Pradeep Kumar Shet Vs ITO (ITAT Bangalore)
Demonetisation Deposits Explained by Cash Book: ITAT Deletes ₹62.85 Lakh Addition
Summary: The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has deleted a ₹62.85 lakh addition relating to cash deposited during demonetisation, accepting that the deposits were covered by the cash balance recorded before demonetisation. The Tribunal also deleted an addition arising from estimation of business profits at 8%, finding that the Assessing Officer had neither rejected the books nor produced material supporting that profit rate.
The decision was delivered on July 29, 2026, in Pradeep Kumar Shet v. Income Tax Officer, Ward-1, Raayachuru, ITA No. 2554/Bang/2025, concerning Assessment Year 2017-18. The Bench comprised Accountant Member Balakrishnan S and Judicial Member Keshav Dubey.
Background of the Assessment
The assessee filed his return on November 7, 2017, declaring total income of ₹13,91,540 and agricultural income of ₹4,64,081. Following initial processing, the case was selected for scrutiny.
During assessment, the Assessing Officer sought an explanation for cash deposits made during Financial Year 2016-17. The assessee explained that deposits of ₹88,86,645 during demonetisation arose from his gold and jewellery business.
He relied on an opening cash balance of ₹67,65,045 as on November 8, 2016, together with sale receipts during the demonetisation period. The Assessing Officer also obtained information from Corporation Bank concerning the deposits.
Assessing Officer Treated Specified Bank Notes as Unexplained
The Assessing Officer identified deposits of ₹62.85 lakh in specified bank notes. He observed that the assessee was not authorised to accept those notes in exchange for goods and services during demonetisation.
He further held that the claimed opening cash balance had not been substantiated through documentary evidence or books of account. Consequently, he treated ₹62.85 lakh as unexplained money under Section 69A.
Separately, the Assessing Officer considered the declared business profit rate of 5.36% too low. Applying an 8% rate to turnover of approximately ₹93.90 lakh, he added ₹2,46,955.
The declared agricultural income was also added because supporting evidence had not been furnished.
Additional Evidence Examined in First Appeal
Before the CIT(A)/NFAC, the assessee submitted written explanations and additional evidence. The appellate authority called for a remand report, which the Assessing Officer furnished on November 1, 2024. The assessee subsequently filed a rejoinder.
The CIT(A) deleted the agricultural-income addition and accepted the opening cash balance of ₹11,53,505 as on April 1, 2016. However, disputes remained concerning other cash-book receipts, including jewellery-business receipts and recoveries from sundry debtors.
The appellate authority also upheld the profit estimation at 8%, prompting the assessee’s further appeal.
Enhancement Ground Withdrawn After Rectification
One ground challenged the CIT(A)’s treatment of ₹79,93,538, compared with the original cash-deposit addition of ₹62.85 lakh. The assessee alleged enhancement without the notice contemplated by Section 251(2).
However, his representative informed the Tribunal that the Revenue had passed a rectification order and did not press that ground.
The Tribunal accordingly dismissed the enhancement ground as not pressed. It did not decide the merits of the notice objection.
Cash Book Supported Availability of Funds
On the substantive cash-deposit issue, the Tribunal noted that a detailed cash book had been produced before the CIT(A) and before it.
The Revenue had accepted the opening balance as on April 1, 2016, and had not identified substantive defects in the cash book. The Assessing Officer had largely described it as an afterthought, without examining it properly to ascertain the balance available on November 8, 2016.
The assessee had also furnished a sales register and VAT returns supporting jewellery sales. These materials had not been examined by the Assessing Officer.
After considering the cash book, the Tribunal found that the opening cash balance on November 8, 2016, was ₹67,65,045. It accepted that the disputed deposits came from this existing balance and directed deletion of ₹62.85 lakh.
Higher Profit Rate Required Supporting Material
The Tribunal separately considered the substitution of an 8% profit rate for the assessee’s declared 5.36%.
Although the Assessing Officer referred to non-production of purchase and sales records, he had not brought material on record demonstrating that the assessee actually earned an 8% margin. Instead, he relied on the provisions concerning presumptive taxation.
The Tribunal also noted that the books of account had not been rejected. In those circumstances, estimating higher profits merely because the declared margin appeared low was unjustified. The resulting ₹2,46,955 addition was deleted.
Final Decision
The Tribunal allowed the appeal. Interest under Sections 234B and 234D was treated as consequential and was not separately adjudicated.
The relief rested on the cash availability established by the records and the absence of a substantiated basis for increasing the business profit rate. The order therefore turns on the evidence and assessment findings in this particular case.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal is filed by the Assessee against the order of NFAC vide DIN: ITBA/NFAC/S/250/2025-26/1081847987(1) dated 17.10.2025 for the Assessment Year 2017-18, arising out of the Order passed under section 143(3) dated 30.12.2019.
