Anil Kumar Sharma Vs ITO (ITAT Pune)
Pune ITAT: Entire Cash Deposits Cannot Be Taxed Ignoring Frequent Withdrawals – ₹5 Lakh Relief Granted Though Peak-Credit Theory Rejected for Want of Evidence
The Pune ITAT partly allowed the appeal of an assessee engaged in the transport business against an addition of ₹13,76,900 under Section 69A read with Section 115BBE, representing the entire cash deposited in his bank account during the year.
The assessee had not originally filed a return. Based on information regarding cash deposits of ₹13.76 lakh, the assessment was reopened under Section 147. In response, the assessee filed a return declaring income of ₹1,28,718, claiming that the deposits represented receipts from his transportation business. The AO rejected the explanation for lack of satisfactory supporting evidence and treated the entire deposits as unexplained money under Section 69A.
The assessee contended that the AO had looked only at the cash deposits while completely overlooking cash withdrawals of ₹12,87,500 from the very same bank account. Since there were frequent withdrawals and redeposits, he argued that only the peak credit of ₹1,09,700 should be treated as unexplained.
The Tribunal examined the bank statement and confirmed that against aggregate deposits of ₹13,76,900, there were withdrawals aggregating to ₹12,87,500, with frequent deposits and withdrawals throughout the period. The peak credit was ₹1,09,700 on 27 February 2013.
However, the ITAT declined to restrict the addition merely to the peak credit. The assessee had not satisfactorily established by documentary evidence that the cash withdrawn was the very same cash subsequently redeposited. Therefore, the direct application of peak-credit theory was held unjustified.
At the same time, the Tribunal recognised an important practical consideration: given the assessee’s transportation business, some cash would ordinarily be required to be kept in hand for day-to-day business operations. Considering the frequent withdrawals and deposits and the overall circumstances, the Tribunal held that taxing the entire ₹13.76 lakh was also inappropriate.
Accordingly, the ITAT granted the assessee ad hoc relief of ₹5,00,000 and sustained the balance addition of ₹8,76,900. The assessment was directed to be modified accordingly, and the appeal was partly allowed.
Key takeaway: While mere withdrawals and redeposits do not automatically justify restricting an addition to peak credit without establishing a cash nexus, the AO also cannot mechanically ignore substantial withdrawals from the same bank account. The pattern of withdrawals/deposits and the cash requirements inherent in the assessee’s business are relevant circumstances while determining unexplained cash under Section 69A.
Cases Discussed:
- CIT vs. Fertilizer Traders (Allahabad HC)
- PCIT vs. A. Anbukkannan (Madras HC)
- Tanmoy Chatterjee vs. ITO (Kolkata ITAT)
- Sagar Navinchandra Chande vs. ITO (Rajkot ITAT)
- Prakash Babu Nakundhi Krishna Reddy vs. ACIT (Bangalore ITAT)
- ITO vs. Thomas Paul Almedia (Mumbai ITAT)
- Vivek Kedia vs. ITO (Mumbai ITAT)
- ITO vs. Maheshkumar Jayantilal Vora (Rajkot ITAT)
- Jayesh V. Mehta vs. ITO (Mumbai ITAT)
- Jitendra M. Doshi vs. ACIT (Mumbai ITAT)
- Jitendra G. Shah (Mumbai ITAT)
- ITO vs. Bharat Bhushan Gupta (Delhi ITAT)
- Himanshu L. Shethia (HUF) vs. ITO (Ahmedabad ITAT)
- Jenson Thanaraj vs. ACIT (Chennai ITAT)
- Satya Bhama Bindal vs. ITO (Chennai ITAT)
- ITO vs. Deb Kumar Jana (Kolkata ITAT)
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal filed by the assessee is directed against the order dated 02-01-2026 of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi [“CIT(A)/NFAC”], u/s. 250 of the Income Tax Act, 1961 (the “Act”), pertaining to Assessment Year (“AY”) 2013-14.
