Income Tax Appellate Tribunal - Jabalpur
Sandeep Lohan,Mandla vs Income Tax Office Ward, Mandla on 14 May, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
JABALPUR BENCH "SMC", JABALPUR
BEFORE SHRI KUL BHARAT, VICE PRESIDENT
ITA No. 170/JAB/2024
Assessment Year: 2016-17
Sandeep Lohan v. ITO Ward Mandla
Lohan Krishi Farm, Singarpur, Income Tax Office, Near
dist Mandla, Madhya Pradesh- Dhani Ram Babu Jwala Ji
481663. Ward, Maharajpur,
Mandla, Madhya Pradesh-
481661.
PAN:APUPL0356H
(Appellant) (Respondent)
Appellant by: Shri Prashant Nema, Advocate
Respondent by: Shri N. M. Prasad, Sr. DR-1
Date of hearing: 12 05 2026
Date of pronouncement: 14 05 2026
ORDER
PER KUL BHARAT, VICE PRESIDENT.:
This appeal, by the assessee, is directed against the order of the Learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC) dated 29.08.2024 pertaining to the assessment year 2016-17. The assessee has raised the following grounds of appeal: -
"1. That On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in making an addition of Rs. 37,41,767/- to the income of assessee on account of expenses from undisclosed sources. The sources of expenditures are fully explainable.
2. That On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not accepting the facts declared in the appeal proceedings along with supporting documents. The action of both Ld. CIT(A) and Ld. AO is based on surmises and conjecturers in favor of the revenue and is beyond natural justice.
3. That On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld AO, where the Ld. AO has erred by not making a meaningful 86 specific query before making the addition. Denying opening cash balance by Ld CIT(A) is not justified.
4. That both Ld. CIT(A) and Ld. AO were remained failed to brought to record any income other than as declared by the assessee, hence addition to total income where there is only agricultural income, is unwarranted.ITA No.170/JAB/2024 Page 2 of 15
5. The appellant craves to leave, to add, alter or, amend any grounds of appeal raised above at the time of the hearing of appeal."
2. The facts giving rise to the present appeal are that, in the instant case, the assessee is an individual, filed his return of income electronically on 15.03.2018 for the A.Y. 2016-17 declaring gross total income at Nil and agricultural income of Rs.65,50,000/-. The case was selected for scrutiny assessment and the assessment was completed vide order dated 26.12.2018. Thereby, the Assessing Officer ("AO") made an addition of Rs.37,41,767/-. Consequently, the total income of the assessee was assessed at Rs.37,41,770/-. Aggrieved by this, the assessee preferred appeal before the Ld. CIT(A) who dismissed the appeal of the assessee. Now, the assessee is in appeal before this Tribunal.
3. Apropos to the grounds of appeal, the Ld. Counsel for the assessee contended that the lower authorities have failed to appreciate the facts that the assessee has duly explained about the cash withdrawals and expenses but the lower authorities failed to consider the opening balance. He further reiterated the submissions as made in the written submissions. For the sake of clarity, the relevant contents of his submissions are reproduced as under: -
"I. PREFATORY SUBMISSION May it please Your Honours, The present appeal raises a short but substantial question which goes to the very root of assessment jurisprudence, namely, whether an addition can be sustained purely on the basis of an incomplete and selective cash flow statement, without invoking any charging provision under the Income-tax Act, 1961 and without dislodging the explanation furnished by the assessee.
The appellant respectfully submits that the present case involves a jurisdictional infirmity arising from violation of CBDT Instructions governing limited scrutiny. Since the issue strikes at the very assumption of jurisdiction, the same is being addressed herein, without prejudice to the independent submissions on other judicial legal infirmities and merits.ITA No.170/JAB/2024 Page 3 of 15
It is respectfully submitted that the impugned addition is vitiated not only by errors on facts, but by jurisdictional infirmity, violation of binding CBDT instructions, absence of statutory foundation, and perversity in appreciation of evidence, rendering it wholly unsustainable in law.
