ITAT Mumbai: Section 69A Addition Cannot Stand When Bank Denies the Alleged Cash Deposit — V. S. Brothers & Co. Vs Ward 23(3)(6)

Case Overview

Background of the Dispute

5. 19. Brothers & Co., a partnership firm, had not filed its return of income under Section 139(1) of the Income Tax Act, 1961 for Assessment Year 2018-19. The Income-tax Department had in its possession certain portal-based information suggesting that the firm had allegedly made cash deposits totalling ₹1,62,20,500/- in an account maintained with Punjab & Sind Bank during the relevant previous year.

Treating this departmental information as sufficient grounds to initiate action, the Assessing Officer proceeded to reopen the case under Section 147 of the Act. It was additionally alleged that the assessee had failed to comply with the notice issued under Section 148. When a subsequent notice under Section 142(1) was issued, the assessee responded with a clear and categorical denial — it had made no cash deposits whatsoever in the Punjab & Sind Bank account during the year in question.

The Assessing Officer, however, remained unconvinced by this position and proceeded to treat the entire sum of ₹1,62,20,500/- as unexplained money under Section 69A, adding it to the assessee's income.

What Evidence Did the Assessee Furnish?

The assessee's defence rested on two distinct but complementary pieces of documentary evidence:

1. The Bank Statement — A copy of the actual account statement from Punjab & Sind Bank was submitted before the Assessing Officer. This statement contained no entry whatsoever reflecting the cash deposits that the Department alleged had been made.

2. The Bank's Own Letter — More significantly, the assessee placed on record a letter dated 13 June 2019, purportedly issued by Punjab & Sind Bank directly to the Assessing Officer in response to a statutory notice under Section 133(6) of the Act. In this letter, the bank itself confirmed that no such cash deposits had been made by the assessee in the relevant account.

Together, these two documents presented a coherent and consistent picture: the alleged cash deposits of ₹1,62,20,500/- had simply not taken place.

How the Assessing Officer Responded

Despite receiving the bank statement and being in the loop regarding the bank's own response to the Section 133(6) notice, the Assessing Officer:

• Made no effort to reconcile the departmental information with the actual bank records
• Did not seek any independent confirmation from Punjab & Sind Bank to resolve the contradiction
• Chose to proceed solely on the basis of the original portal information
• Made no reference whatsoever in the assessment order to the bank's response to the notice under Section 133(6)

The assessment order was entirely silent on why the bank's response was being disregarded — there was no discussion, no reasoning, and no finding that the bank's communication was unreliable or factually incorrect.

This rendered the addition structurally deficient from its very foundation.

The First Appellate Authority's Contradictory Reasoning

The assessee carried the matter before the National Faceless Appeal Centre (NFAC), Delhi. Before the first appellate authority, the assessee once again filed:

• Written submissions explaining its stand
• A copy of the Punjab & Sind Bank account statement
• The letter dated 13 June 2019 from the bank to the Assessing Officer under Section 133(6)

The NFAC acknowledged — and this is a critical point — that the letter issued by the bank was a strong piece of evidence. Yet, despite recognising its evidentiary weight, the first appellate authority confirmed the addition on the reasoning that the assessee was required to independently prove the correctness of the bank's letter.

This approach was, in the ITAT's assessment, fundamentally flawed. The NFAC had effectively accepted that the evidence was significant but then demanded additional proof of that very evidence — a position that the Tribunal found untenable.