Section 68 Addition Deleted: Bank Account Entries Cannot Be Treated as Credits in Books of Account — ITAT Nagpur

Case Overview

Case: ITO Vs Surekha Ashok Mukkawar
Forum: Income Tax Appellate Tribunal (ITAT), Nagpur
Assessment Year: 2017–18
Order Date: 24.03.2026

The ITAT Nagpur recently disposed of a Revenue appeal challenging the order of the National Faceless Appeal Centre (NFAC)/Commissioner of Income Tax (Appeals) [CIT(A)], which had granted relief to the assessee by deleting an addition of Rs. 2,49,47,979/- made under Section 68 of the Income Tax Act, 1961. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s well-reasoned findings on both legal and factual grounds.

Background and Facts of the Case

The assessee, a proprietor operating under the trade name Shri Sai Agro Warehouse, did not file a return of income for Assessment Year 2017–18, on the ground that her income fell below the taxable threshold. The Assessing Officer (AO), acting on system-generated information regarding cash deposits of approximately Rs. 2.49 crore in a bank account held in the name of Shri Sai Agro Warehouse with Yavatmal Urban Co-op Bank Ltd., initiated reassessment proceedings by recording reasons and issuing a notice under Section 148 dated 27.03.2021.

Despite notices being served electronically, the assessee did not furnish a return of income or respond to the AO's queries seeking the source of the deposits. In the absence of any reply, the AO treated the entire sum of Rs. 2,49,47,979/- as unexplained cash credit under Section 68 and passed an ex parte assessment order under Section 147 read with Section 144 on 31.03.2022.

Nature of Business and Explanation Before CIT(A)

Aggrieved by the assessment order, the assessee filed an appeal before the CIT(A) and submitted a detailed statement of facts along with written submissions and supporting evidence. The assessee explained her business model as follows:

  • She is the proprietor of Shri Sai Agro Warehouse, engaged in the marketing and storage of food grains and other agricultural produce belonging to farmers, on a commission/rental basis.
  • The warehouse facility was established under the Rural Godown Scheme (Gramin Bhandaran Yojana), governed by guidelines issued by the Reserve Bank of India (RBI) and NABARD.
  • Under this scheme, farmers deposit agricultural produce in the warehouse and become eligible to avail pledge loans — typically up to 75% of the value of the stored produce — for a period of up to 12 months, by hypothecating their produce to the lending bank.
  • The banking institution accepts godown receipts duly endorsed and delivered by the warehouse for processing such loans.
  • All loan disbursements and repayments between the bank and the farmers were routed through a designated control account (specific bank account) since the goods were stored in a private godown.
  • On repayment of the loan, the bank issued receipts and the agricultural produce stored at the warehouse was released to the respective farmer.
  • The assessee's sole entitlement in this entire arrangement was storage rental income, which remained below the taxable limit during the relevant year.

Sample Transaction Data Submitted

To substantiate the nature of entries, the assessee furnished sample data for 10 farmers, illustrating the date-wise flow of funds — amounts credited (loans given) and amounts debited (loans repaid with interest):