II. FACTUAL BACKGROUND The appellant is an agriculturist, engaged in agricultural operations for over a decade, having agriculture being his sole source of income. During the year under consideration, the appellant declared agricultural income of ₹65,50,000/-, which has been accepted in entirety by the Learned Assessing Officer. There is no dispute with regard to the ownership of land, the genuineness of agricultural activities, or the quantum of income.
However, in aninherently contradictory approachdespite accepting the agricultural income, the Learned Assessing Officer proceeded to make an addition of ₹37,41,767/- by treating agricultural expenditure as incurred from undisclosed sources, solely on the basis of a cash flow statement prepared by him.
The learned CIT(A), with respect, affirmed the addition by merely characterizing the explanation as an "afterthought"primarily on conjectures, while disregarding the facts, explanations and evidences (brought on record during the course of first appeal proceedings), without conducting any enquiry or bringing any material on record to rebut the explanation.
III. JURISDICTIONAL DEFECT - LIMITED SCRUTINY EXCEEDED At the very threshold, it is submitted that the impugned addition is ex facie without jurisdiction.
The very foundation of limited scrutiny suffers from patent non- application of mind, inasmuch as one of the recorded reasons for selection pertains to "cash deposits during demonetization period", whereas demonetization admittedly occurred during FY 2016-17 relevant to AY 2017-18 and has no nexus whatsoever with the year under consideration i.e. AY 2016-17. Thus, the jurisdictional trigger itself was based on events outside the relevant assessment year.
The case was selected for limited scrutiny under section 143(2), (notice issued is placed herewith at page no. 58 to 59)confined strictly to:
Verification of agricultural income, Return filed after 7.11.2016 and cash deposit during demonetization period; and Examination of cash deposits during demonetization.
The scope of enquiry in such cases is governed by binding CBDT Instructions, particularly Instruction No. 20/2015 dated 29.12.2015 and Instruction No. 5/2016 dated 14.07.2016(both placed herewith from page no 60 to 63), which mandate that the Learned Assessing Officer shall confine himself strictly to the issues for which the case is selected and cannot expand the scope without conversion into complete scrutiny after recording reasons and obtaining prior approval.ITA No.170/JAB/2024 Page 4 of 15
In the present case, it is an admitted position that:
no conversion to complete scrutiny has been made;
no approval of the Pr. CIT/CIT has been obtained;
no reasons have been recorded for expansion of scope.
In absence of such conversion, the Learned Assessing Officer lacked inherent jurisdiction to examine the issue, and any addition so made is void ab initio, irrespective of merits.
CBDT Instructions issued under section 119 are binding on the Learned Assessing Officer, and any action in breach thereof is without jurisdiction.
Despite this, the Learned Assessing Officer has ventured into examination of the entire financial affairs of the appellant for the entire financial year and made an addition on account of alleged unexplained expenditure, which is wholly outside the scope of limited scrutiny.
The case was selected for limited scrutiny to examine cash deposits during the demonetization period. However, the Learned Assessing Officer has gone far beyond this mandate by examining the entire financial year's cash flow, which is impermissible in law.
One of the very triggers for limited scrutiny was "cash deposits during demonetization period", admittedly pertaining to FY 2016-17 relevant to AY 2017-18. This, itself demonstrates the mechanical and unfocused nature of the scrutiny exercise. More importantly, despite the stated reason relating to demonetization deposits, the Learned Assessing Officer travelled into a roving examination of the entire financial affairs of the appellant for FY 2015-16 and made additions on an altogether different footing, without valid conversion into complete scrutiny The law on this issue is now well settled. In PCIT v. MeetaGutgutia (2017) 395 ITR 526 (Del.), the Hon'ble Delhi High Court held that CBDT Instructions are binding on the Learned Assessing Officer and any deviation therefrom renders the assessment unsustainable.
The Tribunal, in Sanjay Kumar Garg v. ACIT (ITA No.:
187/JP/2017), and ParamjitKaur v. ITO (ITA No.: 847/Chd/2019), has categorically held that additions made on issues beyond limited scrutiny are without jurisdiction. Likewise, in Naga Dhunseri Group Ltd. v. DCIT (198/Kol/2018), it has been held that in absence of conversion into complete scrutiny, examination of new issues is impermissible. Similarly in BarnaliSamanta v. ITO Ward 2(5) Jabalpur I.T.A. No.43/Jab/2023the condition precedent for widening of the scope of a limited scrutiny is thatthe Learned Assessing Officer has to seek prior approval of the authorities mentioned.