2. Briefly stated facts of the case are assessee filed his return of income for the Assessment Year 2017-18 on 07.11.2017 declaring a total income of Rs.13,91,540/- and agricultural income of Rs.4,64,081/-. The return was summarily processed under section 143(1) of the Act. Subsequently, the case was selected for scrutiny under CASS and notice under section 143(2) of the Act was issued and served on the assessee calling for relevant information. The assessee has not complied to the notice. The learned AO required the assessee to explain the cash deposits in the bank account during the Financial Year 2016-17 vide show cause notice dated 19.12.2019. In response, the assessee submitted that cash deposits of Rs.88,86,645/- was made during the demonetization period in the said bank accounts which arise from the sale of gold and jewellery. Assessee also submitted that opening cash balance on 08.11.2016 is Rs.67,65,045/- and sale receipts of Rs.40,51,812/- during the demonetization period were used for the purpose of making cash deposits into bank account. The learned AO issued notice under section 133(6) of the Act on 16.12.2019 to Corporation Bank, Sindhanur calling for details of cash deposits made during the demonetization period by the assessee. On perusal of the submissions filed by the assessee, the learned AO observed that assessee is not authorized to accept SBNs during the demonetization period in exchange for goods and services. The learned AO worked out the SBN deposited in the bank during the demonetization period at Rs.62,85,000/-. He also observed that the assessee has not furnished any documentary evidence / books of accounts to substantiate the opening balance of cash of Rs.67,65,045/-. He therefore made an addition of Rs.62,85,000/- as unexplained under section 69A of the Act. Similarly, the learned AO also noticed that the assessee has declared lower profits which is at 5.36% on the sales declared in the P & L account. Since the assessee did not produce any books of accounts before the learned AO, the learned AO adopted 8% as profit and added the difference amount of Rs.2,46,955/- [Rs.93,89,717 X 8% = Rs.7,51,177 (–) net profit already declared of Rs.5,04,222/-]. However, the learned AO noticed that assessee did not substantiate the agricultural income declared in the return of income with proper evidence like sale pattis, expenditure bills, crop grown certificates from the concerned authorities and therefore added back amount of Rs.4,64,081/- as unexplained under section 69A of the Act.
3. On being aggrieved by the additions made by learned AO, the assessee carried the matter before the learned CIT(A). Before the learned CIT(A), assessee made written submissions and filed additional evidence. The learned CIT(A) thereafter called for remand report from the learned AO. The learned AO furnished the remand report on 01.11.2024. The remand report received from the AO was forwarded to the assessee for response from the assessee. The assessee submitted his rejoinder on 02.07.2025. Considering the remand report and the rejoinder, the learned CIT(A) sustained the addition made on account of estimating income @ 8% while deleting the addition made by the AO on the agricultural income declared by the assessee. Similarly, the learned CIT(A) accepted the opening balance on 01.04.2016 at Rs.11,53,505/-. However, the learned CIT erroneously sustained the addition of unregistered dealers amounting to Rs.38,55,680/-. Similarly, he also sustained the addition of Rs.41,37,858/- said to have been received from the sundry debtors.
4. On being aggrieved by the Order learned CIT(A), assessee is in appeal before us by raising various grounds:
1. The orders of the authorities below in so far as they are against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned CIT(A), NFAC erred in sustaining a sum of Rs. 79,93,538/- is addition in respect of the cash deposits made during demonetization without appreciating that the original addition made u/s. 69A of the Act was only Rs. 62.85,000/- and therefore, there was an enhancement of income which was made without issuing any notice u/s. 251[2] of the Act and thus, the addition sustained is opposed to law and facts of the appellant’s case.
2.1 The learned CIT(A),NFAC ought to have appreciated that the entire cash deposits made during the period of demonetization was duly recorded in the cash book produced by the appellant that has not been rejected in course of the assessment proceedings and therefore. the impugned addition made u/s. 69A of — e Act ought to have been deleted.
2.2 Without prejudice to the above, the learned CIT(A), NFAC ought to have appreciated that the learned A.O. had accepted the availability of opening cash balance as on 01/04/2016 of Rs 11,53,505/- and there were no serious adverse remarks with regard to amounts recorded in the cash book from sales relating to jewellery business during the year of Rs. 38,55,680/- in the remand report rendered in course of the appellate proceedings and therefore, the impugned addition sustained by the learned CIT(A) is on an erroneous appreciation of the appellant’s case and thus, the same deserves to be deleted.
2.3 The learned CIT(A), NFAC erred in disbelieving the amounts recovered from sundry debtors of Rs. 41,37,858/- that has been recorded in the cash book produced by the appellant, which has been disbelieved purely on suspicion and surmise under the facts and in the circumstances of the appellant’s case.
