ITAT Rajkot Partially Upholds Cash Deposit Addition Under Section 69A, Limits It to 10% on Ad-Hoc Basis

Case Overview

Rajeshkumar Lakhubhai Dangar Madhav Darshan Finance Vs ITO (ITAT Rajkot)
Assessment Year: 2012-13
Tribunal: Income Tax Appellate Tribunal, Rajkot Bench

The Income Tax Appellate Tribunal (ITAT), Rajkot Bench, delivered a significant ruling in the matter of Rajeshkumar Lakhubhai Dangar Madhav Darshan Finance Vs ITO, partly allowing the assessee's appeal concerning a substantial addition made under Section 69A of the Income Tax Act, 1961. The Tribunal's decision offers meaningful guidance on how unexplained cash deposit additions should be evaluated when an assessee comes forward with documentary substantiation of the source of funds.

Background and Facts of the Case

The assessee, an individual operating in two capacities — as a finance businessman and as a labour contractor engaged in speaker box-related work — filed his Income Tax Return for Assessment Year 2012-13 declaring a total income of Rs. 1,64,400/-. The return was initially processed under Section 143(1) of the Income Tax Act, 1961, but the case was subsequently flagged for scrutiny assessment.

During the scrutiny proceedings conducted under Section 143(3), the Assessing Officer (AO) identified two significant cash deposits in the assessee's bank account held at Bank of India, Sultanpur Branch:

  • Rs. 7,00,000/- deposited on 06.08.2011
  • Rs. 24,90,000/- deposited on 08.08.2011

The aggregate of these deposits amounted to Rs. 31,90,000/-, which the AO treated as unexplained money and brought to tax under Section 69A of the Income Tax Act, 1961.

Assessee's Explanation for Cash Deposits

The assessee provided a three-pronged explanation for the source of the cash deposits:

  1. Cash Withdrawals from Bank: A portion of the deposited amount was explained as representing re-deposits of earlier cash withdrawals made from the bank account.

  2. Family Agricultural Income: A significant part of the cash, it was submitted, originated from agricultural income earned by the assessee's family. The assessee contended that since this was family agricultural income (and not his personal income), it was not reflected in his individual returns. In support, the assessee placed on record agriculture sale bills and revenue records in Form 7/12 and Form 8A.

  3. Loan from Vrundavan Construction: The assessee also stated that he had borrowed Rs. 50,00,000/- from Vrundavan Construction during FY 2009-10, with the intention of exploring work contract and road construction opportunities. When the proposed business arrangement did not materialise, the loan was returned. A total of Rs. 47,00,000/- had been withdrawn during FY 2009-10, out of which Rs. 31,90,000/- was redeposited during FY 2011-12.

Assessing Officer's Position

The AO was unconvinced by the assessee's explanation. Key objections raised by the AO included:

  • The assessee had never declared agricultural income in any prior or current year's return of income.
  • The unsecured loan from Vrundavan Construction did not appear in the balance sheet or the return of income.
  • The sale bills relating to agricultural produce were found to be non-genuine, as they pertained to a single party — M/s Yogi Enterprise — raising doubts about their authenticity.