It is a settled principle that when jurisdiction is limited, any action beyond such limitation is void ab initio, and therefore, on this ground alone, the impugned addition deserves to be quashed.
IV. INCONSISTENT APPROACH OF THE SAME ASSESSING OFFICER ITA No.170/JAB/2024 Page 5 of 15 It is respectfully submitted that the impugned addition becomes even more unsustainable in light of the subsequent scrutiny assessments completed in the appellant's own case for Assessment Years 2017-18, 2018-19 and 2020-21(complete orders u/s 143(3) placed herewith from page no. 141 to 151)wherein no adverse inference whatsoever was drawn regarding the appellant's agricultural activities, cash holdings, availability of funds, or source of income.
Most significantly, the scrutiny assessment for AY 2017-18, being the year relevant to the demonetization period itself, was completed by the very same Learned Assessing Officer who framed the impugned assessment for AY 2016-17. After examining the appellant's affairs in the actual demonetization year thoroughly, the Learned Assessing Officer accepted the returned income and did not make any addition in respect of cash deposits, agricultural income, or alleged unexplained cash availability.
This assumes considerable significance because the very basis of suspicion in the present year is alleged cash deficiency and unexplained agricultural expenditure. Once the same Learned Assessing Officer, in scrutiny proceedings for the subsequent year involving the actual demonetization period, accepted the appellant's financial affairs and cash position without adverse material, the impugned addition made in AY 2016-17 merely on assumptions, conjectures, and an artificially prepared cash flow statement becomes wholly arbitrary and self-contradictory.
If the Department itself scrutinized the actual demonetization year and accepted the cash position/agricultural activity, then making an artificial addition in the preceding year on cash-flow assumptions becomes highly irrational.
Though the principle of res judicata may not strictly apply to income- tax proceedings, it is a settled proposition that consistency in approach must be maintained where the foundational facts and nature of activities remain identical. In absence of any distinguishing material, the Revenue cannot adopt mutually inconsistent stands in consecutive scrutiny assessments of the same assessee.
V. ADDITION WITHOUT INVOKING ANY CHARGING PROVISION Without prejudice, it is respectfully submitted that the impugned addition suffers from a fundamental jurisdictional defect, going to the very root of the assessment. The assessment order nowhere records proper satisfaction regarding applicability of any specific deeming provision such as Sections 68, 69, 69A, 69B or 69C, nor are the statutory ingredients thereof examined or established in accordance with law.
Such an approach is contrary to the basic scheme of the Income-tax Act, wherein the charge of tax must necessarily flow from a valid charging provision.
The statutory precondition for invoking any charging section like 69C, absence of explanation regarding source of expenditure, is completely absent in the present case.
It is a settled proposition that tax cannot be imposed by inference or presumption, and unless a particular receipt or amount is brought squarely within the ambit of a specific statutory provision, no liability to tax can arise.ITA No.170/JAB/2024 Page 6 of 15
In this regard, reliance is placed on the judgment of the Hon'ble Supreme Court in CIT v. D.P. Sandu Bros. Chembur (P) Ltd. (2005) 273 ITR 1 (SC), wherein it has been categorically held that income must fall within the scope of a charging provision before it can be subjected to tax, and in the absence thereof, the question of taxation does not arise.
Further, the Hon'ble Gujarat High Court in CIT v. Shilpa Dyeing & Printing Mills((2013) 219 Taxman 279 (Gujarat HC)) has held that an addition cannot be sustained where the Learned Assessing Officer fails to specify the statutory provision under which the addition is made, as such omission reflects a complete lack of jurisdictional foundation.
In the present case, the Learned Assessing Officer has bypassed the statutory mandate, neither invoking any specific deeming provision nor recording the satisfaction required under law for bringing the impugned amount to tax.
Without prejudice, even assuming Section 69C is sought to be invoked, the essential condition--namely, that the assessee has incurred expenditure for which no explanation about the source is offered--is not satisfied, as the appellant has furnished a complete and plausible explanation supported by material before Learned CIT(A).
