Anurag Singhal vs CIT-Appeals NFAC Delhi

PER ANUBHAV SHARMA, JM:

This appeal preferred by the assessee against the order dated 06.08.2025 of Ld. National Faceless Appeal Centre (NFAC) (hereinafter referred to as the First Appellate Authority or ‘the ld. FAA’ for short) in DIN & Order No : ITBA/NFAC/S/250/2025-26/1079334601(1)arising out of the assessment order dated 31.12.2019 u/s 143 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by ITO, Ward 2(1)(1)Ghaziabad,for AY: 2017-18.

Heard and perused the records. The facts in brief are that the appellant, filed his return of income for the A.Y.2017-18 on 06.01.2018 declaring total income of Rs. 7,07,980/-. The case was selected for scrutiny on the specific issue of large cash deposits in bank accounts during the demonetisation period. It was observed that the appellant had deposited cash amounting to Rs. 57,04,000/- during the demonetisation window in his bank accounts maintained with IndusInd Bank. After issuance of statutory notices and due consideration of replies and documents submitted, the A.O. framed the assessment under section 143(3) of the Income-tax Act, 1961 on 31.12.2019 at an assessed income of Rs. 64,11,980/-, making an addition of Rs. 57,04,000/-. Aggrieved by the said assessment, the appellant preferred appeal where the addition was sustained for which the assesse is in appeal here.

The appellant’s primary contention is that the amount of Rs.57,04,000/-deposited in cash in the bank accounts was not his personal income, but represented money received from his client, M/s Sagar Motors, towards VAT dues, which he, acting in a professional capacity, deposited into the Government Treasury on their behalf. It was explained that this was a normal professional practice wherein clients route their statutory payments such as VAT, service tax, and income tax through advocates or tax professionals for convenience. The appellant contends that this receipt was purely in fiduciary capacity as a conduit for tax deposit, not a business transaction generating income. It was asserted that the deposit was followed by immediate onward transfer of funds to the government exchequer, and the VAT challans and bank statements had been submitted manually during the assessment proceedings to substantiate the nature of the transaction.

Ld. CIT(A) however held that explanation is devoid of satisfactory corroborative evidence aswhile the appellant claims that he submitted VAT challans and bank statements manually but no record of such submissions is available on the digital portal or found annexed in the assessment folder. The AO categorically recorded in the assessment order that the bank statements submitted pertain to a period post-dating the demonetisation window and, therefore, have no bearing on the transactions under scrutiny. Further, despite repeated notices under Section 142(1) along with detailed questionnaires, the appellant failed to furnish a verifiable cash book, ledger accounts of M/s Sagar Motors, confirmations from the said party, or even their PAN or return copies which could substantiate the claim that the funds were indeed received for onward deposit. The appellant's omission to produce a clear audit trail of receipts and corresponding deposits in the Government Treasury is a material deficiency that undermines the veracity of his explanation. The explanation that the appellant was acting merely as an intermediary is also not borne out by any service agreement or letter of authority executed by M/s Sagar Motors. It is not customary for a dealer to hand over such substantial amounts of cash, amounting to Rs. 57,04,000/-, to a professional without any formal mandate or safeguard, especially in the absence of a written agreement. In the absence of any such documentation, the appellant’s assertion remains self-serving and unsubstantiated. Ld. CIT(A) observed that in fact, the AO had specifically sought confirmation from the alleged client along with their audited books and bank statements to verify the claim, but no such evidence was produced. It was also observed that in the practice of taxation and law, receiving clients’ tax liabilities in cash and depositing the same in one’s personal or proprietary bank accounts is neither standard nor encouraged, especially in the absence of written instructions. Such conduct carries inherent risk and lacks transparency. More significantly, no explanation has been offered as to why the client could not deposit the tax themselves or why digital payments, widely available even at that time, were not used. These unexplained anomalies in the transaction structure raise legitimate doubt regarding the genuineness of the appellant’s narrative. Ld.CIT(A) has also held that the mere act of depositing unexplainedcash in one's bank account, even if it is subsequently transferred elsewhere, does not absolve the taxpayer from explaining the source and nature of funds. Ld. CIT(A) relied Hon’ble Supreme Court decision in Chuharmal v. CIT (172 ITR 250) and CIT v. P.K. Noorjahan (237 ITR 570) for proposition that in the absence of cogent explanation and credible supporting evidence, unexplained cash deposits may be treated as the income of the assessee. The mere assertion of a plausible story, unsupported by documents or third-party confirmations, does not meet the standard of satisfactory explanation under the Act.

We find that before ld. CIT(A) assessee has filed certain submissions, however, all the submissions have not been taken into consideration. In the paper book on behalf of assessee screen shots of the portal has been filed showing the use of two different emails for communication. Ld. counsel has submitted that assessee has all the relevant explanation and evidence, however, an opportunity of hearing was not sufficiently given. We are of the considered view that order of ld. CIT(A) does not sufficiently discloses as to when by what mode notices were issued and what submissions were received by the ld. CIT(A) which form basis of reaching the conclusion. The manner in which the impugned order is narrated goes to show that due to lack of satisfactory corroborative evidence assessee’s contention was not accepted.

In the light of aforesaid we consider it appropriate case to restore the issue on merits as well as law to the files of ld. CIT(A) to give fresh opportunity of hearing to the assessee and thereupon pass fresh order.

The appeal of the assessee is allowed for statistical purpose.