ITAT Delhi Removes Section 69A Addition: Cash Deposits Validated Through Documented Withdrawals and Opening Balance

Case Overview

In a significant ruling concerning cash deposit assessments, the Income Tax Appellate Tribunal, Delhi Bench, ruled in favor of the assessee in the matter of Ashok Kumar Mehrotra Vs ITO. The Tribunal directed the deletion of an addition amounting to ₹69.50 lakh that had been made under Section 69A of the Income Tax Act, 1961. The decision underscores the principle that when cash deposits can be satisfactorily explained through verifiable documentary evidence showing legitimate sources, the provisions of Section 69A cannot be invoked arbitrarily.

The essence of the Tribunal's judgment lies in its recognition that the assessee successfully demonstrated the origin of deposited funds through a combination of documented cash withdrawals made during the relevant financial year and the availability of opening cash balance as recorded in the books of account from the immediately preceding year.

Background and Assessment Proceedings

Return Filing and Scrutiny Selection

The assessee submitted his return of income on 17.06.2017, declaring a total income of Rs.6,96,960/-. This income comprised earnings from salary, house property, and other sources. Subsequently, the case was selected for limited scrutiny assessment under the Computer Assisted Scrutiny Selection (CASS) mechanism. The specific reason triggering the scrutiny was the presence of cash deposits during the year under consideration.

Notice Issuance and Response

The assessment proceedings unfolded through a series of communications between the Assessing Officer and the assessee:

• A notice under Section 143(2) dated 25.09.2018 was dispatched to the assessee
• Subsequently, a notice under Section 142(1) dated 07.08.2019 was issued
• The assessee filed a partial response on 20.08.2019, providing copies of bank statements and Form 16
• Another notice under Section 142(1) dated 05.09.2019 was issued, to which the assessee responded on 13.09.2019
• A further notice under Section 142(1) dated 07.10.2019 was dispatched
• The assessee submitted bank statement copies on 18.10.2019
• The Assessing Officer also issued notices to the bankers under Section 133(6) of the Income Tax Act, 1961

The Assessing Officer specifically sought detailed information regarding the source of cash deposits through notices under Section 142(1) dated 05.09.2019 and 17.10.2019, to which the assessee furnished appropriate replies.

Assessment Order

Upon conclusion of the assessment proceedings, the Assessing Officer, vide order dated 17.12.2019, made an addition of Rs.69,50,000/- by invoking Section 69A of the Income Tax Act, 1961. The Assessing Officer's rationale was that the assessee appeared to be the owner of money not recorded in the books of account, and the nature and source could not be satisfactorily identified.

First Appellate Proceedings

Dissatisfied with the assessment order dated 17.12.2019, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi under Section 250 of the Income Tax Act, 1961.

However, the NFAC, vide order dated 25.06.2025, dismissed the assessee's appeal and confirmed the addition of Rs.69,50,000/- made under Section 69A. The first appellate authority upheld the Assessing Officer's view that the cash deposits remained unexplained.

Appeal Before ITAT Delhi

Grounds of Appeal

Aggrieved by the NFAC's order dated 25.06.2025, the assessee filed an appeal before the Income Tax Appellate Tribunal, Delhi Bench, raising the following grounds:

1. The order passed by the National Faceless Appeal Centre (NFAC) is legally and factually unsustainable
2. The NFAC erred in confirming the addition of Rs. 69,50,000/- made under Section 69A concerning deposits appearing in the bank accounts
3. The addition was confirmed arbitrarily while rejecting the explanation and evidence submitted by the assessee to establish the source of cash deposits
4. The NFAC erred in confirming the addition under Section 69A, ignoring that the said section is not applicable given the facts and circumstances of the case
5. The appellant reserved the right to add, amend, or alter any grounds of appeal

Assessee's Contentions

The Authorized Representative appearing for the assessee presented detailed submissions demonstrating that the cash deposits were fully explainable and verifiable from documentary records.

Details of Cash Deposits

The assessee had deposited a total sum of Rs. 69,50,000/- in three separate bank accounts maintained by him. The specific details were as follows:

Source of Deposited Cash

The assessee explained that the deposited cash originated from two legitimate and verifiable sources:

1. Cash Withdrawals During the Year:
The assessee withdrew cash totaling Rs. 48,66,000/- during the year under consideration. A comprehensive table detailing cash deposits and withdrawals during the relevant financial year was placed in the Paper Book at Page 87. These withdrawals were duly recorded and verifiable from bank statements.

2. Opening Cash Balance:
The assessee maintained an opening cash balance of Rs. 51,53,757/- as reflected in the cash book of the immediately preceding year. This opening balance was documented in the Cash Book of the previous year, specifically referenced in the Paper Book at Pages 54-57, with the relevant detail appearing on Page 57.

Key Arguments

The Authorized Representative emphasized several crucial points: