Neo Iturkaa Enterprises Vs Vs ACIT (ITAT Mumbai)
Mumbai ITAT Deletes ₹90 Lakh Demonetisation Cash Addition: Books Cannot Be Rejected Merely on Perceived Improbability
The assessee, a construction and labour contractor, regularly withdrew substantial cash for payment of wages to site labourers. Out of approximately ₹8.40 crore withdrawn during October 2016, ₹93 lakh remained as cash-in-hand, of which ₹90 lakh was redeposited during demonetisation. The Assessing Officer treated the deposit as unexplained money under Section 69A, questioning the commercial necessity of retaining such a large cash balance.
The Mumbai ITAT deleted the addition, observing that the assessee’s contemporaneous cash book and bank statements recorded the withdrawals, utilisation, closing cash balance and subsequent deposit. The Revenue had neither identified any defect in the cash book nor established that the withdrawn cash had been spent elsewhere or that the deposit represented undisclosed receipts.
The Tribunal held that perceived improbability of retaining a large cash balance, without positive contrary evidence, cannot justify an addition under Section 69A. The commercial prudence of keeping cash is not decisive when its availability and movement are supported by regularly maintained books.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Present appeal filed by assessee arises out of the order dated 30/06/2025 passed by the NFAC, Delhi [hereinafter referred to as “Ld.CIT(A)”] for A.Y. 2017-18, on the following grounds of appeal:-
“1. In the facts and in the circumstances of the case, the Learned National Faceless Appeal Centre (NFAC), CIT (Appeals), Mumbai has erred in issuing notice u/s 143(2) of the Income Tax Act, 1961 dated 16.08.2018 in violation of CBDT Instruction F.No.225/157/2017/ITA-II dated 23.06.2017. Therefore, the said notice is invalid, and assessment order passed pursuant thereto is bad in law.
2. In the facts and circumstances of the case and in law the Learned National Faceless Appeal Centre (NFAC), CIT (Appeals), Mumbai has erred in sustaining the addition of Rs. 90,00,000/- being cash deposits as unexplained money under section 69A of the Act.
3. In the facts and circumstances of the case and in law, the Learned National Faceless Appeal Centre (FAC), CIT (Appeals), Mumbai has erred in not considering the submissions of the appellant thereby grossly violating the principles of Natural Justice.
4. The appellant craves leave to add, alter, delete or modify all or any of the above grounds of appeal. All the above grounds are without prejudice to each other.”
2. Brief facts of the case are as under:-
The assessee is a firm engaged in the business of construction contract works and provides labour services to builders and developers. The assessee stated that it engages a large number of site labourers, including migrant labourers from different States, many of whom do not maintain bank accounts. According to the assessee, it has been following a consistent practice of withdrawing cash from its bank account towards labour payments and making payment of wages in cash in the succeeding month. It was submitted that such practice had been followed in earlier years as well, without any addition having been made by the Department on this account.
2.1. For AY 2017-18, the assessee filed its return of income on 22/09/2017 declaring total income of Rs. 83,44,790/-. The return was selected for scrutiny and notices u/s. 143(2) and 142(1) were issued. In response thereto, the assessee furnished various details and submissions through e-proceedings.
2.2. During the course of assessment proceedings, the Ld.AO examined the cash book, audited financial statements and bank transactions of the assessee. The assessee explained that the cash withdrawals reflected in the cash book and bank statements corresponded with the labour charges subsequently paid in cash. It was submitted that, during October 2016, the assessee had withdrawn substantial amounts of cash from its bank account, which remained available as cash-in-hand at the end of the month. According to the assessee, following the announcement of demonetisation in November 2016, the cash so retained could not be utilised for payment of labour charges, as the specified bank notes were no longer accepted for such payments. Consequently, the assessee was constrained to deposit the available cash into its bank account during the demonetisation period. It was further submitted that the amounts so deposited were thereafter withdrawn during the period from January to March 2017 for making payments towards labour charges.
2.3. In support of its explanation, the assessee furnished details of the cash book, cash withdrawals, cash deposits and labour payments, including details for the preceding and subsequent years. The assessee also relied upon its audited books of account and bank statements to substantiate the source and movement of the cash deposited during the demonetisation period.
2.4. The Ld. AO, however, did not accept the explanation furnished by the assessee. On examination of the cash book, the Ld.AO observed that substantial amounts were withdrawn from the bank account in a particular month and corresponding or identical amounts were utilised towards wage payments in the succeeding month. The Ld.AO considered the explanation regarding accumulation and retention of cash for making subsequent wage payments to be not plausible and treated the explanation furnished by the assessee as an afterthought.
2.5. The Ld.AO accordingly held that the source of the cash deposited into the bank account during the demonetisation period remained unexplained. He, therefore, treated an amount of Rs.90,00,000/- as unexplained money under section 69A of the Act.
Aggrieved by the order passed by Ld.AO, assessee preferred appeal before Ld.CIT(A).
