Facts of the Case

The assessee filed his return declaring income of ₹4,30,350. During scrutiny, the Assessing Officer noticed fresh capital introduction, unsecured loans from several persons, and substantial cash deposits during the demonetization period.

The Assessing Officer treated ₹5,68,500 introduced as capital as unexplained, holding that past savings were insufficient. Unsecured deposits of ₹12,00,000 from various persons were also treated as unexplained credits under section 68, primarily because cash had been deposited in the lenders’ bank accounts shortly before issuing cheques to the assessee.

Further, out of specified bank notes deposited during demonetization, ₹7,13,000 was treated as unexplained investment under section 69A on the ground that the assessee failed to produce a cash book showing sufficient cash balance as on 08.11.2016. The CIT(A) confirmed all additions, largely due to non-compliance and lack of documentary substantiation.

 Issues Involved

  1. Whether capital introduced from alleged past savings can be treated as unexplained without proper examination of prior financial records.
  2. Whether unsecured loans can be added under section 68 solely because lenders deposited cash before issuing cheques.
  3. Whether demonetization deposits can be treated as unexplained without verifying the cash balance as per books.
  4. Whether dismissal of explanations without considering uploaded documents violates principles of natural justice.
  5. Petitioner’s Arguments

The assessee contended that documentary evidence had been furnished, including past income tax returns, balance sheets, confirmations from lenders, bank statements, and cash book records. He argued that the Assessing Officer ignored these materials and proceeded on presumptions.

Regarding unsecured loans, it was submitted that identity, genuineness, and creditworthiness had been established, and the assessee was not required to prove the “source of the source.”

For demonetization deposits, the assessee stated that the cash book—uploaded during assessment—showed sufficient cash balance exceeding the amount deposited, and therefore no addition was warranted.

 Respondent’s Arguments

The Revenue contended that the assessee failed to furnish adequate documentary evidence during assessment proceedings and that contradictions in bank statements of lenders undermined the credibility of the transactions. Accordingly, the additions were justified.

 Court Order / Findings (ITAT Allahabad)

The Tribunal observed that the matters had not been properly investigated in light of the evidence claimed to have been furnished. It emphasized that creditworthiness of lenders cannot be judged solely on the basis of cash deposits preceding issuance of cheques; their overall financial standing must be considered.

With respect to demonetization deposits, the Tribunal noted that the assessee had uploaded a cash book showing a higher cash balance than what the Assessing Officer assumed, but the same had not been examined.

Similarly, regarding capital introduction, it was unclear whether past financial records submitted by the assessee were duly considered.

Accordingly, the Tribunal restored all issues to the file of the Assessing Officer for fresh examination of evidence, directing proper verification before arriving at conclusions. The appeal was allowed for statistical purposes.

 Important Clarification

The Tribunal did not decide the merits of the additions but underscored that additions under Sections 68 and 69A must follow comprehensive evaluation of documentary evidence, financial capacity, and books of account. Presumptive conclusions without such examination cannot be sustained.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771062379_VIPINGUPTAALLAHABADVS.ITOWARD23ALLAHABAD.pdf

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