Srinivas.B.S Legal Heir of Suresh Vs ITO (ITAT Bangalore)
Remand Report Used Against Assessee Without Sharing It: Bangalore ITAT Sets Aside Demonetisation Addition
The ₹11.47 lakh addition must be reconsidered after the legal heir receives the AO’s report and an opportunity to respond
An appellate authority may seek a report from the Assessing Officer on fresh evidence produced by an assessee. If that report disputes the assessee’s explanation, the assessee must have an opportunity to see and answer it before an adverse decision is made. The Bangalore ITAT applied this principle in Srinivas B.S., legal heir of Suresh v. ITO, ITA No. 1794/Bang/2026, order dated 21 September 2026, for AY 2017–18.
The dispute concerned ₹15.47 lakh deposited in cash during the demonetisation period. The Assessing Officer accepted ₹4 lakh as explained and added the remaining ₹11.47 lakh under section 69A. During the first appeal, further evidence was sent to the AO for a remand report. The appellate authority upheld the addition after considering that report, but the legal heir contended that a copy had never been furnished to the assessee. The Tribunal set aside the appellate order and sent the case back for a fresh decision.
How the addition arose
The assessee had filed a return declaring total income of ₹1,11,498. The case was later selected for limited scrutiny to verify deposits made during demonetisation. The order records that the assessee did not initially respond to notices under sections 143(2) and 142(1). When asked to explain the cash deposits of ₹15.47 lakh, he stated that his children had given him money from time to time. His daughter was an NRI who remitted funds to his account, and he said he had withdrawn and kept cash to meet living expenses.
The Assessing Officer examined the bank statement and identified withdrawals of ₹5,02,576 before demonetisation. Considering that the assessee was a senior citizen and that some cash would have been spent on daily needs, the AO accepted ₹4 lakh of the deposits as genuine. He found the balance insufficiently supported, particularly the claim that it came from money remitted by the daughter. By an assessment order dated 23 December 2019, he treated ₹11.47 lakh as unexplained money under section 69A.
Before the Additional/Joint CIT(A), the assessee gave a broader account of the available cash. He claimed that funds aggregating to ₹25,44,431 were available through withdrawals from his own account, his wife’s and daughter’s accounts, and agricultural income from the sale of produce. He argued that these sources were more than sufficient to explain the ₹15.47 lakh deposited. He also filed additional evidence under Rule 46A.
The report that the assessee could not answer
The appellate authority forwarded the additional evidence to the AO and obtained a remand report. After considering the evidence and that report, it upheld the section 69A addition.
At the Tribunal hearing, the legal heir’s representative raised a specific objection: the AO’s remand report had not been supplied to the assessee. The assessee therefore had no opportunity to address its adverse findings, even though the report had been used in deciding the appeal. The Department supported the orders of the lower authorities.
The Tribunal examined the appellate record and found that the AO had completely disagreed with the assessee’s submissions in the remand report. It also found no indication in the appellate order that a rejoinder had been sought from the assessee. In those circumstances, deciding the appeal on the basis of the adverse report without providing a copy violated the principles of natural justice.
The Tribunal accordingly set aside the appellate order and restored the matter to the CIT(A) for fresh adjudication. It directed that the assessee be furnished a copy of the remand report and given a reasonable and adequate opportunity of hearing. The assessee was also directed to file a response within a reasonable time after receiving the report. The appeal was allowed for statistical purposes.
What remains to be decided
The Tribunal did not hold that the entire ₹15.47 lakh deposit had been explained. It did not decide whether withdrawals from the wife’s or daughter’s accounts were available with the assessee for redeposit, whether the agricultural receipts were established, or how much of the earlier withdrawals remained as cash during demonetisation. Those questions remain open for the CIT(A) to decide after hearing the assessee’s response to the remand report.
This distinction matters. The legal heir succeeded on the fairness of the appellate procedure, while the merits of the ₹11.47 lakh addition are still to be determined.