3. During the course of appellate proceedings, notices under section 250 of the Act were issued on various dates, in response to which the assessee furnished submissions contending, inter alia, that the cash deposited represented the balance out of cash withdrawn from its Axis Bank loan/overdraft account during October 2016. It was submitted that the cash so withdrawn could not be utilised for making payments towards wages to site labourers on account of demonetisation and was, therefore, redeposited into the bank account. The assessee further submitted that the cash withdrawals and the subsequent payments towards labour charges were duly recorded in its cash book and were also reflected in the corresponding bank statements.
3.1. The Ld.CIT(A), however, did not accept the explanation furnished by the assessee. The Ld.CIT(A) observed that the assessee failed to establish, by cogent documentary evidence, the source and availability of the cash deposited during the demonetisation period. It was further observed that the explanation regarding redeposit of cash earlier withdrawn from the bank was not supported by reliable evidence. Accordingly, the Ld. CIT(A) confirmed the addition of Rs.90,00,000/- under section 69A of the Act and dismissed the grounds raised by the assessee. Aggrieved by the aforesaid order of the Ld. CIT(A), the assessee is in appeal before the Tribunal.
4. The Ld.AR submitted that the assessee’s receipts from sales were entirely routed through banking channels and that the cash deposits in question were made only during the month of November 2016, in the backdrop of demonetisation. It was submitted that the assessee regularly withdrew cash from its bank account for making payments to site labourers, as a substantial number of the labourers did not maintain bank accounts and, consequently, the wage payments were required to be made in cash.
4.1. The Ld.AR drew our attention to page 89 of the paper book, being the cash book, and submitted that the cash deposits were recorded only during the month of November 2016. It was further submitted that during October 2016, the assessee had withdrawn aggregate cash of approximately Rs.8.40 crores from its bank account, out of which Rs.93 lakhs remained as cash-in-hand at the end of October 2016. According to the Ld.AR, the said cash balance could not be utilised for payment of wages following the announcement of demonetisation and was, therefore, deposited into the bank account during November 2016.
4.2. The Ld.AR accordingly submitted that the source of the cash deposit of Rs.90 lakhs was not any unexplained receipt generated during the relevant period, but the cash-in-hand arising out of earlier withdrawals from the bank account, duly reflected in the books of account. It was, therefore, contended that the addition under section 69A of the Act was not justified.
4.3. In the contrary, the Ld.DR, on the other hand, submitted that there was no apparent necessity for the assessee to retain such a substantial amount of cash. It was contended that the assessee was regularly withdrawing cash from its bank account every month for the stated purpose of making payments to labourers. In such circumstances, according to the Ld.DR, there was no plausible explanation for the assessee to have accumulated and retained a cash balance of Rs.93 lakhs at the end of October 2016.
4.4. The Ld.DR, therefore, questioned the assessee’s explanation that the amount of Rs.90 lakhs deposited during November 2016 represented the balance of cash withdrawn earlier for payment of labour charges. According to the Ld.DR, the pattern of monthly withdrawals for labour payments did not support the assessee’s claim of retaining such a substantial amount of cash, and the source of the cash deposit consequently remained unsubstantiated.
We have perused the submissions advanced by both sides in light of records placed before us.
5. The short issue for consideration is whether the cash deposit of Rs.90,00,000/- made by the assessee during November 2016 can reasonably be treated as unexplained money under section 69A of the Act, or whether the assessee has satisfactorily established that the same represented cash available with it out of earlier withdrawals from its bank account.
5.1. It is an admitted position that the assessee was regularly withdrawing cash from its bank account for making payments towards labour charges. The explanation of the assessee is that such payments were required to be made in cash since the site labourers did not maintain bank accounts. The assessee has also placed on record its cash book and bank statements to demonstrate the movement of cash. We find that the cash book, particularly the entries referred to at page 89 of the paper book, records the cash withdrawals as well as the subsequent cash deposits. It is also the contention of the assessee that during October 2016, aggregate cash withdrawals of approximately Rs.8.40 crores were made and, after considering the cash payments made during the month, a cash balance of Rs.93 lakhs remained at the end of October 2016.
5.2. The fact that the assessee had withdrawn substantial amounts of cash during October 2016, by itself, does not establish that the cash balance of Rs.93 lakhs was not available with the assessee. The objection of the Ld.DR that there was no apparent necessity for the assessee to retain such a substantial amount of cash has to be examined in the context of the nature of the assessee’s business and the manner in which labour payments were actually made. The question is not whether, with hindsight, it would have been commercially prudent to retain such cash, but whether the assessee has been able to establish the availability and subsequent movement of the particular cash amount sought to be explained.
5.3. In the present case, the assessee has identified the source of the cash deposit as the cash balance arising out of earlier withdrawals from its bank account. The withdrawals are through banking channels and are stated to have been recorded in the cash book. The assessee has further furnished the corresponding details of cash payments towards labour charges. The cash deposit of Rs.90 lakhs was made during November 2016, immediately following the demonetisation announcement. Thereafter, according to the assessee, cash withdrawals were again made during January to March 2017 for meeting labour payments. Thus, the explanation furnished by the assessee is not based merely on a general assertion that cash was available; it is sought to be supported by the contemporaneous cash book and bank transactions.
