TONASAGERI GOUDA MALLIKARJUNA ,KUDLIGI V. DCIT, CIRCLE-1, BALLARI

ITA 1556/BANG/2025

AI Insights

The case involves Tonasageri Gouda Mallikarjuna, the appellant, who is engaged in the retail trading of liquor and also earns agricultural income. The dispute arose from the assessment year 2017-18, where the Deputy Commissioner of Income Tax, Circle-1, Ballari, assessed additional income of 2,766,500 as unexplained cash credit under section 69A of the Income Tax Act, 1961, due to deposits made in specified banknotes during the demonetization period. The assessee contested this in the National Faceless Appeal Centre (NFAC), which upheld the assessment. The Tribunal, however, found that the deposits were from legitimate business sales and directed the deletion of the addition.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 836124 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Appeal Filed On: 14-07-2025
• Other Referred Cases: Ayesha Steel Private Limited (2025) 175 taxmann.com 1084 (Delhi), Yogesh Gupta (2024) 159 taxmann.com 1396 (Delhi), Harrison's Diamonds Private Limited (2024) 161 taxmann.com 669 (Delhi)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUBRAMANIAN
• Assessee Lawyers: SIVA PRASAD REDDY; ITP; RECORDING
• Keywords: Unexplained cash credit
• Section: 139

