Case Law Details
Samir Mahesh Shah Vs DCIT (ITAT Ahmedabad)
ITAT Deletes ₹10.98 Lakh Addition Because Nil Cash Disclosure in Earlier ITR Alone Was Insufficient; Opening Cash Balance Cannot Be Treated as Unexplained Because Earlier ITR Showed Nil Cash: ITAT; Section 69A Addition Deleted Because Revenue Relied on Presumptions Instead of Evidence; ITAT Removes Cash Addition Because Financial Capacity Supported Opening Cash Balance; ₹10.98 Lakh Cash Addition Quashed Because Earlier Return Format Did Not Require Balance Sheet Disclosure
The Income Tax Appellate Tribunal (ITAT), Ahmedabad, allowed the assessee’s appeal and deleted the addition of ₹10,98,810 made under Section 69A of the Income-tax Act, holding that the opening cash balance could not be treated as unexplained merely because the preceding year’s income tax return reflected a nil cash balance.
The assessee had filed the return of income for Assessment Year 2020-21, which was selected for scrutiny. During assessment, the Assessing Officer (AO) noticed that the balance sheet reflected an opening cash-in-hand of ₹10,98,810 as on 1 April 2016, whereas the return of income for Assessment Year 2016-17 disclosed a nil cash balance. The AO sought an explanation for this discrepancy.
The assessee explained that in earlier years there was no requirement to furnish balance sheet details because the income comprised salary, house property, capital gains, and other sources. He further stated that in Assessment Year 2016-17, Futures & Options transactions were treated as business income, but the closing cash balance was shown as nil due to the return format. In the relevant assessment year, tax audit became applicable, requiring complete books of account and a balance sheet to be disclosed. The assessee also submitted that the cash represented accumulated bank withdrawals from income already offered to tax and was retained for household and emergency purposes.
The AO rejected the explanation, observing that no proper cash book had been produced during assessment, that there were no corresponding cash expenses despite continuous bank withdrawals, and that only ₹1,76,500 had been deposited during demonetisation despite the claim of substantial cash holdings. The AO concluded that the cash balance lacked genuineness, treated it as unexplained money under Section 69A, and added ₹10,98,810 to the assessee’s income. The Commissioner of Income Tax (Appeals) upheld the addition and declined to admit a cash book produced during appellate proceedings, treating it as additional evidence not admissible under Rule 46A.
The Tribunal observed that the addition was made primarily because the earlier return showed a nil cash balance while the subsequent balance sheet reflected an opening cash balance. It noted that the assessee had consistently explained that earlier returns did not require disclosure of balance sheet items, although books were maintained. The Tribunal further observed that the assessee was required to prepare and disclose complete books only because tax audit became applicable during the relevant year.
The Tribunal held that the absence of cash disclosure in an earlier return could not by itself lead to the conclusion that the opening cash balance was unexplained. It also noted that the Revenue had not found the assessee’s explanation—that the cash represented accumulated withdrawals from taxed income—to be factually incorrect. The Tribunal took note of the assessee’s substantial returned incomes in earlier years, observing that these supported the financial capacity to accumulate cash from disclosed sources. It further held that factors such as absence of cash expenditure, low demonetisation deposits, and non-production of a cash book during assessment were insufficient, by themselves, to establish unexplained money under Section 69A. The Tribunal also observed that the issue relating to non-admission of the cash book under Rule 46A was procedural. Finding the assessee’s explanation plausible and unsupported by any contrary material from the Revenue, the Tribunal held that the onus under Section 69A had been discharged and directed deletion of the addition. Accordingly, the appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 12.12.2025 passed for A.Y. 2020-21.
2. The assessee has raised the following grounds of appeal:
“1. That the Ld. CIT(A) has erred by not appreciating that the appellant had maintained the records of cash transactions over the years, and even then, added the opening cash balance of Rs. 10,98,810/- for the year under consideration under section 69A of the Act, treating the same as unexplained money. Such an addition is prayed to be deleted.
2. That the Ld. CIT(A) erred in sustaining the addition of ₹10,98,810 under section 69A, ignoring that in the first year of business of F&O (AY 2016-17), all transactions were carried out through banking channels, no cash was introduced or utilized, and therefore the closing cash balance being Nil required no disclosure in the return. The same may be held now.