Author’s comment
A remand report is often the Department’s first detailed response to additional evidence filed in appeal. Where it contains adverse findings, disclosing it and inviting a rejoinder are essential steps, particularly if the appellate authority proposes to rely on it. The assessee’s earlier failure to answer scrutiny notices did not permit the CIT(A) to use a later adverse report without giving an opportunity to respond.
On the fresh hearing, the legal heir will need to address the report with a clear cash-flow reconciliation: the dates and amounts withdrawn, the source and availability of cash from family members, evidence of agricultural receipts, and the amount reasonably spent before the deposits. The Tribunal has reopened that opportunity; deletion of the addition will depend on the evidence and the findings reached after the remand report is shared.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
The legal heir of the assessee has filed the present appeal on behalf of the assessee against the impugned order dated 03/02/2026, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Additional/Joint Commissioner of Income Tax (Appeals), Udaipur, [“learned Addl./Joint CIT(A)”], for the assessment year 2017-18.
2. In this appeal, the assessee has raised the following grounds: –
1 The learned CIT(A) has erred in law and on facts in confirming the addition of Rs.11,47,000/- made by the learned AO u/s 69A, without properly appreciating the detailed explanation and documentary evidences furnished by the Appellant demonstrating availability of sufficient cash sources aggregating to Rs.25,44,431/-, which adequately explains the impugned cash deposits of Rs.15,47,000/-.
2 The learned CIT(A) has erred in law and on facts in sustaining the addition u/s 69A without appreciating that, even assuming that a portion of the cash withdrawals may have been utilised for living expenses, the aggregate cash availability amounted to Rs.25,44,431/-, which was more than sufficient to explain the cash deposits of Rs.15,47,000/- made during the relevant period. The learned CIT(A) failed to examine the overall availability of funds in a holistic and pragmatic manner, and instead proceeded on an erroneous premise of isolated nexus, thereby rendering the impugned addition unsustainable.
3 The learned CIT(A) has erred in law in relying upon the remand report dated 08.01.2026 without furnishing a copy thereof to the Appellant and without affording an opportunity to rebut the adverse findings contained therein, thereby violating the principles of natural justice and rendering the impugned order unsustainable.
4 The Learned AO in his remand report erred in failing to appreciate the commercial and personal wisdom of a senior citizen in maintaining cash liquidity. The authorities failed to consider the telescoping effect of cash withdrawals made over the period and the subsequent redeposit of unutilized funds. The genuineness of these withdrawals was established, and the failure to consider the Appellants age and circumstances has resulted in an unjust and perverse finding.
5 The Learned AO erred in treating the agricultural income of Rs.4,00,000/- as an afterthought in the remand report, despite the appellant having duly disclosed and substantiated the same in the original assessment proceedings vide submission dated 20.12.2019, supported by RTC records. This reflects a clear non-consideration of material already available on record at both the assessment and remand proceedings.
6 The learned CIT(A) has erred in confirming the rejection of cash withdrawals from the Appellants own bank accounts, as well as from the accounts of his spouse and daughter, on the untenable ground of lack of proximity and nexus, without appreciating the fact that no contrary evidence has been brought on record to establish that such withdrawals were not available for redeposit.
7 The learned CIT(A) has erred in law and on facts in sustaining the addition of Rs.11,47,000/- u/s 69A, which is based merely on surmises, conjectures, and unsubstantiated presumptions, without bringing any cogent OR corroborative material on record to disprove the explanation furnished by the Appellant. The learned CIT(A) failed to appreciate that the Appellant had duly discharged the onus cast upon him by furnishing plausible explanations supported by documentary evidence, and in the absence of any adverse material to the contrary, the rejection of such explanation and consequent addition is arbitrary, unsustainable, and liable to be deleted.
3. The solitary grievance of the assessee is against addition made under section 69A of the Act on account of cash deposited during the demonetisation period.