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH : BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE – PRESIDENT AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA No. 1556/Bang/2025 Assessment Year : 2017-18 Tonasageri Gouda Mallikarjuna, D. No. 104, Ward No. 1, Ashwamedha Wines, Kudligi – 583 135 PAN: AQDPM7773M Vs. The Deputy Commissioner of Income Tax, Circle-1, Ballari APPELLANT RESPONDENT Assessee by : Shri Siva Prasad Reddy, ITP Revenue by : Shri Subramanian – JCIT DR Date of Hearing : 10-12-2025 Date of Pronouncement : 11-02-2026 ORDER PER PRASHANT MAHARISHI, VICE – PRESIDENT 1. ITA No. 1556/Bangalore/2025 is filed by Shri Tonasageri Gouda Mallikarjuna [ The Assessee/ Appellant] for assessment year 2017 – 18 against the appellate order passed by the National faceless appeal Centre (NFAC), Delhi (The Learned CIT – A) dated 15 May 2025 wherein the appeal filed by the assessee against the assessment order passed under section 143 (3) of The Income Tax Act, 1961 (The Act) by the Deputy Commissioner of income tax, circle – 1, Bellary (The Learned AO) dated 9 December 2019, was dismissed. 2. The assessee is in appeal before us against the grievance that the assessee has deposited cash of ₹ 2,766,500/– on account of sale of Printed from counselvise.com ITA No. 1556/Bang/2025 Page 2 of 7 Indian made foreign liquor which has been taxed by the learned assessing officer under section 69A of the act and confirmed by the learned CIT – A. 3. The briefly stated fact shows that that assessee is an individual engaged in the retail trading of liquor under the name and style of Ashvamedha wines. Assessee is also earning agricultural income. Assessee filed its return of income under section 139 (1) on 30 October 2017 declaring a total income of ₹ 2,918,270/–. It is stated that the books of accounts of the assessee are audited under section 44AB of the act. The return of income was picked up for scrutiny and accordingly notice under section 143 (2) was issued on 21/9/2018 and was also followed by a notice under section 142 (1) of the act. 4. As per the information available on record with the assessing officer the assessee has deposited cash into its current account No. 588 maintained with state bank of India and in OT account 105 with a cooperative society during the demonetization period. The assessee was asked to furnish the details about the specified banknotes deposited during that period. The AO simultaneously issued notice under section 133 (6) of the act to the various banks as stated above wherein it was found that assessee has deposited total sum of ₹ 5,016,500 in the current account No. 588 with state bank of India and above cooperative society during demonetization in Specified banking Notes which are not legal tender. 5. During the assessment proceedings the assessee submitted cashbook to the assessing officer and also furnished the explanation that assessee is engaged into carrying out of the liquor business and during the previous year he has deposited the above demonetized cash in the bank account. It was stated that all the customers of the assessee are mainly from nearby villages, and on the date of pronouncement of demonetization due to confusion for allowing the No. of days regarding acceptance of the demonetized currency, the assessee accepted the same and is the banks were also accepting the same, so assessee Printed from counselvise.com ITA No. 1556/Bang/2025 Page 3 of 7 deposited the same with those banks. It was also stated that all the cash deposited in the banks are out of the sale proceeds from the business of the assessee and are part of the sale proceeds recorded in the books of accounts. 6. The learned assessing officer verified the cashbook and found that cashbook balance as on 9 November 2016 was ₹ 2,311,694, he reduced there from the estimated currency note of Rs. 100/- and below with the assessee of ₹ 61,694, resulting into the net demonetized currency of ₹ 1000 and ₹ 500 notes amounting to ₹ 2,250,000. Therefore, he found that as assessee has deposited the specified banknotes of ₹ 5,016,500 and accordingly to him the balance sum of ₹ 2,766,500 deposited by the assessee in specified banknotes into the bank account during the demonetization period is an unexplained income of the assessee. He rejected the contention of the assessee and stated that the assessee has received the specified banknotes during demonetization period which assessee is not authorized to receive and therefore the sum of ₹ 2,766,500 is unexplained cash credit into the bank account. Accordingly, the assessment order was passed under section 143 (3) of the act on 9 December 2019 determining the total income of the assessee at ₹ 5,684,770/–. 7. Aggrieved, the assessee preferred an appeal before the learned CIT – A. Before the learned CIT – A assessee submitted that assessee's books of accounts are audited, the banking notes deposited in the bank account has generated out of the sale consideration and out of the funds available in the cashbook. The assessee also produced the cashbook extract before the learned CIT – A. Assessee also gave a justification for accepting the sale proceeds of Indian made foreign liquor in cash as stated before the assessing officer. It was further stated that the assessee has computed the difference of ₹ 2,766,500/– on estimated basis. He also explained before the learned CIT – A that there is no abnormal variation in the monthly sales volume during the Printed from counselvise.com ITA No. 1556/Bang/2025 Page 4 of 7 demonetization period compared to the corresponding month for the immediately preceding two assessment years. Therefore, it was submitted that the said addition made by the learned assessing officer holding that the said cash deposits made out of the sale proceeds of the liquor is an unexplained money under section 69A of the act is not sustainable. 8. The learned CIT – A as per paragraph No. 6 of the order has held that that the reason given by the assessee is not satisfactory and not backed by further evidence. He was of the view that reason for excess cash deposited given by the assessee is that the assessee could not instruct the staff to not to accept the demonetized currency from villagers and therefore he confirmed the action of the learned assessing officer. 9. Aggrieved with the appellate order, assessee is in appeal before us. The learned authorized representative submitted that that the impugned amount of the addition made by the learned assessing officer is the sale proceeds already recorded in the books of the account of the assessee which are audited under section 44AB of the act. There is no abnormal increase in the sales during the course of demonetization compared to the immediately preceding two years. It was further stated that the issue is squarely covered by the decision of the coordinate bench in case of 138 taxmann.com 141. The learned authorized representative further stated that the reason for depositing the specified banknotes into the bank account of the assessee is because of certain confusion whether the assessee is eligible for accepting such cash or not. However, as the customer of the assessee is from villages, the staff of the assessee accepted the cash. Same was recorded as sale proceeds in the books of accounts, the relevant profits arising out of such sale has already been recorded in the books of accounts and offered for taxation. He further referred to the details of month -wise purchase and sale of liquor produced before the assessing officer along with the copy of form no 100 and annual return – 240 Printed from counselvise.com ITA No. 1556/Bang/2025 Page 5 of 7 under the VAT laws along with the copy of closing stock statement. He further referred to the list of sundry creditors and unsecured loans which were submitted before the learned assessing officer. In view of the above facts, it was stated that the assessee has properly explained the cash deposit into the bank account, source of which is depicted in from the cashbook itself. He further relied upon the decision of the coordinate benches in case of Ayesha Steel private limited (2025) 175 taxmann.com 1084 (Delhi) , Yogesh Gupta (2024) 159 taxmann.com 1396 (Delhi) and Harrison's diamonds private limited (2024) 161 taxmann.com 669 (Delhi) wherein the principle laid down is that when the sales is already offered as income, the deposit of cash is out of such sale proceeds, no addition could be made. 10. The learned departmental representative Mr. Subramaniam Joint Commissioner of income tax vehemently supported the orders of the learned lower authorities and submitted that when the assessee has failed to show the source of the cash deposit in the bank account of the assessee, the addition has rightly been made by the learned lower authorities. 11. We have carefully considered the rival contention and perused the orders of the learned lower authorities. The facts recorded by the learned assessing officer clearly shows that the assessee is carrying on the business of sale of liquor. The assessee has recorded such sales in the books of account, which is supported by the invoices, quantitative details, cashbook, purchase details also. There is no dispute that assessee has deposited cash during demonetization. The learned assessing officer has computed the disallowance in a typical manner. The assessing officer has considered the cash balance available as per cashbook on 9/11/2016 of ₹ 2,311,694. Out of that he estimated that currency note of Rs. 100 or below would be available with the assessee of only ₹ 61,694. This leaves with the balance of demonetized currency of ₹ 2,250,000. Out of which assessee has deposited a sum of ₹ 5,016,500 and therefore the balance sum of ₹ 2,766,500 deposited by Printed from counselvise.com ITA No. 1556/Bang/2025 Page 6 of 7 the assessee is unexplained income of the assessee. We find that the assessing officer has not at all considered the sales made by the assessee after 9/11/2016 till 23 November 2016 in the above computation. The sale of the assessee for the month of November is ₹ 8,495,819. The assessee has produced the cashbook before the learned assessing officer. It was not the case of the learned assessing officer that the assessee has unrecorded sales. Whatever sales made by the assessee in the demonetized currency or in the valid currency are all deposited in the bank account of the assessee by recording those sales in the books of accounts of the assessee. Therefore, the sales made by the assessee in demonetized currency or in the valid currency are all recorded in the books of account of the assessee as sales on which the assessee has offered appropriate gross profit for taxation. The assessee has also produced the quantitative details of liquor sold and purchased before the assessing officer; it remains undisputed. In view of the above facts, it cannot be said that assessee has any unexplained income which is in the specified banknotes deposited by the assessee. Such deposit is from the known sources of sales which are recorded in the books of accounts. In view of above facts, we do not find any reason to uphold the orders of the learned lower authorities. Accordingly, we direct the learned AO to delete the addition of ₹ 2,766,500/– made under section 69A of the act. Accordingly ground No. 2 of the appeal is allowed. Ground No. 1 is not pressed before us hence dismissed. 12. In the result appeal filed by the assessee is partly allowed. Order pronounced in the open court on 11th February, 2026. Sd/- Sd/- (KESHAV DUBEY) (PRASHANT MAHARISHI) JUDICIAL MEMBER VICE-PRESIDENT Bangalore, Dated, the 11th February, 2026. Printed from counselvise.com ITA No. 1556/Bang/2025 Page 7 of 7 *TNTS* Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. CIT(A) By order Assistant Registrar, ITAT, Bangalore Printed from counselvise.com "