2. Briefly stated, the facts of the case are that the assessee is an individual. For AY. 2013-14, the assessee did not file his original return of income. Based on the information available with the Department that the assessee has deposited cash at Rs. 13,76,900/- in his bank account during the relevant AY, the case of the assessee was reopened u/s. 147 of the Act by issue of notice u/s. 148 of the Act on 04-03-2020, in response to which, the assessee filed his return of income on 14-09-2020, declaring total income of Rs.1,28,718/-. Thereafter, notice(s) u/s. 142(1) of the Act were issued from time to time, seeking details/documents. In response to which the assessee submitted his reply, but without any supporting documents. The Ld. Assessing Officer (“AO”) therefore, issued a show cause notice asking the assessee to show cause as to why amount of Rs.13,76,900/- should not be treated as unexplained money u/s. 69A of the Act in absence of documentary evidence. In response to the same, the assessee filed his reply which was not found to be acceptable by the Ld.AO, for the reasons recorded in para 5-5.3 of his order. He therefore, completed the assessment u/s. 147/section 143(3) r.w.s. 144B of the Act on 01-09-2021 at an assessed income of Rs. 13,76,900/ -, treating the same as unexplained money u/s. 69A r.w.s. 115BBE of the Act.
3. The assessee challenged the above addition made by the Ld.AO before the Ld.CIT(A)/NFAC. The Ld.CIT(A)/NFAC after considering the written submissions filed by the assessee (reproduced in para 4 of his impugned order) dismissed the assessee‟s appeal by observing as under:
“5. Decision
5.1 I have gone through the contents of assessment order, grounds of appeal, statement of facts and written submission filed by the appellant. As per the assessment order, the case was selected on the issue of huge amount of cash deposits made despite not having filed any ITR. The Assessing Officer has passed assessment order u/s 147 r.w.s. 143(3) making additions of Rs. 13,76,900/- u/s 69A r.w.s. 115BBE on account of unexplained money earned by the appellant. The relevant part of assessment order is reproduced below:
5. The reply of the assessee is not acceptable in view of the following. In the purchase register [2 pages] submitted by the assessee transaction date start from 21.06.2012, however cash deposit in bank was also made in the month of April & May 2012 amounting to Rs. 80,000/-. Further, as per this register assessee claimed expenses amounting to Rs. 59,500/- incurred in month of May, 2013 during year under consideration i.e. AY 2013-14. The register submitted by the assessee is a self-made document and appears to be fabricated to colour transaction as normal business transactions. The assessee has not submitted any independent documentary evidence such as receipts from customer/truck driver to substantiate business transactions.
5.1 Further, in reply dated 10.08.2021 assessee submitted that monthly rent of Rs. 6000/- were given for portable cabin used at the market place. On perusal of page no. 2 of rent agreement submitted by the assessee in reply dated 28.08.2021, it is noticed that rent agreement is in respect of Flat/shop D-601, Plot 7 or 8, Sector 36, Co.op HSG Society in Triputi Complex, Kamothe, which is cooperative group housing society as per rent agreement. Therefore, claim of the assessee that rent is paid in respect of portable cabin at the market place is not found genuine. Further, the cash memo submitted by the assessee in respect of salary paid to staff are self serving documents without any independent evidentiary value.
5.2 Further, the assessee also claimed that it had shown profit more than 8% if provisions of section 44AD are considered. However the assessee has not filed ITR u/s 44AD. Further the provisions of section 44AD are applicable only in the case of eligible business having genuine business transactions.
5.3 The assesse is not able to prove that actual business activities were carried by him during the year under consideration. The assesse has not submitted independent documentary evidence as discussed above to prove genuineness expenses claimed in ITR. The initial onus is on the assesse to prove genuineness of the business activities and expenses claimed in the ITR. In absence of supporting documents, the explanation offered by the assesse is not satisfactory and the cash deposit amounting to Rs. 13,76,900/- remains unexplained. Further, the assesse has not filed any original return u/s 139 of the Income Tax Act. It appears that it is the after thought of the assesse to declare these undisclosed cash deposits as normal business receipts after the issuance of notice u/s 148 of the Income Tax Act. In view of above the cash deposits amounting to Rs. 13,76,900/- treated as unexplained money u/s 69A r.w.s 115BBE of the Income Tax.
[Addition:- Rs. 13,76,900/-]
For this addition, the undersigned proceeds to adjudicate the matter as under:
In his Ground of appeal no. 1, the appellant has challenged validity of reopening u/s 147.
As per assessment record, it is seen that AO had specific and tangible information of cash deposits of Rs. 13,76,900/- in the appellant’s bank account despite non filing of return of income, which is a valid basis to form a belief of escapement of income.