In view of the above, it is most respectfully submitted that the impugned addition, having been made without invoking any charging provision and in clear disregard of the statutory framework, is unsustainable in law, legally non est, and liable to be quashed in toto.
VI. FUNDAMENTAL CONTRADICTION IN THE REVENUE'S CASE The Revenue has accepted the agricultural income of ₹65,50,000/- and has not doubted the agricultural activity. Having done so, it is wholly contradictory to allege that the expenditure incurred for earning such income is unexplained.The Revenue cannot, in the same breath, accept the source and reject its application.
Expenditure is nothing but application of income; once the source of income stands accepted as agricultural, its application cannot be treated as unexplained unless the source itself is doubted.
The Learned Assessing Officer never disputed that agricultural operations were actually carried out. Therefore, once agricultural income itself stands accepted, the alleged expenditure cannot simultaneously be treated as unexplained from undisclosed sources unless the Revenue first disproves the agricultural activity itself.
In CIT v. Surinder Pal Verma((2004) 192 CTR 264 (P&H HC)), it has been held that once the source is accepted, addition under deeming provisions is unsustainable.
Further, in Ajay Ravjibhai Patel v. ITO (ITAT Surat) (ITA No.:
749/SRT/2024), it has been held that merely questioning agricultural expenditure cannot give rise to taxable income when the source itself is agricultural.
Furthermore in Prakash Chand v. ITO ITA No.: 374/Chd/2017 (ITAT Chandigarh), it was held that Agricultural expenditure cannot be taxed as unexplained when linked to accepted agricultural activity.ITA No.170/JAB/2024 Page 7 of 15
VII. SOURCE OF FUNDS - FULLY EXPLAINED Without prejudice, the appellant had abundant, demonstrable and explained sources of cash, which have been completely ignored by the authorities.
The appellant has declared before the Learned Assessing Officer that he has earned substantial agricultural income in earlier years, namely ₹20 lakhs, ₹45 lakhs, and ₹55 lakhs in preceding three financial years (while the assessee is earning agriculture income from last 10-12 years), resulting in an opening cash balance of ₹36,78,349/-, duly demonstrated before the Learned CIT(A), (placed herewith from page no 67 to 69).
Further an affidavit sworn by the appellant (placed herewith on from page no 72 to 73)substantiate the availability of funds from agricultural income.
There is no prohibition in law against holding cash, and in absence of any material showing its dissipation, such availability cannot be disregarded. The assumption that no savings would remain is pure conjecture.
Further, a certificate issued by the local Patwari(placed herewith on page no 111) substantiates that the appellant has been actively engaged in agriculture for several years.
The appellant also received ₹10,82,000/- from debtors and ₹15,92,000/- from relatives, which have neither been disputed nor verified instead disregarded summarily.
Further confirmation certificates obtained from the debtors and (placed herewith from page No 74 to page No 78) and confirmation certificates along with affidavits obtained from family members (placed herewith from page No 79 to page No 100)substantiates the receipts in the hands of the appellant.
In CIT v. KulwantRai (2007) 291 ITR 36 (Delhi HC), it has been held that availability of cash cannot be rejected on mere presumptions.
VIII. AGRICULTURAL OPERATIONS - CASH INTENSIVE NATURE At the outset, it is respectfully submitted that the appellant is engaged in extensive agricultural operations spread over approximately 71 acres of land, which undeniably constitute a large-scale agricultural undertaking requiring continuous deployment of labour and resources.
It is a settled and judicially recognized position that agriculture in India is inherently labour-intensive and predominantly cash-driven, particularly in rural and semi-urban areas where formal banking penetration remains limited in day-to-day transactions.
The appellant, in the course of carrying on such agricultural activities, employs a substantial number of labourers on a daily wage basis for routine agricultural operations such as sowing, irrigation, harvesting, and allied activities. It is an undisputed ground reality that such labour payments are customarily made in cash, owing to the nature of employment and the socio-economic profile of the workforce.
