Sydakhatoon Mahammad Karimnagar Vs ITO (ITAT Hyderabad)

The Income Tax Appellate Tribunal (ITAT), Hyderabad disposed of two appeals filed by the assessee relating to Assessment Year 2017-18 concerning additions made under Section 69A of the Income Tax Act on account of cash deposits in bank accounts. In the first appeal, the assessee, a small businesswoman engaged in stitching, embroidery, and brick manufacturing, contended that cash deposits of Rs. 33.10 lakh represented business receipts from brick sales and embroidery work, along with certain personal funds received from family members. The assessee stated that payments to labourers engaged in brick manufacturing were made through the same bank account and produced affidavits, Aadhaar copies, and bank statements in support of her claim. She further requested that income be assessed under the presumptive taxation scheme of Section 44AD, stating that she did not maintain formal books of account due to lack of education and accounting knowledge.

The Assessing Officer had treated the entire cash deposits of Rs. 33.10 lakh as unexplained money under Section 69A, and the CIT(A) confirmed the addition. Before the Tribunal, the assessee submitted that she was now in a position to furnish additional documentary evidence to substantiate the source of deposits. The Tribunal observed that if the assessee could support the claim with evidence, the matter required proper verification. In the interest of substantial justice, the ITAT set aside the order of the CIT(A) on this issue and restored the matter to the file of the Assessing Officer for fresh adjudication after granting adequate opportunity to the assessee. The assessee was permitted to file additional evidence, and the Assessing Officer was directed to decide the issue afresh in accordance with law. The appeal was allowed for statistical purposes.

In the second appeal, the issue related to a rectification order passed under Section 154 read with Section 143(3), through which the Assessing Officer made an additional addition of Rs. 13 lakh under Section 69A on account of further cash deposits allegedly made by other persons. The assessee challenged the validity of the rectification proceedings, contending that the issue required examination of facts and could not be treated as a “mistake apparent from record.” Reliance was placed on the Supreme Court decision in T.S. Balaram vs. Volkart Brothers.

The ITAT held that the addition of Rs. 13 lakh through rectification proceedings could not be regarded as an obvious and patent mistake capable of rectification under Section 154. The Tribunal observed that determination of taxability of such deposits required examination of facts and appreciation of evidence. Holding that the Assessing Officer had exceeded jurisdiction under Section 154, the ITAT set aside the rectification order and allowed the appeal on the legal issue, leaving the grounds on merits open.

FULL TEXT OF THE ORDER OF ITAT HYDERABAD

These two appeals are filed by Shri Sydakhatoon Mahammad (“the assessee”), feeling aggrieved by the separate orders passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”) both dated 02.05.2025 for the A.Y.2017-18. Since both the appeals are filed by the same assessee, for the sake of convenience, these two appeals were heard together and are being disposed of by this common consolidated order.

ITA No.1182/Hyd/2025:

2. The assessee has raised the following grounds of appeal:

1. Deposits Were Primarily Related to Business Activities — Not Unexplained Income

The appellant is a small businesswoman involved in stitching, embroidery, and bricks manufacturing work. Most of the cash deposits made into the savings bank account were from business activities and not unexplained income.

Most payments were received in cash, the appellant would deposit the cash into her bank account to make further payments for materials and labour, which is why they appear as bulk cash deposits in her account.

Apart from embroidery work, the appellant was involved in brick manufacturing. A large part of the cash deposits was from the sale of bricks, and the corresponding payments were made to labour teams from Orissa. These payments were also made through the same bank account and arc clearly shown in the bank statement. Some of the major payments include:

> Rs. 11,50,000 to Muzib Khan

> Rs. 2,90,000 to Rihana Sultana

> Rs. 7,00,000 to Kunal Tandi

> Rs. 1,00,000 to Bishnu Dandsena

> Rs. 8,00,000 to Purandar Bag

> Rs. 15,80,000 to Dinabandu Sunani

> Rs. 5,32,000 to Tuna Sunani

The appellant respectfully submits that clear instructions were not communicated during the assessment or appellate proceedings regarding the specific type of documentation or evidence expected. In the absence of detailed guidance, the appellant produced what was reasonably available and relevant under the circumstances, namely:

• • • Affidavits duly signed by the labourers affirming that they had rendered services and received payments from the appellant.
    • Copies of Aadhaar cards as identity and address proof, to support the authenticity of these individuals.

