Case Law Details
Hoskote Subbanna Sadananda Vs ITO (ITAT Bangalore)
Limited Scrutiny Means Limited Power – Bangalore ITAT Pulls Up AO for Going Beyond Demonetisation Issue
The Bangalore ITAT held that where a case is selected for limited scrutiny only for verification of cash deposits during demonetisation, the AO cannot travel beyond that issue without obtaining approval from higher authorities as mandated under CBDT Instructions. The Tribunal therefore restricted the scope of enquiry only to demonetisation-period deposits and restored the matter back to the AO for fresh verification.
The assessee had filed a return showing only income from house property and other sources. The case was selected for limited scrutiny to examine cash deposits during demonetisation. However, the AO treated total cash deposits of ₹1.21 crore as unexplained u/s 69A, including ₹88.48 lakh relating to periods outside demonetisation. The assessee argued that the AO exceeded the jurisdiction permitted under CBDT Instructions No. 20/2015 and 5/2016 governing limited scrutiny cases.
Before the Tribunal, the assessee also contended that the AO’s computation itself was incorrect. According to the assessee’s SBI bank statements, total cash deposits during the entire year were only ₹71.92 lakh and deposits during demonetisation were merely ₹10.47 lakh, whereas the AO had mechanically adopted figures of ₹1.21 crore and ₹33.08 lakh respectively without clarity regarding the basis of computation.
The ITAT accepted the legal contention that the AO could not widen the scope of limited scrutiny without obtaining prior approval from the PCIT/CIT. Since the Revenue could not demonstrate that such approval had been taken, the Tribunal held that additions relating to non-demonetisation period cash deposits were beyond jurisdiction.
Further, noting serious discrepancies in the computation of cash deposits and absence of clarity even before the Tribunal regarding the figures adopted by the AO, the Bench restored the matter back to the AO for fresh verification of the exact quantum of demonetisation-period cash deposits and examination of the assessee’s explanation that deposits belonged to newspaper agency collections of his brother.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal is filed by HOSKOTE SUBBANNA SADANANDA [the Assessee/Appellant] against the appellate order of Ld. COMMISSIONER OF INCOME TAX (APPEALS), NFAC, DELHI dated 20-Jun-2025 for the Assessment Year 2017-18 wherein the appeal filed by the assessee against the assessment order passed by ITO, WARD 5(2)(3), BENGALURU [ld. AO] dated 23.12.2019 making the addition of Rs.1,21,55,500 u/s. 69A of the Act being cash deposit in the bank account of the assessee was dismissed. Thus, assessee is aggrieved and in appeal before us.
2. Briefly stated the facts of the case show that assessee is an individual, filed his return of income on 5.8.2017 at a total income of Rs.1,81,160. The case of the assessee was selected for limited scrutiny for verification of cash deposit during the demonetization period.
3. Necessary notice u/s. 143(2) of the Act was issued to the assessee. The assessee in his statement submitted that his brother, H.S. Parashivu ran a newspaper agency and cash deposit has been deposited in his account. The assessee did not give any detail, copy of return of his brother and saying that amount of cash deposit is shown as turnover of that particular assessee.
4. The AO noted that the assessee has made cash deposit of Rs.33,08,860 during the demonetisation period and had made a further cash deposit of Rs.88,48,640 during the prior and post demonetisation period in his SBI account and in absence of any explanation, the addition was made u/s. 69A of the Act.
5. The assessee preferred an appeal before the ld. CIT(A) wherein the assessee was granted the opportunity on 16.3.2022 and 2.5.2025 wherein the assessee filed a detailed written submission and the ld. CIT(A) confirmed the addition as the assessee could not provide any detail of copy of return filed by his brother. Accordingly the total addition was confirmed. The ld. CIT(A) also rejected the argument of the assessee that the return of income of the assessee was selected for limited scrutiny for verification of cash deposit during the demonetization period and therefore the addition of cash deposit of non-demonetisation period could not have been made in the hands of the assessee. The ld. CIT(A) held that issue is same of cash deposit and therefore addition made by the AO is proper.
6. The assessee is in appeal before us. The argument of the ld. AR is that the limited scrutiny is for the purpose of verification of cash deposit during the demonetization period, but the ld. AO has also made the addition of cash deposit during the other period and thus has exceeded the authority prescribed under the CBDT Instruction No.20/2015.