Similarly, procurement of agricultural inputs--such as seeds, fertilizers, pesticides, and fuel--is largely undertaken through local ITA No.170/JAB/2024 Page 8 of 15 vendors and mandis, where transactions are predominantly cash- based and often unsupported by formal documentation.
In these circumstances, the maintenance of a substantial cash balance is not only justified but becomes a business compulsion, essential for ensuring uninterrupted agricultural operations.
Judicial Support The above position finds support from various judicial pronouncements:
In CIT v. Raja Benoy Kumar Sahas Roy (1957) 32 ITR 466 (SC), the Hon'ble Supreme Court recognized the unique nature of agricultural operations, distinguishing them from commercial activities and acknowledging their dependence on human labour and natural processes.
In ITO v. Shri Ram GopalITA No.: 452/Agra/2013 (ITAT Agra Bench), it was held that agricultural activities are generally cash-
oriented, and payments to labourers and for inputs are ordinarily made in cash; therefore, cash availability in such cases cannot be viewed adversely without contrary evidence.
In ACIT v. Narendra Singh ITA No.: 286/JP/2013 (ITAT Jaipur Bench), the Hon'ble Tribunal accepted that large agricultural holdings require substantial cash deployment, and merely holding cash balance cannot lead to an inference of unexplained income.
In DCIT v. Mahendra Singh KhedlaITA No.: 1045/JP/2017 (ITAT Jaipur Bench), it was observed that in rural agricultural setups, maintaining cash for meeting labour and input expenses is a normal practice, and additions cannot be made merely on presumption.
Further, in CIT v. Smt. P.K. Noorjahan (1999) 237 ITR 570 (SC), the Hon'ble Supreme Court held that even where an explanation is not fully satisfactory, addition is not automatic, and surrounding circumstances must be considered before drawing adverse conclusions.
The above position is further fortified by the decision of the Hon'ble ITAT Indore Bench in ITO v. Smt. ShahnazBano (ITA No. 443/Ind/2004, order dated 07.01.2005), wherein it has been held that where the assessee is engaged in activities generating cash and the explanation regarding availability of cash is plausible, addition cannot be made merely on the basis of suspicion or perceived improbability without bringing any cogent material on record.
Similarly, in ShriMadhusudanDhakad v. ITO-1, Harda (ITA No. 9/Ind/2022, order dated 28.06.2022), the Hon'ble Tribunal, in the context of an agriculturist, held that availability of cash out of agricultural income and past savings cannot be rejected on conjectures, and additions based merely on assumptions without disproving the explanation are unsustainable in law.
Accordingly, no adverse inference is warranted, and any addition made merely on the basis of cash availability is liable to be deleted in toto IX. DEFECTIVE CASH FLOW - NO EVIDENTIARY VALUE ITA No.170/JAB/2024 Page 9 of 15 Without Prejudice, it is respectfully submitted that the entire addition made by the Learned Assessing Officer rests exclusively on a cash flow statement prepared during the course of assessment proceedings, which, with utmost respect, is demonstrably erroneous, inherently defective, and legally unreliable.
The said cash flow statement suffers from fundamental infirmities, inasmuch as it has been prepared on a selective and incomplete basis, ignoring vital and material sources of funds available with the appellant. Specifically, the Learned Assessing Officer has failed to consider:
Opening cash balance, which constitutes the very foundation of any cash flow analysis;
Past accumulated savings, built over the years from disclosed sources;
Realizations from debtors, arising in the normal course of affairs; and Family receipts and other explained inflows, which were duly available and either disclosed or explainable.
A financial analysis prepared on incomplete data lacks evidentiary value and cannot by itself constitute substantive evidence of undisclosed income.
It is submitted that a cash flow statement which excludes legitimate and explainable inflows ceases to be a reliable financial reconstruction. Such an exercise is not an objective determination of facts but rather a distorted and artificial depiction of cash position, engineered by selective omission.
In law, a financial statement prepared by the Learned Assessing Officer can form the basis of addition only when it is complete, fair, and based on all relevant material. A statement built on partial data and ignoring crucial components is devoid of evidentiary sanctity and cannot be relied upon to draw adverse conclusions.A cash flow statement is merely a corroborative tool and cannot, by itself, constitute substantive evidence of undisclosed income.
