KETAN HIMATLAL MEHTA,MUMBAI, MAHARASHTRA V. NFAC, NOT APPLICABLE

ITA 2498/MUM/2024

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The case involves Ketan Himatlal Mehta, the Assessee, who appealed against the order of the National Faceless Appeal Centre (NFAC), which had dismissed his appeal against the Assessment Order adding INR 45,00,000 to his income for the Assessment Year 2017-2018. The addition was made under Section 68 of the Income Tax Act, 1961, due to unexplained cash deposits during the demonetization period. The Assessee argued that the cash was from legitimate sources, including cash-in-hand and withdrawals from bank accounts, which were not adequately considered by the CIT(A). The Tribunal found that the CIT(A) had overlooked crucial evidence, including the Assessee's income tax returns for previous years, which supported his claims.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 705314 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2017-2018
• Other Referred Cases: Sumati Dayal v. CIT[1995] 214 ITR 801
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ASSESSEE
• Keywords: Business income; Corroborative evidences; Unexplained cash credit; Capital Gains; Earning of tax free income
• Section: 143(3); 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL \"F\" BENCH, MUMBAI SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No.2498/MUM/2024 (Assessment Year: 2017-2018) Ketan Himatlal Mehta 1st Floor, Cine Star Building, Trikamdas Road, Kandivali West, Mumbai - 400067. Maharashtra. [PAN: ADDPM0713C] …………. Appellant Deputy Commissioner of Income Tax 9(1)(1), Mumbai Room No.579, Aayakar Bhavan, Mumbai – 400020. Maharashtra. Vs …………. Respondent Appearance For the Appellant/Assessee For the Respondent/Department : : Shri Rakesh Joshi Smt. Kavita P. Kaushik Date Conclusion of hearing Pronouncement of order : : 24.04.2025 01.07.2025 O R D E R Per Rahul Chaudhary, Judicial Member: 1. The present appeal preferred by the Assessee is directed against the order, dated 26/03/2024, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the ‘CIT(A)’], whereby the Ld. CIT(A) had dismissed the appeal of the Assessee against the Assessment Order, dated 16/12/2019, passed under Section 143(3) read with Section 144B of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] for the Assessment Year 2017-2018. 2. The Assessee has raised the following grounds of appeal: “1. The learned CIT(A) failed to appreciate the explanation of the Assessee submitted during the course of assessment ITA No.2498/Mum/2024 Assessment Year 2017-2018 2 proceedings, regarding the fact that cash on hand was sufficient to cover cash deposit of Rs.45,00,000/- and Ld. CIT(A) also erred in holding without any reasons what so ever that the cash withdrawals from the bank account of the appellant cannot be accepted as to be the justified source of cash deposit by Assessee. 2. On the facts and in circumstances of the case the Ld.CIT(A) erred in holding that there was no documentary evidence for source of cash deposit of Rs.45,00,000 as also that the Ld. AO erred in invoking section 68 and also placed reliance on judicial pronouncement relating to this provision of section 68 of Income Tax Act for addition of Rs.45,00,000/-, which was not the sum found credited in the books of accounts of the Assessee. 3. Order passed by Ld. CIT(Appeal) is bad in law as it is a totally a non-speaking order and as also contrary to the provisions of the Act. Therefore, Appellant prays for the deletion of the addition of Rs.45,00,000/-.” 3. The relevant facts in brief are that the Assessee, a resident individual, filed return of income for the Assessment Year 2017- 2018 on 31/07/2017 declaring total income of INR.1,69,63,770/-. The case of the Assessee was selected for scrutiny. The Assessing Officer completed the assessment under Section 143(2) of the Act vide Assessment Order, dated 16/12/2019 at assessed income of INR.2,14,63,768/- after making addition of INR.45,00,000/- in the hands of the Assessee invoking provision contained in Section 68 of the Act read with Section 115BBE of the Act. The Assessing Officer observed that the cash of INR.45,00,000/- was deposited by the Assessee in the bank account during the demonetization period (from 08/11/2016 to 30/12/2016). According to the Assessing Officer, the Assessee had