4. We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that the assessee was an individual and, for the year under consideration, filed his return of income on 16/11/2017, declaring a total income of ₹ 1,11,498. The return filed by the assessee was processed under section 143(1) of the Act. Thereafter, the return was selected for limited scrutiny under CASS to verify cash deposited during the demonetisation period. The assessee did not respond to the statutory notices issued under section 143(2) and section 142(1) of the Act. Accordingly, notice was issued asking the assessee to show cause why the cash deposited during the demonetisation period, to the extent of ₹ 15,47,000, should not be treated as unexplained money. In response, the assessee submitted that he received the money from his children from time to time. It was further submitted that his daughter is a Non-Resident Indian, who remits money to his account, and he has withdrawn the funds on a lump-sum basis and accumulated cash to meet living expenses. On perusal of the bank statement furnished by the assessee, it was observed that the total withdrawals before the demonetisation period amounted to ₹ 5,02,576. Considering that the assessee is a senior citizen and that, out of the aforementioned cash withdrawals, some amount would have been used for day-to-day use, the Assessing Officer (“AO”), vide order dated 23/12/2019 passed under section 143(3) of the Act, treated the cash deposit of ₹ 4 lakh as genuine. Further, since the assessee could not substantiate his claim with any supporting documentary evidence that the cash deposited during the demonetisation was on account of money remitted by his daughter and also in view of the fact that there are no corresponding withdrawals, the AO treated the cash deposit to the extent of ₹ 11,47,000 (i.e. ₹ 15,47,000 – ₹ 4,00,000) deposited during the demonetisation period to be unexplained money under section 69A of the Act.
5. During the appellate proceedings before the learned Addl./Joint CIT(A), the assessee submitted that he explained the sources of cash withdrawal to an extent of ₹ 25,44,431 from his own bank account, the bank account of his daughter, the bank account of his wife and agricultural income from sale of agricultural produce before the AO. The assessee submitted that the said details were not considered and the impugned addition was made. The assessee also furnished additional evidence under Rule 46A of the Income Tax Rules, 1962. The additional evidence furnished by the assessee was forwarded by the learned Addl./Joint CIT(A) to the AO for furnishing the remand report. After considering the additional evidence and the remand report furnished by the AO, the learned Addl./Joint CIT(A), vide impugned order, upheld the addition made under section 69A of the Act. Being aggrieved, the assessee is in appeal before us.
6. During the hearing, the learned Authorised Representative (“learned AR”) submitted that the copy of the remand report furnished by the AO was not provided to the assessee and therefore the assessee was not at all aware of the findings of the AO vide its remand report. The learned AR submitted that, if opportunity had been given, the assessee would have responded to the findings of the AO in the remand report, which formed the basis for upholding the addition vide the impugned order.
7. On the other hand, the learned Departmental Representative (“learned DR”) vehemently relied upon the order passed by the lower authorities.
8. Having considered the submissions of both sides and perused the material available on record, we find that the AO in its remand report, in response to the additional evidence filed by the assessee, has completely disagreed with the submissions of the assessee. Further, we find that there is no whisper in the impugned order of any rejoinder being called from the assessee in response to the remand report filed by the AO. Therefore, we find merit in the submissions of the learned AR and are of the considered view that by not providing the assessee with a copy of the remand report filed by the AO during the appellate proceedings, the learned Addl./Joint CIT(A) has violated the Principles of Natural Justice. Accordingly, we restore the matter to the file of the learned CIT(A) for de novo adjudication with a direction to provide the assessee with a copy of the remand report filed by the AO. Needless to mention, no order shall be passed without affording reasonable and adequate opportunity of hearing to the assessee. We also direct the assessee to file its response to the remand report, upon its receipt, within a reasonable time. Accordingly, with the above directions, the impugned order is set aside, and the grounds raised by the assessee are allowed for statistical purposes.
9. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 21-Sept-2026.