In this regard, reliance is placed on the judgment of the Hon'ble Delhi High Court in CIT v. Poonam Rani (2010) 326 ITR 223 (Del.), wherein it has been categorically held that an incomplete and selective analysis cannot form the basis of addition, and any conclusion drawn on such partial consideration of facts is legally unsustainable.
Applying the above settled principle to the present case, it becomes evident that the alleged cash shortage is not a real deficit, but merely a notional figure, artificially generated by excluding legitimate inflows from consideration. The very foundation of the addition is therefore illusory and misconceived.
It is a settled position that when the foundation fails, the superstructure must necessarily collapse. Since the entire addition is premised solely on such a defective cash flow statement, which lacks completeness, accuracy, and evidentiary value, the addition itself is liable to be deleted.
X. VIOLATION OF NATURAL JUSTICE The appellant furnished detailed explanations supported by relevant material; however, it is a matter of record that no meaningful enquiry ITA No.170/JAB/2024 Page 10 of 15 has been conducted by the Learned Assessing Officer, nor has any adverse material been brought on record to discredit the explanation so furnished.
It is further submitted that no specific show cause notice was issued by the Learned Assessing Officer prior to making the impugned addition. The appellant was never confronted with the precise basis on which the alleged cash deficiency was proposed to be inferred, nor was any opportunity granted to rebut the conclusions drawn in the so- called cash flow analysis.
In the absence of a specific show cause notice, the appellant was effectively deprived of an opportunity to meet the case sought to be made out by the Learned Assessing Officer. Such action is in clear violation of the 'audi alteram partem' rule, which is the very foundation of fair procedure.
The Learned CIT(A), instead of curing this fundamental defect, has compounded the illegality by dismissing the explanation as an "afterthought" without any independent verification despite sufficient explanation and evidences being on record. Neither the Learned Assessing Officer nor the learned CIT(A) conducted any independent enquiry or verification of the evidences furnished by the appellant. The learned CIT(A) has affirmed the addition without rebuttal of the evidences produced during appellate proceedings.
Failure to confront the assessee with the precise basis of addition vitiates the assessment as held consistently in judicial precedents. It is settled law that any addition made in breach of principles of natural justice is liable to be set aside on this ground alone.
XI. BURDEN OF PROOF The appellant discharged the initial burden. Thereafter, the burden shifted to the Revenue.
In CIT v. Metachem Industries (2000) 245 ITR 160 (MP HC), it has been held that once explanation is furnished, the burden shifts to the Revenue. Similarly, in CIT v. KamdhenuVyapar Co. Ltd. (2014) 361 ITR 220 (Delhi HC), it has been held that addition cannot survive without rebuttal.
XII. AGRICULTURIST - NO REQUIREMENT TO MAINTAIN BOOKS The appellant, being an agriculturist, is not required to maintain books. In CIT v. Om Prakash Sharma (2014) 364 ITR 299 (P&H HC), it has been held that absence of books cannot be a ground for addition where the assessee is not statutorily required to maintain them.
XIII. ILLEGAL INVOCATION OF SECTION 115BBE Without Prejudice, it is respectfully submitted that the invocation of Section 115BBE by the Learned Assessing Officer is wholly misconceived and legally untenable.
Section 115BBE cannot be invoked in vacuum; it is parasitic upon a valid addition under Sections 68 to 69C. Section 115BBE is not a charging provision; it merely prescribes a special rate of tax in respect of certain incomes which are otherwise brought to tax under specific deeming provisions such as Sections 68, 69, 69A, 69B, and 69C of the Act. It is a settled principle of law that a rate provision cannot operate ITA No.170/JAB/2024 Page 11 of 15 in isolation and can come into play only when the foundational conditions for taxation under the relevant charging or deeming provisions are first validly satisfied. Section 115BBE cannot be used as a substitute for a charging provision, nor can it cure a jurisdictionally defective addition.
In the present case, the addition itself is highly disputed and fundamentally unsustainable, having been made solely on the basis of a defective and incomplete cash flow statement, without properly invoking or establishing the applicability of any specific deeming provision in accordance with law. In the absence of a legally sustainable addition under the charging framework, the consequential application of Section 115BBE is rendered void and without jurisdiction.
