Small HUF Lender’s Cash Deposits During Demonetization Explained through Loan Recoveries: ITAT Deletes Rs. 9.4L Addition u/s 69A [Read Order]

“An addition under section 69A of the Act cannot be sustained merely on suspicion when a plausible explanation supported by available material is furnished”, ruled the Bangalore Bench of the Income Tax Appellate Tribunal ( ITAT ) while deleting the addition of Small HinduUndivided Family (HUF).

The facts is that during the 2017-18 assessment year, the Assessing Officer (AO) raised cash deposits made across various bank accounts. The HUF - taxpayer, CSV Renraj (HUF) did not maintain traditional books of account, loan registers, or formal confirmations from borrowers.

Thus, the AO treated the entire amount as unexplained income under Section 69A of the Income-tax Act, 1961. This addition was subsequently confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].

When the matter reached the Tribunal, the HUF explained that it was a small-scale entity involved in informal lending to agriculturists and petty traders. They submitted that the cash in question came from legitimate sources including interest income, the recovery of old loans, and accumulated family savings.

To support this, the taxpayer presented a cash flow statement alongside bank records that illustrated a consistent pattern of deposits and withdrawals. CA Gopichand, the representative of assessee further contended that their business is small and informal. Thus, structured documentation is not feasible.

The Revenue, however, stood by the addition, arguing that the taxpayer had failed to provide "positive" documentary evidence, such as specific borrower confirmations, to prove exactly where the cash came from during the demonetization window.

The bench of Soundararajan K (Judicial member) and Waseem Ahmed (Accountant member) found that the taxpayer’s cash flow statement provided a clear and logical explanation for the availability of the cash.

The tribunal noted that the banking records broadly corroborated the movement of these funds. Most importantly, the appellate tribunal pointed out that the income tax department had failed to produce any evidence of its own to disprove the taxpayer’s claims or show that the money came from an undisclosed source.

The ITAT said that an addition under Section 69A cannot be sustained based on mere suspicion or just because the records are not formal enough. It held that since the HUF provided a reasonable explanation that aligned with the available evidence, the source of the ₹9.4 lakh was satisfactorily explained.

Accordingly, the Tribunal ordered the addition. Thus the appeal of the HUF was allowed.

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