failed to provide satisfactory explanation regarding the source of cash deposited and therefore, the Assessing Officer treated the same as unexplained cash credit and made addition of INR.45,00,000/- in the hands of the Assessee. ITA No.2498/Mum/2024 Assessment Year 2017-2018 3 4. Being aggrieved, the Assessee has preferred the appeal before the CIT(A) challenging the above addition of INR.45,00,000/- under Section 68 of the Act. Before the CIT(A), it was contended on behalf of the Assessee that the source of INR.45,00,000/- was the cash-in-hand held by the Assessee at the beginning of the relevant previous year and the cash withdrawals made during the relevant previous year. It was submitted that the Assessee had opening cash-in-hand of INR.46,84,173/- and had made withdrawals of INR.14,10,700/- during the relevant previous year from the bank account between 01/04/2016 to 07/11/2016. However, the CIT(A) was not convinced with the explanation regarding the source of cash furnished by the Assessee. Therefore, the CIT(A) dismissed the appeal preferred by the Assessee vide order dated, 26/03/2024, holding as under: “12. I have carefully examined the contentions of the appellant and it is held that a self-made balance sheet for F.Y. 2015- 16 showing a closing cash balance of Rs. 46,84,173/- which the appellant claims to be source of cash deposit of Rs. 45.00 Lacs in the relevant year cannot be accepted. In absence of any corroborative evidence, the claim of opening cash balance of the appellant as on 01.04.2016 cannot be accepted. It is also beyond human probability that the appellant was maintaining cash balance in the range of Rs. 45.00 Lacs throughout the year/up to date deposit of Rs. 45.00 Lacs in bank account. The AO has rightly relied upon the judgment of Sumati Dayal v. CIT[1995] 214 ITR 801 while holding that balance sheets submitted by the appellant are \"after thought\" of the appellant and the AO is justified in making the addition of Rs. 45.00 Lacs under section 68 of the Act. 13. The Contention of the appellant that cash withdrawal from bank of Rs. 14,10,700/- from 01/04/2016 to 07/11/2016 is a source for cash deposit of Rs. 45.00 Lacs also fails the test of human probability. No prudent person shall keep on withdrawing cash from bank over a period of about 7(seven) months only to deposit the same in bank account on a later date(s). The AO is justified in not allowing the ITA No.2498/Mum/2024 Assessment Year 2017-2018 4 benefit of cash withdrawal to the appellant. In the result, the appeal is disallowed.” (Emphasis Supplied) 5. Being aggrieved, the Assessee has preferred the present appeal before the Tribunal on the grounds reproduced at Paragraph 2 above. 6. During the course of hearing Learned Authorized Representative for the Assessee, after taking through Paragraph 12 and 13 of the impugned order, (reproduced hereinabove), submitted that the Learned CIT(A) had rejected the explanation furnished by the Assessee on the grounds that Assessee had failed to furnish any collaborative evidence to support opening cash-in-hand of INR.46,84,173/-. He submitted that the aforesaid findings returned by the Learned CIT(A) is factually incorrect and contrary to the material on record. It was submitted that in the return of income filed by the Assessee for the Assessment Year 2015-2016, the Assessee had declared cash-in-hand of INR.37,11,485/- as on31/03/2015. For the Assessment Year 2016-2017 the Assessee had filed financial statements reflecting cash-in-hand of INR.46,84,173/- as on 31/03/2016. Further, during the Assessment Year 2017-2018 the Assessee had also made withdrawals during the relevant previous year of INR.14,10,700/- and statements showing deposit and withdrawal of cash during the relevant previous year was also filed. It was submitted that all the aforesaid details/documents were furnished before the CIT(A), however, the Learned CIT(A) failed to appreciate the same and passed the impugned order. The Ld. CIT(A) had completely ignored the Income Tax Return for the Assessment Year 2015-2016 while incorrectly arrived at the conclusion that the claim of opening cash balance of the appellant as on 01/04/2016 cannot be accepted. The Learned ITA No.2498/Mum/2024 Assessment Year 2017-2018 5 Authorized Representative for the Assessee also placed reliance upon written submissions