3. The learned CIT(A) is not justified in upholding the addition towards Business Income of Rs. 2,46,955/- by estimating the same at 8% of the turnover without appreciating that the appellant has offered income from business on the basis of books of accounts maintained in normal course under the facts and in the circumstances of the appellant’s case.
4. Without prejudice to the right to seek waiver with the Hon’ble CCIT/DG, the appellant denies himself liable to be charged to interest u/s 234-B and 234-D of the Act, which under the facts and in the circumstances of the appellant’s case deserves to be cancelled.
5. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and justice rendered and the appellant may be awarded costs in prosecuting the peal and also order for the refund of the institution fees as part of the costs.
5. Ground Nos.1 and 5 are general in nature and needs no adjudication. Ground No.2 is with respect to addition made by the learned CIT(A) amounting to Rs.79,93,538/- in respect of cash deposits during the demonetization period without appreciating the fact that original addition under section 69A of the Act was Rs.62,85,000/-. The learned AR submitted that rectification order has been passed by the Revenue and hence did not want to press ground No.2. Hence, ground No.2 is dismissed as not pressed.
6. With respect to ground No.2.2 wherein the learned CIT(A) has accepted the opening cash balance as on 01.04.2016. The learned AR submitted that cash book was not doubted by the Revenue authorities due to the fact that opening balance as on 01.04.2016 was allowed by the learned CIT(A). However, he submitted that learned CIT(A) erred in considering the opening balance on 08.11.2016 which stood at Rs.67,65,045/-. He further submitted that opening balance of cash was deposited during the demonetization period. The detailed cash book has been submitted before the learned CIT(A). However, the learned AO during the remand proceedings did not consider the cash book by observing that it is an afterthought. He therefore pleaded that since the cash deposits arises out of the opening balance as on 08.11.2016, the addition made by the learned AO under section 69A of the Act towards the cash deposits during the demonetization period amounting to Rs.62,85,000/- shall be deleted.
7. Per contra, the learned DR relied on the Orders of the Revenue authorities.
8. We have heard the rival contention and perused the material available on record. It is an undisputed fact that assessee has deposited an amount of Rs.62,85,000/- in cash during demonetization period into bank account of the assessee. Detailed cash book was produced before the learned CIT(A) and also before us. However, the learned AO has not considered the cash book and proceeded to make an addition of Rs.62,85,000/- being the amount deposited during the demonetization period. The Revenue has not disputed cash book whereas it has accepted the opening balance of cash on as 01.04.2016. The learned AO also has not adversely commented on the cash book except stating that it was an afterthought of the assessee. The learned AO however concluded that onus of explaining the transactions with necessary evidence / proof lies on the assessee, and in this case the asessee has failed to discharge the onus with necessary explanation and evidences. We note that the learned AO has failed to examine the cash book submitted for ascertaining the opening balance of cash as on 08.11.2016. The learned AO erroneously concluded that the opening balance as on 08.11.2016 consists of cash balance of Rs.11,53,501/- as on 01.04.2016 and sundry debtors of Rs.46,81,801/-. In support of the sale of jewellery, assessee has also furnished the sales register and VAT returns which was not examined by the learned AO. The learned AO simply observed that assessee has not furnished date wise details of payment from outstanding debtors. However, we find from the cash book submitted by the assessee before us the opening balance as on 08.11.2016 stood at Rs.67,65,045/-. We therefore are of the view that the cash deposits are made out of the balance existing on 08.11.2016 and hence we direct the learned AO to delete the addition of Rs.62,85,000/- made under section 69 of the Act.
9. Vide ground No.3, the assessee has challenged the estimation of income at 8% of the turnover. On this issue, the learned AR submitted that the assessee objected to estimation of profit and has declared a profit @ 5.36%. The learned AO merely stating that it is not reasonable and too low, proceeded to compute the margin of profit @ 8% as business income of the assessee. He therefore pleaded that since the books of accounts were not questioned by the Revenue, merely making an addition by observing that the assessee has declared lower profits is not valid in law.
10. Per contra, the learned DR relied on the Orders of the Revenue authorities.
11. We have heard the rival contentions. The learned AO noted that assessee has not produced the purchase register, purchase bills and sales register including the details of URD purchases and considered the profit declared by the assessee @ 5.36% is not reasonable and too low. However, the learned AO did not bring any material on record to state that assessee is earning 8% margin of profit while simply relying on the provisions of presumptive taxation. It is also noticed that the learned AO has not rejected the books of accounts. In this scenario, we consider that the act of the learned AO estimating the profit @ 8% instead of 5.36% as admitted by the assessee, on the turnover is not justifiable and deserves to be deleted. Thus, the ground raised by the assessee is allowed. Ground 4 is with respect to interest under sections 234B and 234D of the Act which is consequential in nature and hence not adjudicated.
12. In the result, appeal filed by the assessee is allowed.
Pronounced in the court on the date mentioned on the caption page.
