FD Maturity Treated As Fresh Deposit: ITAT Hyderabad Deletes Addition Under Section 69A

The Hyderabad Bench of the Income Tax Appellate Tribunal in Altaf Ali Baig Moghal Vs ITO (ITAT Hyderabad) has clarified that where funds already lying in a bank account are converted into a fixed deposit and later encashed, the maturity proceeds cannot be re-characterised as a separate unexplained deposit. The Tribunal deleted an addition of ₹11,65,000 that had survived at the stage of the CIT(A) on account of such duplication.

The dispute arose under the Income Tax Act 1961 for Assessment Year 2021-2022, where the Assessing Officer initially treated bank deposits of ₹32,50,000 as unexplained under Section 69A. After detailed verification during remand proceedings, it emerged that:

  • The assessee had sold rural agricultural land for ₹18,53,000 under two registered sale deeds.
  • The assessee claimed a further ₹2,32,000 as agricultural income.
  • Total verified cash and transfer credits in the bank account came to ₹20,85,000.
  • Fixed deposits (FDs) had been created out of the same bank balance and later encashed.

The Tribunal ultimately held that the encashment of an FD funded from existing explained deposits cannot be treated as an independent cash introduction. There was, therefore, no basis to sustain the residual addition of ₹11,65,000, which arose only because the Assessing Officer had counted both the creation and maturity of the FD as separate deposits.

Background of the Case

Assessee’s Profile and Source of Funds

The assessee in Altaf Ali Baig Moghal Vs ITO (ITAT Hyderabad) was a 24-year-old student. He consistently maintained that he had no independent income-generating activity during the relevant period.

His explanation for the deposits in his bank account was:

  • He had received agricultural land as a gift from his father through a gift deed dated 07.07.2015.
  • This land was later sold through two registered sale deeds, both dated 25.03.2021, for:
    • ₹11,03,000, and
    • ₹7,50,000,
      totalling ₹18,53,000.
  • The sale consideration was received in instalments and deposited in the bank.
  • He also had agricultural income of ₹2,32,000, which was similarly deposited.

On this basis, the assessee asserted that total deposits of ₹20,85,000 in his bank account were fully explained.

Original Assessment and Addition Under Section 69A

Despite this explanation, the Assessing Officer concluded that the assessee had unexplained deposits aggregating to ₹32,50,000 and made an addition under Section 69A treating the same as unexplained money.

The figure of ₹32,50,000 was also reflected in the return of income, but during later verification, it emerged that this was due to a clerical mistake and did not match the actual consideration under the registered sale deeds.

The assessee carried the matter in appeal before the CIT(A)-National Faceless Appeal Centre (NFAC), Delhi.

Proceedings Before CIT(A) and Remand Verification

Verification of Land Transactions and Nature of Land

During appellate proceedings, the CIT(A) called for a remand report from the Assessing Officer. In the remand exercise, the Assessing Officer:

  • Examined the two registered sale deeds dated 25.03.2021.
  • Confirmed that the assessee had sold agricultural land admeasuring 2.49 acres located at Survey Nos. 873/1B and 873/2A, Karlapalem Village, Bapatla District.
  • Recorded that the total sale consideration as per the sale deeds was ₹18,53,000 (i.e., ₹11,03,000 + ₹7,50,000).
  • Accepted that the figure of ₹32,50,000 mentioned in the return was a clerical error, and the actual sale consideration was restricted to ₹18,53,000.

Further, the Assessing Officer examined certificates issued by the Village Revenue Officer and Town Planning Officer. On this basis, the remand report concluded that:

  • The land in question was situated in a rural area, outside notified urban limits.
  • It qualified as rural agricultural land.
  • Capital gains on such land were exempt under the Income Tax Act 1961.