3. That the Ld. CIT(A) has erred by dismissing the appeal for the non-filing of an application under Rule 46A of the Income Tax Rules, 1962, for inducing additional evidence in the form of a cash book, without issuing a show cause or calling for any clarification. Since the cash book was already filed before the AO, such an arbitrary rejection is prayed to be held as illegal in the interest of justice.
4. The appellant craves leave to add, amend, alter, or withdraw any ground of appeal at the time of hearing.”
3. The brief facts of the case are that the assessee is an individual who filed his return of income for A.Y. 2017–18 declaring total income of ₹84,86,180/-. The return was initially processed under section 143(1) of the Act and subsequently selected for complete scrutiny. During the course of assessment proceedings under section 143(3) of the Act, the Assessing Officer examined the details filed by the assessee and issued multiple notices under sections 143(2) and 142(1), of the Act asking for explanations and supporting documents.
4. During verification, the Assessing Officer noticed a discrepancy in the cash-in-hand position. As per the financial statements furnished for the relevant year, the assessee had shown opening cash-in-hand of ₹10,98,810/- as on 01.04.2016. However, in the return of income for A.Y. 2016–17, the assessee had disclosed “Nil” cash balance. This inconsistency led the Assessing Officer to issue a show cause notice requiring the assessee to explain how a substantial opening cash balance could exist when the immediately preceding year reflected nil cash. In response, the assessee submitted that in earlier years he was not required to furnish balance sheet details as his income consisted of salary, house property, capital gains, and other sources, and therefore the cash balance was not reported in the return though books were maintained. The assessee further submitted that in A.Y. 2016–17 i.e. previous assessment year, he entered into Futures & Options transactions, which were treated as business income, and due to losses and ITR requirements, the closing cash balance was shown as “Nil” by the assessee. In the year under consideration, since tax audit became applicable, a complete balance sheet was furnished reflecting actual cash balance. The assessee also contended that the cash was from withdrawals from bank over the years out of income offered to tax and was kept for household and emergency purposes.
5. The Assessing Officer, however, did not accept the explanation. The Assessing Officer observed that the assessee failed to maintain or produce a proper cash book during assessment proceedings and that the opening cash balance itself remained unsubstantiated. The Assessing Officer further noted that the assessee claimed continuous withdrawals from bank but did not show any corresponding cash expenses, which was contrary to normal human conduct. The explanation regarding keeping cash for medical emergencies was also rejected by the Assessing Officer as no evidence of such cash utilization was produced over several years. Further, the Assessing Officer drew adverse inference from the fact that during the demonetization period, the assessee deposited only a small amount of ₹1,76,500/- in the bank despite the claim of holding large cash balances. Based on these observations, the Assessing Officer held that the cash-in-hand was artificially shown to explain increase in capital and lacked genuineness. Accordingly, the Assessing Officer treated the opening cash balance of ₹10,98,810/- as unexplained money under section 69A of the Income-tax Act, 1961 (“the Act”) and added the same to the income of the assessee. The total assessed income was thus determined at ₹95,84,990/-, and penalty proceedings under section 271AAC were also initiated.
6. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(Appeals), contending that the addition under section 69A of the Act was unjustified. The primary submission of the assessee before the CIT(Appeals) was that the cash balance was sourced from past withdrawals from bank accounts out of income already offered to tax, and merely because earlier ITRs did not require disclosure of balance sheet items, the cash could not be treated as unexplained. The assessee also reiterated that proper books of account and balance sheets were maintained even in earlier years, though not reported in the return due to format limitations. It was further submitted that the Assessing Officer’s reasoning had no direct nexus with the actual source of cash and was based on presumptions.
7. During appellate proceedings, the assessee tried to strengthen his case by filing a cash book for the period from F.Y. 2011–12 to 2017–18 to demonstrate the flow and accumulation of cash over the years. However, the CIT(Appeals) examined this submission from the perspective of procedural compliance under Rule 46A of the Income-tax Rules, 1962. The CIT(Appeals) observed that the cash book constituted additional evidence which had not been produced before the Assessing Officer, and the assessee failed to provide any justification for such non-production during assessment proceedings. In absence of any application or explanation satisfying the conditions prescribed under Rule 46A, the CIT(Appeals) refused to admit the additional evidence and declined to consider the cash book.