The appellant during the appellate proceedings has not furnished sufficient reasons or demonstrated any jurisdictional infirmity and mere general allegation that reasons are “not sufficient” cannot invalidate the reassessment. Further, the appellant participated in assessment proceedings, filed return in response to notice u/s 148 and contested the issue on merits, without challenging reasons before the AO, and has not substantiated his claims with facts or documents therefore, I am of the opinion that reopening is justified and Ground No. 1 is accordingly dismissed.
In his Ground of Appeal no. 3, the appellant has challenged the addition of Rs. 13,76,900/- made by AO u/s 69A r.w.s. 115BBE.
The assessment order records cash deposits aggregating to Rs. 13,76,900/- in the appellant’s bank account, which the appellant claimed as transportation business receipts. However, during the assessment proceedings, the appellant failed to prove that any real transportation business activity was carried out by him as despite various notices calling for details of vehicles owned, transport contracts, customer confirmations, and receipts of truck drivers expense, the appellant admitted owning no vehicles and merely stated sub-contracting to unnamed transporters. In absence of any independent corroboration such as lorry receipts, third-party invoices or counterparty statements, AO treated these cash deposits as unexplained.
Further, AO noted that the purchase register and cash memos submitted were self-made documents starting mid -year, containing post-year entries, supporting the AO’s finding that these are afterthought documents created to colour unexplained cash as business receipts. Also, the rent claim was internally inconsistent (portable cabin vs. housing society flat agreement), and salary memos lacked staff details or confirmations. The appellant neither maintained cash book nor other books of account nor section 44AD compliant return was maintained or filed originally. The appellant thus failed to discharge the primary onus to prove genuineness of business or source of deposits. On these facts, the AO’s action in treating the entire cash deposits of Rs. 13,76,900 as unexplained money u/s 69A and taxing it u/s 115BBE seems justified. Accordingly, Ground of appeal No. 3 is hereby dismissed.
Ground No. 2 is general in nature and does not call for separate adjudication beyond what is decided in respect of specific grounds on reopening and addition. To this extent, the ground no. 2 is treated as dismissed.
In Ground No. 4, the appellant contends that addition be restricted to peak credit of Rs. 1,09,700/-. The appellant’s plea relies on cash withdrawals of Rs. 12,87,500 juxtaposed against deposits, claiming peak balance on 27-02-2013.
Peak Credit theory can’t be applied automatically as appellant did not maintain cash book nor filed 3rd party confirmation nor any invoices reconciliation to demonstrate that withdrawals remained unutilised and formed a single circulating fund available for re-deposit. Peak credit theory applies as a rule of prudence only where business transactions are established, books exist and same funds are shown circulating, not mechanically in every case of deposits/withdrawals. The cited judicial precedents by the appellant are based on proved business context and reliable records, which is not applicable in this case where no business activity is established. Accordingly, Ground No. 4 is also dismissed.”
4. Aggrieved the assessee is in appeal before the Tribunal raising the following grounds of appeal:
“1. On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in confirming the addition of cash deposits amounting to Rs.13,76,900 as unexplained money under Section 69A r.w.s. 115BBE of the Act.
2. On the facts and circumstances of the case and in law, and without prejudice to the above, the CIT(A) has erred in not restricting the amount of addition to the peak credit amounting to Rs.1,09,700.”
5. The Ld.AR submitted that the assessee is a transporter engaged in the business of transport. He submitted that the nature of assessee‟s business requires him to maintain cash in hand for carrying out day to day business transactions. He submitted that the assessee has made the total cash deposit of Rs. 13,76,900/- in his bank account with HDFC Bank, however, there are frequent cash withdrawals from the same account to the tune of Rs. 12,87,500/-. The Ld.AO has merely considered the cash deposits and over looked the fact that there were cash withdrawals also. He submitted that the source of cash deposits which were under consideration is the cash withdrawn from the same bank account (page 1-7 of the paper book containing bank statement for the period 01-04-2012 to 31-03-2014 refers).
