Hyderabad ITAT Remands Section 69A Addition on Cash Deposits: Business Activity Must Be Verified with Evidence

Background and Case Overview

The Hyderabad Bench of the Income Tax Appellate Tribunal recently adjudicated a Revenue appeal arising from the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, for Assessment Year 2017-18, in the matter of ITO Vs Chennarapu Ashok Kumar.

The core dispute revolved around a substantial cash deposit of Rs. 8,87,67,000/- made in a current account held with Andhra Bank, and whether the addition made by the Assessing Officer under Section 69A read with Section 115BBE of the Income-tax Act, 1961 was legally sustainable. The Tribunal's final ruling — that the matter required fresh verification at the Assessing Officer's level — underscores a critical principle: a mere claim of business receipts, unsupported by primary evidence, cannot justify deletion of additions made under Section 69A.

Factual Matrix

The assessee had not filed any return of income within the time prescribed under Section 139 of the Income-tax Act, 1961 for Assessment Year 2017-18. The case was subsequently reopened under Section 147 of the Act, and a notice under Section 148 dated 27.03.2021 was duly served upon the assessee.

Despite service of the Section 148 notice, no return was filed in response. The Assessing Officer then issued multiple notices under Section 142(1) of the Income-tax Act, 1961 on various dates, seeking explanations with respect to:

  • Large cash deposits into the assessee's current account
  • Cash withdrawals from the same account
  • Insurance commission receipts

The assessee remained unresponsive to all these communications. It was only upon issuance of yet another notice under Section 142(1) served on 14.01.2022 that the assessee finally filed a return of income on 15.02.2022, declaring a total income of Rs. 10,77,510/-.

Upon examining the return, the Assessing Officer noted that the assessee had deposited Rs. 8,87,67,000/- in cash into the Andhra Bank current account and had also withdrawn Rs. 1,10,00,000/- from the same account. Even after notices were issued under Section 142(1) seeking documentary support, the assessee did not furnish any evidence explaining the source of these deposits.

In the absence of any satisfactory explanation, the Assessing Officer treated the entire cash deposits as unexplained money and made an addition of Rs. 8,87,67,000/- under Section 69A read with Section 115BBE of the Income-tax Act, 1961. A separate addition was also made in respect of insurance commission income, as the assessee had provided no details regarding the nature of that income either.

Proceedings Before CIT(A)

Challenging the assessment order, the assessee filed an appeal before the CIT(A), NFAC, Delhi. Before the appellate authority, the assessee took the position that:

  • The cash deposits represented business receipts arising from commission agency operations related to paddy transactions
  • The deposits had been duly reflected in the books of account maintained for the relevant year
  • The assessee was engaged in the business of agency commission for paddy in Mahabubnagar district
  • The deposited funds represented sale proceeds received from customers, which were subsequently withdrawn and paid to farmers
  • Audited financial statements along with a tax audit report substantiated the declared turnover of Rs. 10,18,72,600/-

CIT(A)'s Findings and Deletion of Addition

The CIT(A), after considering the submissions, financial statements, and audit report in Form 3CD, concluded as follows:

"The AO's action of adding the entire cash deposits under Section 69A is a clear case of misapplication of the law. Section 69A applies to unrecorded money. Since the cash deposits were part of the total turnover, they were, in fact, recorded in the appellant's books of account, as substantiated by the Tax Audit Report."