Top Stories Income Tax Case Digest: Addition on Cash Deposits – Part 3 Following is Part 3 of a compilation of all the stories on ‘Addition on Cash Deposits’ reported at Taxscan.in By Avinash Kurungot – On December 9, 2024 10:49 am – 6 mins read Unexplained cash deposits have been a focal point of scrutiny in the Indian income tax framework. Section 69A of the Income Tax Act, 1961, is a crucial provision empowering tax authorities to tax unaccounted assets, including cash deposits in the event the taxpayer fails to provide a satisfactory explanation regarding the nature and source of such unaccounted assets.

This section acts as a deterrent against tax evasion by ensuring all forms of income, regardless of their origin, are brought under the tax net. Under Section 69A, if cash or other valuable articles are found in possession of a taxpayer and are not reflected in their financial records, the burden to substantiate the source of such assets are shifted on to the taxpayer. If the taxpayer is unable to satisfactorily explain the source of such asset, the same may be  added to the income of the taxpayer for the concerned assessment year and subjected to tax. The provisions under Section 69A gained particular prominence during the demonetization period, when the tax authorities were alerted due to a wave of sudden spikes in cash deposits, creating suspicion. However, the practical application of Section 69A has been rather convoluted. Courts have repeatedly emphasized the need for tax authorities to rely on concrete evidence rather than arbitrary assumptions, in order to ensure that legitimate transactions are not unduly penalized.

This case digest compiles key judgments and practical insights on the interpretation of Section 69A, focusing on unexplained cash deposits. It covers numerous stories reported at Taxscan.in which delves extensively into evidentiary standards, procedural aspects, and the approach adopted by the courts while addressing disputes. By examining legislative intent and landmark rulings, the digest serves as a practical resource for tax professionals and stakeholders, offering guidance on the equitable enforcement of Section 69A while safeguarding taxpayer rights. Insufficient Evidence for Unexplained Cash Deposits Contradicts Registered Sale Deed: ITAT Dismisses Appeal Bisauha Ram Verma vs ITO CITATION: 2024 TAXSCAN (ITAT) 1148 The Raipur Bench of Income Tax Appellate Tribunal ( ITAT ) dismissed the appeal of the assessee, due to insufficient evidence supporting the claim of unexplained cash deposits.

The tribunal noted that the assessee deposited Rs.34,00,000 in his SBI account on 08.10.2010, two days after selling agricultural land. The registered sale deed only mentioned a sale consideration of Rs.3,12,000, with no reference to the remaining Rs.32,88,000 claimed as on-money. The assessee failed to provide any evidence to support this claim. The bench, following the principles laid down by the Supreme Court in Rattan Singh & Ors. and the Punjab & Haryana High Court in Paramjit Singh vs ITO, held that in the absence of evidence to challenge the registered sale deed, the contents of the document, including the sale consideration, cannot be disputed based on oral claims. Delay in Filing Appeal Before CIT(A) due to ignorance of Legal Procedures and Non-Follow-Up: ITAT Condones Delay Amarabhai Ramjibhai Patel vs The Income Tax Officer CITATION: 2024 TAXSCAN (ITAT) 1139 The Ahmedabad Bench of Income Tax Appellate Tribunal(ITAT) condones the delay in filing the appeal before the Commissioner of Income Tax (Appeals)[CIT(A)] due to the assessee’s ignorance of legal procedures and lack of follow-up in the assessment proceedings.

The bench condoned the delay in filing the appeal, allowed the application for additional evidences, and remanded the matter to the CIT(A) for proper adjudication. It emphasized that the assessee should be given a fair hearing and warned that non-cooperation could lead the CIT(A) to decide based solely on the submitted additional evidences. Non-Compliance and Failure to Explain Bank Credits: ITAT upholds ₹3.13 Crore S.69 Addition under Income Tax Prakash Govindbhai Patel vs Income Tax Officer CITATION: 2024 TAXSCAN (ITAT) 1134 In a recent ruling, the Income Tax Appellate Tribunal ( ITAT ) upheld the addition of ₹3.13 crore as unexplained cash deposits in the bank accounts of an appellant, citing his failure to provide any justification or evidence regarding the source of the funds.

The appellant had challenged the Income Tax Department’s decision to treat the deposits as unexplained income under Section 69A of the Income Tax Act 1961 ( ITA ) The bench of Mr Sidhartha Nautiyal and Mr Makarand V Mahadeokar reviewed the facts of the case.The tribunal referred to several judicial precedents, affirming that the burden of proof lies with the taxpayer to substantiate the legitimacy of any unexplained credits in their bank accounts. Without any credible explanation or supporting evidence, the tribunal had no choice but to uphold the addition. In its final ruling, the tribunal upheld the ₹3.13 crore addition as unexplained income, dismissing the appellant’s appeal due to his non-compliance and failure to provide a satisfactory explanation for the cash deposits. S.68 Invocable Only If Taxpayer Maintain Books: ITAT deletes Addition as Returns Filed u/s 44AD Ishtiaq Ahmad Rather vs Income Tax Officer CITATION: 2024 TAXSCAN (ITAT) 1113 The Amritsar Bench of Income Tax Appellate Authority ( ITAT ) ruled that Section 68 of the Income Tax Act,1961 can only be invoked if the taxpayer maintains books of accounts. In this case, the assessee filed an income tax return under Section 44AD which does not require books of accounts.

