assessee.
11. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 28th August, 2026.