These documents clearly demonstrate that the persons to whom payments were made were real individuals and that the payments recorded in the appellant’s bank statement correlate with the business activities carried out, particularly in brick manufacturing.

The Affidavits from Labour Services providers and their Aadhar Cards has been attached for your reference.

These transactions clearly prove that the deposits were not unexplained, but related to real, small-scale business activities. The account was a personal savings account, and some deposits were also from family members for personal use.

The appellant further submits that she is not highly educated and was operating through a personal savings account. She did not maintain formal books of accounts nor purchase bills or sales invoices due to limited business experience, but this does not imply concealment or use of a colorable device as inferred by the learned Authorities.

2. Personal Funds from Family — Not Part of Business Income

The appellant humbly submits that a sum of t 13,00,000/- received during the relevant year was not related to business, but was personal in nature, received from close family members to support household and personal needs. Out of this amount:

• • • Rs. 11,00,000/- was given by her brother, Shri Muzahed Khan Mohammed
    • Rs. U,00,000/- was given by her husband’s brother’s son, Shri Mahammed Aleem Pasha

It is respectfully submitted that the appellant was not specifically instructed during the course of assessment or appellate proceedings as to the exact nature of documents or evidence required to substantiate such gifts or financial assistance from relatives. Had the appellant been clearly directed to furnish PANs or 1TRs, she would have made every effort to obtain and submit the same.

In the absence of detailed guidance, the appellant has submitted affidavits and supporting bank statement entries to show the genuineness of these personal contributions. These amounts were not part of any business dealings and should not be treated as business turnover or unexplained money under Section 69A.

Being a homemaker and small businesswoman with no formal accounting knowledge, she used her personal savings bank account for all purposes use both personal and business use and therefore these deposits appeared along with other transactions. The appellant respectfully requests that these personal funds be excluded from the income assessment.

3. Allow Section 44AD Presumptive Taxation

Furthermore, the appellant’s intention was not to exploit Section 44AD by misrepresenting income, but rather to disclose actual business turnover and claim presumptive income in accordance with the law. The appellant operated a genuine small business with mostly cash transactions and minimal formal documentation due to lack of resources and education.

Since the appellant is eligible under Section 44AD, she requests that her total business turnover (233,10,000 + Z3,85,900 = 236,95,900) be accepted as gross receipts and 8% profit be deemed as income, which is allowed under presumptive taxation. The estimated profit comes to 22,95,672 only.

4. Appellant Submitted Supporting Documents and Bank Details

To support the transactions, affidavits from labourers and relatives were submitted, along with bank statements. Some funds were also personal in nature, such as contributions from her husband’s brother’s son and brother, which were used for family needs. For these PAN Cards of both the relatives and Income Tax Return Ack copies for three years of her own brother Muzahed Khan Mohammed who arranged Rs. 11,00,000/- to justify the credit worthiness attached as noted in Appellate order.

5. Small Business and Lack of Books — Eligible for Estimation

The appellant runs a very small business without formal accounts or records and she is not educated and has no knowledge of accounting & tax procedures. However, under law, businesses not maintaining books can be assessed on estimated basis under Section 44AD. The appellant humbly requests that this provision be applied in her case.

6. Good Faith and Willingness to Pav Tax on Presumptive Income

The appellant has always cooperated and responded to notices. She is willing to accept and pay tax on the estimated at 8% or industry average profit percentage of brick industry on total receipts and settle the matter, to avoid further hardship.