filed before Learned CIT(A) dated, 10/04/2023 and 19/01/2024, in support of the contention that the Assessee had provided explanation for maintaining high cash-in-hand. 7. Per contra, the Learned Departmental Representative submitted that the Assessee had failed to provide any reasons for maintaining high amount of cash-in-hand. It was further submitted that even though the Assessee had high cash-in-hand, the Assessee had withdrawn INR.14,10,700/- during the relevant previous year. The Learned Departmental Representative also placed reliance on the orders passed by the Assessing Officer and the CIT(A) in support of the aforesaid contentions. It was submitted that the conduct of the Assessee was beyond human probabilities and was not supported by cogent supporting documents. The Learned Departmental Representative, after taking us through paragraph 4.3 of the Assessment Order, submitted that the explanation furnished by the Assessee was merely an afterthought and the conduct of the Assessee of maintaining cash-in-hand of INR.45,00,000/- and depositing the same on a single day during demonetization period was clearly beyond human probabilities. 8. In rejoinder, the Learned Authorized Representative for the Assessee reiterated that in the written submissions dated, 10/04/2023, the Assessee had explained that the Assessee was engaged in real estate business and was used to maintain high cash-in-hand in order to take advantage of good investment opportunities. It was further submitted that high cash-in-hand was needed to meet the medical requirements of Assessee’s parents who were both senior citizens and had passed away ITA No.2498/Mum/2024 Assessment Year 2017-2018 6 subsequently. 9. We have given thoughtful considerations to the rival submissions and have perused the material on record. 10. On perusal of material on record we find that Assessee had maintained following cash/bank balances during the Assessment Year 2014-2015 to Assessment Year 2016-2017. Particulars AY 2014-2015 AY 2015-2016 AY 2016-2017 Cash on Hand 21,26,776.66 37,11,484.66 46,84,173.66 Bank Balance 3,22,50,617.79 3,89,23,952.51 5,79,39,424.23 Total 3,43,77,393.45 4,26,35,437.17 6,26,23,597.89 % With Cash 6.19% 8.71% 7.48% % With Bank 93.18% 91.29% 92.52% In support of cash-in-hand for the Assessment Year 2015-2016, and 2016-2017 the Assessee had filed computation of income, and financial statements [placed at Page No.45 to 87 of the factual Paper Book]. A perusal of the aforesaid financial statements shows that at the relevant time the Assessee held investments in various entities/firms engaged in real estate business. The Assessee has also placed on record, the death certificates of his deceased mother (Date of death: 20/12/2017) and father (Date of death: 19/02/2018), in support of the contention that they were senior citizens requiring medical care at the relevant time. The aforesaid corroborates the reasoning given by the Assessee for holding comparatively higher cash-in-hand. We note that the Assessee had made the following submission before the CIT(A) giving reasoning for maintaining high cash-in-hand vide Written Submissions, dated 10/04/2023,: “1. The ‘A’ is real estate developer and investor in Property. He is also a partner in twelve partnership firms engaged in the business of real estate developers. 2. His income consists of share of profit from the firms, capital gains, income from house property and income from other sources. ITA No.2498/Mum/2024 Assessment Year 2017-2018 7 3. His income for Assessment Year 2014-2016, 2015-2016 and 2016-2017. Particulars AY 2014-2015 AY 2015-2016 AY 2016-2017 Income from HP 24,04,103 25,16,388 27,64,972 Business Income 27,17,240 13,03,555 NIL Income from OS 28,93,900 31,844 18,28,402 Cap Gain – MF NIL 41,62,965 Cap Gain – Sale of Property 10,39,682 2,65,822 Exempt Income (including Share of Partnership Firm) 4,83,80,877 4,17,076 6,89,72,897 4. His investment in the partnership firm plus personal investments required sufficient liquidity in form of cash and bank balance which is summaries in the table below: Particulars AY 2014-2015 AY 2015-2016 AY 2016-2017 Cash on Hand 21,26,776.66 37,11,484.66 46,84,173.66 Bank Balance 3,22,50,617.79 3,89,23,952.51 5,79,39,424.23 Total 3,43,77,393.45 4,26,35,437.17 6,26,23,597.89 % With Cash 6.19% 8.71% 7.48% % With Bank 93.18% 91.29% 92.52% 5. The adequate liquidity enabled him to grab good investment opportunities which not only helped him personally but also the partnership firms in which he was partner. 