5.1. Referring to the statement/working of peak credit placed on pages 8 to 11 of the paper book, the Ld.AR submitted that only the highest or peak of the amounts in that account should be taken as the unexplained income of the assessee i.e. Rs. 1,09,700/-. He therefore, submitted that the addition should be restricted to the peak credit amounting to Rs. 1,09,700/-. He relied on the following decisions in support of his above contention:
i. CIT vs. Fertilizer Traders – Allahabad HC
ii. PCIT vs. A. Anbukkannan – Madras HC
iii. Tanmoy Chatterjee vs. ITO – Kolkata ITAT
iv. Sagar Navinchandra Chande vs. ITO – Rajkot ITAT
v. Prakash Babu Nakundhi Krishna Reddy vs. ACIT – Bangalore ITAT
vi. ITO vs. Thomas Paul Almedia – Mumbai ITAT
vii. Vivek Kedia vs. ITO – Mumbai ITAT
viii. ITO vs. Maheshkumar Jayantilal Vora – Rajkot ITAT
ix. Jayesh V. Mehta vs. ITO – Mumbai ITAT
x. Jitendra M. Doshi vs. ACIT – Mumbai ITAT
xi. Jitendra G. Shah – Mumbai ITAT
xii. ITO vs. Bharat Bhushan Gupta – Delhi ITAT
xiii. Himanshu L. Shethia (HUF) vs. ITO – Ahmedabad ITAT
xiv. B. Jenson Thanaraj vs. ACIT – Chennai ITAT
xv. Satya Bhama Bindal vs. ITO – Chennai ITAT
xvi. ITO vs. Deb Kumar Jana – Kolkata ITAT
6. Ld.DR on the other hand, supported the order of the Ld.CIT(A)/NFAC and the Ld.AO.
7. We have heard the Ld. Representatives of the Parties and perused the material available on record. We find that the Ld.AO has passed the assessment order u/s. 147 r.w.s. 143(3) of the Act thereby making addition of Rs. 13,76,900/- u/s. 69A r.w.s. 115BBE of the Act on account of unexplained money of the assessee holding that in absence of supporting documents, the explanation offered by the assessee is not satisfactory and the cash deposit amounting to Rs. 13,76,900/- remains unexplained and it appears to be an after thought of the assessee to declare these undisclosed cash deposits as normal business receipts after the issuance of notice u/s. 148 of the Act. We find that before the Ld.CIT(A)/NFAC, the assessee amongst the others raised the contention that the addition should be sustained based on the peak credit theory. However, rejecting the various contentions raised by the assessee, the Ld.CIT(A)/NFAC has dismissed the assessee‟s grounds of appeal and decided the impugned issue against him for the reasons which we have already reproduced in the preceding paragraphs. It has been the contention of the assessee that only the peak credit of Rs. 1,09,700/- should be considered for the purpose of considering the unexplained money u/s. 69A of the Act in respect of the cash deposits of Rs. 13,76,900/- made by the assessee. As the assessee has already declared the business income of Rs. 1,28,718/- which is nothing but pertaining to the same cash deposits by treating it as business receipts, no further addition should be made. It is also the contention of the Ld. Counsel for the assessee that the Revenue has not brought any material on record to show that the cash withdrawn from the bank account from time to time was utilized for some other purposes by the assessee and hence, were not available as source for depositing the said cash into the same bank account of the assessee. From the perusal of the bank statement of the concerned bank account of the assessee placed at pages 1-7 of the paper book, we find that there were frequent deposits and withdrawals from time to time. The assessee has deposited the amount aggregating to Rs. 13,76,900/- during the relevant period under consideration against which the withdrawals of Rs. 12,87,500/- have been made. The peak credit amount relates to the credit entry on 27-02-2013 amounting to Rs.1,09,700/- (pg.11 of the paper book refers). During the assessment as well as appellate proceedings before the lower authorities, the assessee has not satisfactorily explained the source and nature of credits/deposits by documentary evidence. No doubt, the assessee has made frequent withdrawals and deposits from time to time from the same bank account, it is however, difficult to accept that the same cash which has been withdrawn by the assessee has again been deposited into the same bank account, in the absence of any proof submitted by the assessee substantiating his claim. However, at the same time, the nature of business of the assessee being a transporter, may require him to keep some amount of cash in hand for conducting his day to day business. Thus, considering the totality of facts, in our view, the assessee‟s contention of restricting the addition only to the extent of peak credit is not sustainable. The assessee also does not benefit from any of the decisions (supra) relied by the Ld.AR as all these decisions are based on the peculiar factual scenario of each case. We therefore, deem it fit to give relief to the assessee to the extent of Rs. 5,00,000/- and sustain the balance amount of addition made by the Ld.AO and confirmed by the Ld.CIT(A)/NFAC. The order of the Ld.CIT(A)/NFAC is set aside in the above terms and the Ld.AO is directed to modify the assessment accordingly. The grounds of appeal raised by the assessee are partly allowed.
8. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open Court on 14-08-2026