The two-member bench comprising M.L. Meena ( Accountant Member ) and Udayan Dasgupta ( Judicial Member ) observed that Section 68 of the Income Tax Act applies only when books of accounts are maintained. Therefore, the application of Section 68 was incorrect as the assessee filed returns under Section 44AD of the Income Tax Act. Thus, the tribunal deleted the addition of Rs. 9,853,000 made under Section 68 of the Income Tax Act, and the penalty of Rs. 3,271,507 under Section 271(1)(c) was also deleted. The assessee’s appeal were allowed. ITAT upholds Reopening of Income Tax Assessment: grants partial relief w.r.t. unexplained cash deposits Smt. Pozhaniappan Malliga vs ITO CITATION: 2024 TAXSCAN (ITAT) 1094 The Chennai bench of the Income Tax Appellate Tribunal ( ITAT ) partly allowed the appeal and upheld the reopening of income tax assessment as there was due application of mind. In this case, the assessee, Smt. Pozhaniappan Malliga had deposited an amount of Rs. 14,45,000 in her savings bank account. The Income Tax Returns (ITR) were not filed by the assessee and thus the case was reopened for assessment and notice under Section 148 was issued to the assessee for the Assessment Year (AY) 2011-12 on 24.03.2018. There was a failure on the part of the assessee to file the ITR and the assessee also did not submit any explanations.

The ITAT bench observed that it could find any infirmity in the reopening of the case of the appellant as there was due application of mind. The bench further observed that the husband of the assessee had received contractual payment after the deduction of TDS. The bench, comprising Shri Aby T. Varkey and Shri Manoj Kumar Aggarwal, allowed partial relief by granting the benefit of cash withdrawals amounting to Rs. 7.20 lacs. S.69A Addition cannot be made solely on Claim that Assessee not a Specified Person to Accept Demonetized Currency: ITAT M/s. Vikas Co-operative Credit Society Niyamith Tilavalli vs ITO CITATION: 2024 TAXSCAN (ITAT) 1089 The Bangalore Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that the addition under section 69A of Income Tax Act,1961 cannot be made solely on the claim that the assessee was not a specified person to accept demonetized currency.

The Tribunal reviewed the case and decided to give the assessee another opportunity, as the CIT(A)’s order was ex-parte. The issue of the Rs.9,76,825 addition under section 69A read with section 115BBE was sent back to the AO for a proper examination of the cash deposit source. The AO was instructed not to base the addition on the claim that the assessee was not authorized to accept demonetized currency. If the source is found genuine, the addition should be removed. ITAT Deletes Rs. 52.4 Lakh Addition, Confirms Legitimacy of Cash Deposits from Land Sale Keshavlal Ishwardas Thakkar vs Deputy Commissioner of Income-tax CITATION: 2024 TAXSCAN (ITAT) 1502 The Ahmedabad Bench of Income Tax Appellate Tribunal(ITAT)deleted the addition of Rs. 52.4 lakh made under Section 69 of the Income Tax Act,1961, confirming the legitimacy of cash deposits linked to a land sale. The appellate tribunal noted that the assessee was about 80 years old when he received the cash, and the sale of land was undisputed.

It also recognized the land’s partial acquisition by the government. It concluded that the cash was received from Shri RM Goti and that the assessee had valid reasons to keep the cash until the sale was finalized. The two member bench comprising Dr.BRR Kumar(Vice President)and Siddhartha Nautiyal(Judicial Member) dismissed the Revenue’s suggestion that the money should have been deposited in fixed deposits. Based on these facts, it deleted the addition of Rs. 52,40,000 made under Section 69 of the Act. Top Stories Cash Deposit Made in Bank Account Stands Thoroughly and Properly Explained: ITAT Deletes Addition of Rs. 7.43 Crore DCIT Vs Sushil Kumar Sharma CITATION: 2024 TAXSCAN (ITAT) 780 The Delhi bench of the Income Tax Appellate Tribunal (ITAT) ruled that the cash deposit made in the bank account was thoroughly and properly explained, resulting in the deletion of an addition of Rs. 7.43 crore.”

The two-member bench of the tribunal, comprising Amit Shukla (Judicial member) and M. Balaganesh (Accountant member), observed that the assessee had duly explained that the phone numbers provided were complete. The first two digits were given in the previous column, and the remaining eight digits in the next column, thereby ensuring completeness of both mobile and landline numbers. Additionally, the assessee had conducted enquiries on a few borrowers on a test-check basis and found them to be genuine, having also verified their PANs. These details were placed on record before the lower authorities. Therefore, the observations made by the learned AO in the assessment order in this regard are completely devoid of merit.