This position finds direct support from the judgment of the Hon'ble Delhi High Court in PCIT v. Meenu GuptaITA No.: 1006/2018 (Delhi HC), wherein it has been categorically held that rate provisions cannot be applied independently in the absence of a valid charge of income under the Act. The Court emphasized that the machinery of taxation must rest upon a valid legal foundation, failing which the application of rate provisions becomes unsustainable.
Further, in CIT v. Fakir Mohmed Haji Hasan (2001) 247 ITR 290 (Guj.), the Hon'ble Gujarat High Court has held that deeming provisions, being in the nature of legal fictions, must be strictly construed, and cannot be extended beyond their clear scope. The necessary implication is that unless the conditions precedent for invoking such deeming provisions are strictly fulfilled, no tax consequence--whether substantive or rate-based--can follow.
In the present case, the Learned Assessing Officer has short-circuited the statutory scheme by directly applying Section 115BBE without first establishing in a legally sustainable manner, that the impugned amount falls within the ambit of any of the specified deeming provisions. Such an approach is contrary to the settled principles of taxation law and results in taxation without authority of law.
In view of the above, it is most respectfully submitted that the invocation of Section 115BBE, being dehors the statutory framework and unsupported by any valid foundational addition, is illegal and without statutory foundation. Accordingly, the same deserves to be deleted in toto along with the underlying addition.
XIV. ADDITION BASED ON SUSPICION The impugned addition is founded entirely on suspicion, conjecture, and surmise rather than on any cogent material or evidence.
The reasoning of the Learned Assessing Officer rests primarily on two aspects, namely, that the appellant did not deposit the entire cash in the bank during the demonetization period, and that the explanation regarding availability of cash is an "afterthought". Neither of these factors, either individually or cumulatively, constitutes legally admissible evidence to justify an addition.
It is respectfully submitted that non-deposit of cash cannot lead to an inference of non-availability of cash, particularly in the case of an agriculturist whose operations are inherently cash-driven and who is not under any legal obligation to route transactions through banking channels.
ITA No.170/JAB/2024 Page 12 of 15Further, the characterization of the explanation as an "afterthought" is wholly arbitrary and unsupported by any material on record. Had the explanation been inherently false or fabricated, the Department would not have accepted the subsequent scrutiny assessments of AY 2017- 18, AY 2018-19 and AY 2020-21involving the same agricultural operations, same cash-based activities, and even the actual demonetization period (complete assessment orders u/s 143(3) are placed herewith from page No 141 to Page No 151) .An explanation cannot be rejected merely on suspicion without conducting enquiry or bringing contrary evidence.
The law in this regard is well settled. In CIT v. Dinesh Jain (HUF) (2013) 352 ITR 629 (Del.), it has been held that additions cannot be sustained on the basis of conjectures and surmises. Similarly, in CIT v. P.K. Noorjahan (1999) 237 ITR 570 (SC), the Hon'ble Supreme Court has held that even where an explanation is not fully satisfactory, addition is not automatic and must be supported by surrounding circumstances and material evidence.
The above principle has been consistently followed by the Hon'ble ITAT Indore Bench in ITO v. Smt. ShahnazBano (supra) and ShriMadhusudanDhakad v. ITO-1, Harda (supra), wherein it has been reiterated that suspicion, however strong, cannot substitute evidence, and additions cannot be sustained where the Revenue fails to bring any material to dislodge the explanation offered by the assessee.
It is thus a settled proposition that:
Suspicion, however strong, cannot take the place of evidence.
XV. ADDITIONAL EVIDENCE The appellant prays for admission of additional evidence.
In Jute Corporation of India Ltd. v. CIT (1991) 187 ITR 688 (SC) and NTPC Ltd. v. CIT (1998) 229 ITR 383 (SC), it has been held that appellate authorities have wide powers to admit additional evidence.