7. Request for Relief in the Interest of Natural Justice

Considering the nature of business, personal background, and willingness to comply, the appellant prays for appropriate relief either by deleting the addition or by computing income under presumptive scheme, as per Section 44AD.

8. ITAT considered Cash Deposits as Business Receipts

Honourable Income Tax Appellate Tribunal has considered Cash Deposits as business receipts in recent cases and taken profit estimate on presumptive bases. We pray and beg the honorable judges I officers to fit our case to consider the cash deposits as business receipts and calculate taxes under presumptive basis.

9. Right to Submit Additional Grounds at the Time of Hearing

The appellant may kindly be allowed to raise any additional or revised grounds at the time of hearing to support her case better.

3. The brief facts of the case are that the assessee is an individual who filed her return of income for Assessment Year 2017-18 on 28.07.2017 declaring total income of Rs.3,07,500/-. The case of the assessee was selected for limited scrutiny through CASS and accordingly, notice under section 143(2) of the Income Tax Act, 1961 (“the Act”) was issued by Learned Assessing Officer (“Ld. AO”) to the assessee. During the course of assessment proceedings, the Ld. AO observed that the assessee had deposited cash of Rs.33,10,000/- in her bank account during the year under consideration. The Ld. AO called upon the assessee to explain the source of the said cash deposits. However, the Ld. AO was not convinced with the explanation furnished by the assessee and treated the entire cash deposits of Rs.33,10,000/- as unexplained money under section 69A of the Act and added the same to the income of the assessee. Accordingly, the assessment under section 143(3) of the Act was completed by the Ld. AO vide order dated 10.12.2019 determining the total income of the assessee at Rs.36,17,500/-.

4. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). However, the Ld. CIT(A), not being convinced with the submissions of the assessee, confirmed the addition made by the Ld. AO.

5. Aggrieved with the order of the Ld. CIT(A), the assessee is in appeal before us. Before us, the Learned Authorized Representative (“Ld. AR”) submitted that the cash deposits of Rs.33,10,000/- in the bank account of the assessee were related to brick manufacturing business, which is substantiated by corresponding payments made towards brick labour through bank accounts. The Ld. AR further submitted that due to non-availability of proper supporting evidence at the relevant point of time, the assessee could not substantiate her claim before the lower authorities. It was submitted that the assessee is now in a position to substantiate her claim with supporting documentary evidence and therefore requested that one more opportunity may be granted to the assessee to substantiate her claim before the Ld. AO by filing all necessary documentary evidence.

6. Per contra, the Learned Departmental Representative (“Ld. DR”) relied on the orders of the lower authorities and submitted that sufficient opportunity had already been provided by both the lower authorities. However, despite such opportunities, the assessee failed to furnish necessary evidence in support of her claim. Therefore, the Ld. DR objected to the remand of the issue to the file of the Ld. AO.

7. We have heard the rival submissions and perused the material available on record. We find that the addition of Rs.33,10,000/- has been made by the Ld. AO under section 69A of the Act on account of cash deposits in the bank account of the assessee. Before us, the assessee has contended that the said cash deposits were out of brick manufacturing business receipts and further submitted that corresponding payments towards labour charges were also made through bank accounts. We find force in the contention of the assessee that if the assessee is in a position to substantiate the claim with supporting documentary evidence, the same requires proper verification at the end of the Ld. AO. Considering the facts and circumstances of the case and in the interest of substantial justice, we deem it appropriate to set aside the impugned order of the Ld. CIT(A) on this issue and restore the matter to the file of the Ld. AO for fresh adjudication. The assessee shall be at liberty to file all additional evidences and documentary material in support of her claim before the Ld. AO. The Ld. AO shall examine the same and decide the issue afresh in accordance with law after providing adequate opportunity of being heard to the assessee. The assessee is also directed not to seek any unnecessary adjournment during the remand proceedings and to cooperate for expeditious disposal of the matter.

