Chhattisgarh High Court: Closing Balance Of Cash-In-Hand Brought As Opening Balance Of Succeeding Year Not Unexplained Money U/S 69A Income Tax Act

The Chhattisgarh High Court held that the closing balance of cash-in-hand brought down as opening balance of the succeeding year is not an unexplained money under Section 69A of the Income Tax Act, 1961 (ITA).

The husband of the assessee had filed an Appeal, questioning the legality, validity and correctness of the Judgment of the Income Tax Appellate Tribunal (ITAT) which partly dismissed an Appeal treating Rs. 20,50,000/- as unexplained money under Section 69A of the ITA.

A Division Bench comprising Justice Sanjay K. Agrawal and Justice Deepak Kumar Tiwari observed, “It is hereby held that ₹ 20,50,000/- cannot be said to be unexplained money under Section 69A of the IT Act. Accordingly, the substantial question of law is answered in favour of the assessee and against the Revenue.”

Advocate S. Rajeswara Rao appeared for the Appellant while Advocate Ajay Kumrani and Standing Counsel Amit Chaudhari appeared for the Respondent. Advocate Nikhilesh Begani was appointed as the Amicus Curiae.

Factual Background

The assessee (wife of Appellant) filed her return of income in respect of assessment year 2017-18, declaring a total income of Rs. 12,83,090/-. In the relevant assessment year (demonetization announced by the Central Government), the assessee had deposited a sum of Rs. 23,00,000/- in Specified Bank Notes (SBN) in her bank account in Bank of Baroda and reflected the said cash deposits. The case of the assessee was accepted for scrutiny assessment by the Assessing Officer (AO) by issuance of notice under Section 143(2) of the ITA, seeking requisite information and documents as to details of cash deposited relating to nature and source of cash deposits in SBN to which the assessee filed detailed written submissions along with copies of bank statements and capital accounts and balance sheets to substantiate the availability of cash-in-hand to source the cash deposits made during the demonetization period explaining that she encashed the fixed deposits held by her with Bank of Baroda and subsequent to such encashment, she withdrew a sum of Rs. 1,24,00,000/- in cash in the assessment year 2015-16 (financial year 2014-15).

In sum and substance, it was the explanation of the assessee that the source of cash deposit to the tune of Rs. 23,00,000/- during the demonetization period had its immediate nexus with the closing cash-in-hand to the tune of Rs. 23,45,301/- appearing in the balance sheet and which was available as opening cash-in-hand in the financial year 2016-17 relevant to assessment year 2017-18. The Assessing Officer (AO) made an addition of Rs. 23 lakhs, treating it as unexplained money invoking the deeming fiction engrafted under Section 69A of the ITA charging the same to higher rate of tax as prescribed under Section 115BBE. Challenging this, the assessee filed an Appeal and the Commissioner of Income Tax (Appeals) dismissed the same. The Appellant then approached the ITAT and the CIT(A)’s Order was affirmed. Hence, the case was before the High Court.

Reasoning

The High Court after hearing the contentions of the counsel, noted, “The Supreme Court in the matter of Lalchand Bhagat Ambica Ram v. Commissioner of Income Tax, Bihar and Orissa while dealing with an addition made by the AO in a case concerning the deposit of High Denomination Notes, sternly deprecated the practice of the Assessing Officer and the Tribunal to indulge into conjectures, suspicion and surmises and acting without any cogent evidence”

The Court said that the ITAT is absolutely unjustified in dismissing the Appeal partly upholding the addition of Rs. 20,50,000/- treating it as unexplained money invoking the deeming fiction engrafted under Section 69A of the ITA charging the same to higher rate of tax as prescribed under Section 115BBE.

“As such, the impugned order passed by the Assessing Officer affirmed by the CIT (Appeals) and further partly affirmed by the ITAT is hereby set aside”, it ordered.

Accordingly, the High Court allowed the Appeal to the above extent.

Cause Title- Nanakchand Agrawal v. The Income Tax Officer (Neutral Citation: 2025:CGHC:43944-DB)

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