7. On the issue of merits, it was submitted that assessee has made an application under Rule 46A before the ld. CIT(A) submitting additional evidence including letter sent from his brother and niece confirming the deposit of cash from newspaper sales to the assessee’s bank account. The ld. CIT(A) has disregarded the same and did not discuss the issue. The ld. AR further submitted that a sum of Rs.21,55,500 computed by the AO is far in excess of the assessee’s actual cash deposit of only Rs.71,92,080, out of which only Rs.10,47,610 is during the demonetization period and Rs.61,44,470 is for other period. Therefore the addition made by the AO is baseless.
8. To support his contention, the ld. AR submitted a paperbook of 254 pages wherein at page 44-115 the application under Rule 46A is produced. He further relied on the CBDT Instruction No.5/2016 and 20/2015 on the limited scrutiny stating that if there is a limited scrutiny case, addition should not be made beyond those reasons. For this proposition several judicial precedents were also relied upon.
9. The assessee has made an application under Rule 29 of the ITAT Rules, 1963 at pages 182-228 of the PB wherein further additional evidence are placed. Such additional evidence are only bank statement of the assessee with SBI, Basavangudi Branch, to demonstrate that cash deposited by the assessee is far less as computed by the ld. AO. The ld. AR further referred to his written submissions containing 8 pages.
10. The ld. DR, Shri Balusamy N., JCIT, vehemently supported the orders of the ld. lower authorities.
11. We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. The issue here is that the cash deposit according to the ld. AO in the Bank A/c is amounting to Rs.1,21,55,500. The cash deposit during the demonetization period is stated by the ld. AO of Rs.33,08,860. However the cash deposit during the other period is Rs.88,48,640. The return of income filed by the assessee disclosing total income of Rs.1,83,160 did not disclose any business income, but was having income from house property and income from other sources only. As per the assessment order, it is clearly mentioned that the case of the assessee was selected for limited scrutiny for examination of cash deposits during the demonetization period. According to the instructions of CBDT, the AO if he is selecting the case on limited scrutiny, he could not have gone through the other issue than for which the case was selected. The scope can be extended only with prior approval of the PCIT & CIT. It is not denied before us by the Revenue that the return of income was selected only for limited scrutiny to examine the cash deposit during the demonetisation period. It is also not shown by the Revenue that during the course of examination of limited scrutiny the AO extended the scope of limited scrutiny by obtaining prior approval of higher authority in terms of above Instruction. In view of the above facts and according to the AO himself, the issue is with respect to cash deposit of Rs.33,08,860 on account of demonetisation, could not have been extended beyond that. Therefore, we direct the ld. AO to restrict the addition to the extent of Rs.33,08,860 if, on merits, it is found that the amount is correct and further the assessee did not disclose and explain the nature and source of such deposit. Accordingly we allow ground No.1 of the appeal of the assessee.
12. With respect to the non-admission of additional evidence before the ld. CIT(A) as well as the additional evidence filed before us, the assessee’s claim is that the assessee’s bank statement shows that total cash deposit for FY is only Rs.71,92,080 where the AO has considered the same at Rs.1,21,55,500. The deposit during the demonetisation period is only Rs.10,47,610 where the AO has considered the same at Rs.33,08,960. There is a vast difference between the above two figures. The assessment order also does not speak whether the ld. AO carried out any enquiry by obtaining bank statement from the SBI Bank of the assessee or not. Further the assessee has produced copies of bank statement. However as the amount computed by the ld AO did not have any evidence that this amount is derived. Therefore, it is only, ld AO who would be able to verify whether the amount mentioned by him is correct or amount mentioned by assessee is correct. Even the ld. AR or Ld. DR were not able to state and clarify wherefrom the ld AO has bifurcated cash deposited between two periods. As this issue could not be decided and verified here, Thus, it has become necessary to restore the matter to the file of the ld. AO. Therefore, for the verification of this aspect matter needs to be restored to the file of the ld AO.
13. In view of the above discrepancy, we restore the whole issue back to the file of the ld. AO to determine what is the exact cash deposit by the assessee during the demonetisation period in the SBI A/c. If the amount is correctly ascertained, then only the assessee is directed to explain the nature and source of such deposits. After that the ld. AO may examine the submissions of the assessee or any explanation with respect to the amount deposited by the brother of the assessee out of newspaper agency. The ld. AO after carrying out the verification may decide the issue afresh, to the extent of amount deposited in cash during the demonetisation period in accordance with law. Thus, ground Nos. 2 & 3 of the appeal are allowed as indicated above.
14. In the result, appeal filed by the Assessee is ALLOWED FOR STATISTICAL PURPOSES.
Order pronounced in the open court on 21st May, 2026.
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