8. On merits, the CIT(Appeals) concurred with the findings of the Assessing Officer. The CIT(Appeals) held that the assessee had failed to satisfactorily establish that the opening cash balance was derived from genuine sources. The explanation that cash was accumulated from bank withdrawals was not supported by credible evidence, particularly in the absence of a concurrent cash book during assessment proceedings. The CIT(Appeals) also endorsed the Assessing Officer’s observation regarding abnormal conduct, namely, accumulation of large cash without any corresponding cash expenditure and minimal deposit during demonetization, which weakened the credibility of the assessee’s claim.
9. Thus, the CIT(Appeals) held that the assessee failed to discharge the burden of proof cast upon him under section 69A to explain the nature and source of the cash. The addition of ₹10,98,810/- made by the Assessing Officer was therefore upheld in full, and all grounds of appeal raised by the assessee were dismissed. Consequently, the appeal of the assessee was dismissed.
10. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.
11. We have heard the rival contentions and perused the material on record. The issue involved in the present appeal relates to the addition of ₹10,98,810/- made by the Assessing Officer under section 69A of the Act on account of alleged unexplained cash in hand as on 01.04.2016, which has been sustained by the CIT(Appeals).
12. On careful consideration of the facts, it is observed that the entire addition has been made primarily on the ground that the assessee had shown “Nil” cash balance in the return of income for the immediately preceding assessment year, whereas in the year under consideration an opening cash balance has been reflected in the balance sheet. The explanation of the assessee throughout has been consistent that in earlier years, since there was no requirement to furnish balance sheet details in the return of income, the cash balance though maintained in books was not reported in the ITR. It is also not in dispute that in the year under consideration, due to applicability of tax audit on account of Futures & Options transactions, the assessee was required to prepare and disclose complete books of account including balance sheet.
13. We find merit in the contention of the assessee that merely because the earlier return of income did not reflect cash balance, the same cannot ipso facto lead to the conclusion that the opening cash in the subsequent year is unexplained, particularly when the assessee claims to have maintained books and has been consistently earning substantial taxable income over the years. The explanation of the assessee that the cash represents accumulation of withdrawals from bank out of income already subjected to tax has not been found to be factually incorrect; rather, it has been rejected primarily on the basis of presumptions.
14. Further, it is pertinent to note that the assessee has placed on record his returned incomes for earlier years, which are substantial in nature, being approximately ₹1.92 crores for assessment year 2013-14, ₹31 lakhs for assessment year 2014-15, ₹47 lakhs for assessment year 2015-16 and ₹1.50 crores for assessment year 2016-17. These returned incomes, which have not been disputed by the Revenue, clearly demonstrate the financial capacity of the assessee to generate and accumulate cash out of disclosed sources. In such circumstances, the existence of cash in hand cannot be viewed in isolation without appreciating the overall financial profile of the assessee.
15. We also find that the rejection of the assessee’s explanation by the Assessing Officer and CIT(Appeals) is largely based on general observations such as absence of cash expenses, low deposit during demonetization, and non-maintenance of cash book at the assessment stage. However, these factors, in our considered view, are not sufficient by themselves to conclusively establish that the cash in hand is unexplained within the meaning of section 69A, of the Act especially when the source is claimed to be past withdrawals from taxed income and the assessee’s overall income position supports such claim.
16. With regard to the non-admission of the cash book by the CIT(Appeals) under Rule 46A, we observe that the same is a procedural aspect. Even otherwise, the core issue remains whether the explanation of the assessee is plausible and supported by surrounding circumstances. In the present case, considering the consistent explanation of the assessee, the absence of any contrary material brought on record by the Revenue, and the substantial returned incomes of earlier years, the explanation of the assessee cannot be rejected.
17. In view of the above facts and circumstances, we are of the considered opinion that the assessee has reasonably explained the nature and source of the cash in hand and has discharged the onus cast upon him under section 69A of the Act. Therefore, we are of the considered view that the addition of ₹10,98,810/- made by the Assessing Officer and sustained by the CIT(Appeals) is not justified and is hereby directed to be deleted.
18. In the result, the appeal of the assessee is allowed.
This Order pronounced in Open Court on 24/04/2026
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