5.4. At the same time, the mere fact that the cash was withdrawn from the bank does not, by itself, establish that the same cash continued to remain available with the assessee until the date of deposit. Cash is fungible, and therefore, the assessee is required to demonstrate a reasonable correlation between the withdrawals, the cash payments made thereafter, the cash balance carried forward and the subsequent deposit. In our view, such correlation has to be examined with reference to the entries in the cash book as a whole rather than merely by comparing individual withdrawals with individual labour payments.
5.5. The Ld.AO and the Ld.CIT(A) rejected assessee’s explanation on the ground that it was not plausible for the assessee to retain such a substantial cash balance when cash was being withdrawn regularly for labour payments. However, the authorities below have not pointed out any specific defect in the cash book, any instance of expenditure being recorded without sufficient cash balance, or any material demonstrating that the cash withdrawals claimed by the assessee were utilised for some other purpose. Likewise, no specific material has been brought on record to establish that the cash of Rs.90 lakhs deposited in November 2016 represented any receipt or money arising from an undisclosed source.
5.6. The timing of the deposit also assumes significance. The cash was deposited in November 2016, i.e., during the period of demonetisation. The assessee’s explanation that cash retained for making labour payments could not be utilised in the ordinary manner following the demonetisation announcement is, in the peculiar facts of the present case, a circumstance which cannot be rejected merely as an afterthought, particularly when the assessee has produced contemporaneous books and bank records showing the movement of cash.
5.7. We are conscious that the assessee cannot discharge the burden merely by showing that an equivalent amount had been withdrawn from the bank at some earlier point of time. However, in the present case, the assessee has gone beyond merely relying upon the bank withdrawals and has furnished the cash book reflecting the opening balance, withdrawals, cash utilisation and the subsequent deposit. The explanation is thus capable of verification from the books and corresponding bank transactions.
5.8. In these circumstances, we find that the explanation furnished by the assessee regarding the source of the cash deposit of Rs.90,00,000/- is supported by the contemporaneous documentary record. The assessee has identified the source of the cash as the cash balance arising from withdrawals made from its bank account and has demonstrated the corresponding movement of cash through its cash book and bank statements. The Revenue, on the other hand, has not brought any material on record to establish that the assessee was in possession of any cash, other than the cash withdrawals and cash balance disclosed in its books, which could have constituted the source of the impugned deposit.
5.9. More importantly, no specific defect or discrepancy in the cash book has been brought on record by the Revenue. There is also no material to demonstrate that the cash withdrawals recorded by the assessee were fictitious, that the corresponding cash was utilised for any undisclosed purpose, or that the assessee had received any undisclosed cash from an independent source. The Revenue has essentially proceeded on the premise that it was not commercially plausible for the assessee to retain cash of such magnitude when it was regularly withdrawing cash for making labour payments. Such an inference, in the absence of any contrary material, cannot by itself establish that the cash deposited was unexplained.
5.10. It is also relevant that the provisions of section 69A would be attracted where the assessee is found to be the owner of money which is not recorded in the books of account, and the assessee offers no satisfactory explanation regarding the nature and source thereof. In the present case, the assessee has not merely claimed the availability of cash but has pointed to the relevant entries in the cash book and the corresponding bank transactions. Once such explanation is furnished and is supported by the books maintained in the ordinary course, the Revenue cannot reject the same merely on the basis of an assumption as to how much cash the assessee ought to have retained. There must be some material or circumstance demonstrating that the cash claimed to be available was, in fact, not available or that the impugned deposit had a different and unexplained source.
5.11. In the present case, the Revenue has not brought on record anything further to establish that the assessee had cash available with it from any source other than that explained by the assessee. In particular, there is no finding, supported by evidence, that the assessee had generated undisclosed cash receipts or that the impugned cash deposit represented such undisclosed receipts. The rejection of the explanation rests substantially on the perceived improbability of retaining a cash balance of Rs.93 lakhs. In our considered view, an inference based merely on perceived improbability, without any positive material establishing a different source of the money, cannot by itself justify treating the amount as unexplained under section 69A of the Act.
5.12. Considering the totality of the facts, particularly the substantial cash withdrawals during October 2016, the cash balance reflected in the contemporaneous cash book, the deposit of Rs.90 lakhs during the demonetisation period, and the absence of any material brought by the Revenue to establish a source of the impugned cash other than that explained by the assessee, we are of the view that the assessee has satisfactorily explained the nature and source of the impugned cash deposit. The addition of Rs.90,00,000/- made under section 69A of the Act, therefore deserves to be deleted.
Accordingly, grounds raised by the assessee stands allowed.
In the result, appeal filed by the assessee stands allowed.
Order pronounced in the open court on 21/08/2026.