8. In the result, the appeal of the assessee in ITA No. 1182/Hyd/2025 is allowed for statistical purposes.

ITA NO. 2169/HYD/2025 :

9. The assessee has raised the following grounds of appeal:

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10. The brief facts of the case are that during the original assessment proceedings completed under section 143(3) of the Act for A.Y. 2017-18, the Ld. AO had made an addition of Rs.33,10,000/- under section 69A of the Act on account of cash deposits made by the assessee during the year under consideration. Subsequently, after passing of the assessment order, the Ld. AO observed that there were further cash deposits of Rs.13 lakhs in the bank account of the assessee, which according to the Ld. AO were made by other persons and had not been considered while framing the original assessment under section 143(3) of the Act. Accordingly, the Ld. AO passed rectification order under section 154 r.w.s. 143(3) of the Act dated 29.07.2021 and made further addition of Rs.13 lakhs under section 69A of the Act in the hands of the assessee.

11. Aggrieved by the rectification order passed by the Ld. AO, the assessee preferred appeal before the Ld. CIT(A). However, the Ld. CIT(A), not being convinced with the submissions of the assessee, confirmed the action of the Ld. AO and dismissed the appeal of the assessee.

12. Aggrieved with the order of the Ld. CIT(A), the assessee is in appeal before us. Under ground no.2, the assessee has challenged the validity of the rectification order passed under section 154 of the Act. Relying upon the decision of the Hon’ble Supreme Court in the case of T.S. Balaram Vs. Volkart Brothers reported in 82 ITR 50, the Ld. AR submitted that only mistakes apparent from record, which are obvious, patent and self-evident can be rectified under section 154 of the Act. The Ld. AR further submitted that where determination of an issue requires long drawn reasoning, interpretation of law or where two views are possible, the same cannot be treated as mistake apparent from record for the purpose of section 154 of the Act. Therefore, according to the Ld. AR, the rectification order passed by the Ld. AO by making fresh addition of Rs.13 lakhs under section 69A of the Act is beyond the scope of section 154 of the Act and liable to be quashed.

13. Per contra, the Ld. DR relied upon the orders of the lower authorities and submitted that the Ld. AO has rightly rectified the mistake apparent from record.

14. We have heard the rival submissions and perused the material available on record including the case laws relied upon. We have also gone through the rectification order passed by the Ld. AO under section 154 of the Act, which is to the following effect:

15. On perusal of the above, we find that the addition of Rs.13 lakhs made by the Ld. AO under section 69A of the Act through rectification proceedings cannot be said to be an obvious, patent and self-evident mistake apparent from record which could be rectified under section 154 of the Act. The Hon’ble Supreme Court in the case of T.S. Balaram Vs. Volkart Brothers (Supra) has held that a mistake apparent from record must be an obvious and patent mistake and not something which can be established by a long-drawn process of reasoning on points on which there may conceivably be two opinions. In the present case, the issue relating to taxability of further cash deposits of Rs.13 lakhs under section 69A of the Act certainly requires examination of facts and appreciation of evidence and cannot be brought within the scope of rectification proceedings under section 154 of the Act. We therefore hold that the Ld. AO exceeded the jurisdiction vested under section 154 of the Act by making fresh addition of Rs.13 lakhs under section 69A of the Act through rectification proceedings. Accordingly, the rectification order passed by the Ld. AO under section 154 of the Act is set aside and ground no.2 raised by the assessee is allowed.

16. As we have allowed the appeal of the assessee on the legal issue challenging the validity of rectification proceedings under section 154 of the Act, we refrain from adjudicating the grounds raised on merits, which are kept open.

17. In the result, the appeal of the assessee in ITA No. 2169/Hyd/2025 is allowed.

18. To sum up, the appeal of the assessee in ITA No.1182/Hyd/2025 is allowed for statistical purposes and the appeal in ITA No.2169/Hyd/2025 is allowed.

Order pronounced in the Open Court on 13th May, 2026.