The appellant is filing sworn affidavits to substantiate the availability of cash and family receipts. The certificate issued by patwari to substantiateagricultural operation existed since long back, along with copy of khasra and land book. The additional evidence could not be furnished before the lower authorities due to lack of specific confrontation and opportunity, and the same are essential for proper adjudication of the issue.
XVI. PERVERSE FINDINGS The findings recorded by the Learned Assessing Officer and affirmed by the LearnedCIT (A) are perverse both on facts and in law, and therefore warrant interference by this Hon'ble Tribunal.
The authorities below have:
1. ignored material evidence placed on record, including opening cash balance, debtor realizations, and family receipts;
2. proceeded on an incomplete and selective appreciation of facts;
3. failed to conduct any meaningful enquiry or verification; and
4. drawn adverse conclusions based on assumptions rather than evidence.ITA No.170/JAB/2024 Page 13 of 15
The learned CIT (A), being the final fact-finding authority, was duty- bound to examine the evidences and explanations furnished by the appellant; however, the appellate order merely endorses the conclusions of the Learned Assessing Officer without independent application of mind.
Such an approach renders the findings not only erroneous but perverse, inasmuch as relevant material has been ignored and irrelevant considerations have been relied upon.
In CIT v. Jansampark Advertising (2015) 375 ITR 373 (Del.), it has been held that where findings are recorded without proper enquiry or on incomplete facts, the same are liable to be set aside.
It is therefore respectfully submitted that the impugned orders suffer from perversity and are liable to be quashed.
XVII. CONCLUSION In view of the above, the impugned addition is vitiated by:
lack of jurisdiction;
violation of binding instructions;
absence of charging provision;
defective factual foundation; and absence of evidence.
It is respectfully submitted that the impugned addition is therefore is wholly unsustainable in law and liable to be deletedon multiple independent grounds.
XVIII. PRAYER It is most humbly prayed that this Hon'ble Tribunal may be pleased to:
Delete the addition of ₹37,41,767/- in full;
Quash the assessment on jurisdictional/ legal/ factual/ statutory grounds;
Admit additional evidence under Rule 29; and Grant such other relief as deemed fit.
4. On the other hand, the Ld. Departmental Representative for Revenue opposed the submissions and supported the orders of the lower authorities.
5. Heard the Ld. Representatives of the parties and perused the material available on records and gone through the orders of the authorities below. I find that the Assessing Officer has made ITA No.170/JAB/2024 Page 14 of 15 the impugned addition of Rs.37,41,767/- on account of expenses treated as incurred from undisclosed sources. The contention of the assessee before the lower authorities was that the expenditures were duly explainable from the available sources including opening cash balance and agricultural income. It is also the grievance of the assessee that the Assessing Officer did not conduct proper inquiry nor afforded adequate opportunity before making the addition and that the Ld. CIT(A) confirmed the same without properly appreciating the evidences and supporting documents furnished during appellate proceedings. Considering the totality of facts and circumstances of the case, I am of the considered view that the issue requires fresh examination at the end of the Assessing Officer. The assessee has claimed availability of opening cash balance and other explainable sources of expenditure, which have not been properly verified by the authorities below. I further notice that no categorical finding has been brought on record by the Revenue to establish existence of any undisclosed income other than the income declared by the assessee. Therefore, in the interest of justice and fair play, I hereby set aside the impugned order of the Ld. CIT(A) on this issue and restore the matter back to the file of the Assessing Officer for making assessment afresh. The Assessing Officer is directed to examine afresh the explanation, evidences, books of account, cash flow statement, agricultural income and supporting documents to be furnished by the assessee and thereafter decide the issue in accordance with law after providing reasonable and effective opportunity of being heard to the assessee. The assessee is also directed to extend full cooperation and furnish all requisite details/documents as may be called for by the Assessing Officer. The grounds raised in the appeal are allowed for statistical purposes.
ITA No.170/JAB/2024 Page 15 of 156. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 14/05/2026.
Sd/-
[KUL BHARAT] VICE PRESIDENT DATED: 14/05/2026 Vijay Pal Singh, (Sr. PS) Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT (Judicial)
4. The PCIT
5. DR, ITAT, Jabalpur
6. Guard File By order // True Copy// Sr. Private Secretary ITAT, Jabalpur