6. The nature of real estate business also required sizable cash on hand so that whenever necessary the good buy of property can be seized in time and hence he in course of business had to maintain large cash on hand. 7. Moreover his parents were senior citizens for whose medical treatment large cash was required for timely rush to nursing home etc. His father Mr. H.A. Mehta was 78 years and mother Smt. Bindu H Mehta was 76 years. 8. The summarised monthly cash flow for Financial Year 2015-2016 and 2016-2017 was submitted to the Assessing Officer along with the letter dated 11/12/2019. The table shows that his closing cash on hand from April, 15 to Dec. 16 (demonetarisation month) was around forty lakhs at the end of each month. He had deposited forty five lakhs during December 2016 into his bank which amount has been taxed by the Assessing Officer under Section 68 of the Act. ITA No.2498/Mum/2024 Assessment Year 2017-2018 8 9. The other relevant facts are mentioned in statement of facts (Appeal) at serial no. 3,4,5,6,7,8,9 and 10.” 11. There is nothing on record to controvert the above reasoning given by the Assessee for explaining cash-in-hand maintained by the Assessee at the relevant time which is supported by the Financial Statements and the death certificates furnished by the Assessee. Therefore, we reject the contention of the Revenue that maintaining high cash-in-hand by the Assessee was beyond human probabilities. 12. We note that the Assessee has filed statements showing withdrawal/deposit of cash between April, 2015 and December, 2016 which are supported by financial statements. During the course of hearing the Revenue had contended that the financial were not audited and could not be relied upon. On the other hand it was contended on behalf of the Assessee that out of cash deposit of INR.45,00,000/- majority of cash deposited amounting to INR.37,76,423/- pertained to opening cash-in-hand as on 31/03/2015 which was disclosed in the return of income filed for the Assessment Year 2015-2016 which was not considered by the authorities below. In view of the aforesaid, the Income Tax Return filed by the Assessee for the Assessment Year 2015-2016 is vital piece of supporting evidence on which the case set up by the Assessee hinges upon. We find merit in the contention advanced on behalf of the Assessee that the return of income for the Assessment Year 2015-2016 has not been taken into consideration by the authorities below. The Assessing Officer has returned finding by only taking into consideration the withdrawals made by the Assessee during the relevant previous year while the CIT(A) has returned the finding that the Assessee had failed to furnished any documents in support of the opening cash-in-hand. On perusal of record we find that the Assessee has ITA No.2498/Mum/2024 Assessment Year 2017-2018 9 filed copy of return of income for the Assessment Year 2015- 2016 in Form ITR 4 wherein cash-in-hand is disclosed at INR.37,11,485/-. As per ITR V for the Assessment Year 2016- 2017 the aforesaid return of income was filed on 30/08/2015. Accordingly, we direct the Assessing Officer to verify the relevant records of the Assessee and delete the addition of INR.45,00,000/- provided on verification it is found by the Assessing Officer that the Assessee had filed a valid Income Tax Return for the Assessment Year 2015-2016 declaring cash-in- hand of INR.37,11,485/-. With the aforesaid directions, Ground No.1 to 3 raised by the Assessee is allowed for statistical purposes. 13. In terms of paragraph 12 above, appeal preferred by the Assessee is allowed for statistical purposes. Order pronounced on 01.07.2025. Sd/- Sd/- (Om Prakash Kant) Accountant Member (Rahul Chaudhary) Judicial Member मुंबई Mumbai; िदनांकDated :01.07.2025 Milan, LDC ITA No.2498/Mum/2024 Assessment Year 2017-2018 10 आदेशकीŮितिलिपअŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent. 3. आयकरआयुƅ/ The CIT 4. Ůधान आयकर आयुƅ/ Pr.CIT 5. िवभागीयŮितिनिध, आयकरअपीलीयअिधकरण, मुंबई/ DR, ITAT, Mumbai 6. गाडŊफाईल / Guard file. आदेशानुसार/ BY ORDER, सȑािपतŮित //True Copy// उप/सहायकपंजीकार /(Dy./Asstt.Registrar) आयकरअपीलीयअिधकरण, मुंबई / ITAT, Mumbai "