Section 69A IT Act | Cash Deposit Not Taxable If Source Traced to Pre-Closed Joint FDs Without Independent Verification: ITAT Ahmedabad

The Income Tax Appellate Tribunal, Ahmedabad, has clarified that mere flagging of a cash transaction in an assessee’s name via the Insight portal does not justify an addition under Section 69A of the Income Tax Act without independent verification and proper appreciation of documentary evidence. The Tribunal emphasized that the burden of explanation shifts only after the assessee makes a prima facie disclosure, and mere non-filing of return cannot substitute procedural fairness.

Background & Facts

The Dispute

The dispute arose from the reassessment of the assessee, Pragnesh Rameshbhai Pandya, for Assessment Year 2015-16, based on information received through the Insight portal indicating a cash deposit of Rs. 52,00,000 in Bank of Baroda and the purchase of immovable property worth Rs. 62,00,000 during Financial Year 2014-15. The Assessing Officer (AO) initiated proceedings under Section 147 read with Section 144B, issuing a notice under Section 148 on 31.03.2022. The assessee did not file a return in response.

Key Facts

• The assessee is an individual who did not file an income tax return for A.Y. 2015-16.
• On 17.08.2013, the assessee opened three fixed deposit (FD) accounts with Bank of Baroda, jointly held with his wife, Smt. Sejal Pragneshkumar Pandya, each of Rs. 5,00,000, totaling Rs. 15,00,000.
• The FDs were closed as follows:
  • Account No. 03030300011808: Closed on 28.04.2014, proceeds Rs. 4,94,781
  • Account No. 03030300011809: Closed on 28.04.2014, proceeds Rs. 4,94,781
  • Account No. 03030300011810: Closed on 07.01.2015, proceeds Rs. 4,95,554
• The total proceeds from the three FDs amounted to Rs. 14,85,116.
• The Bank of Baroda confirmed that the proceeds from these FDs were credited to the savings account of Smt. Sejal Pragneshkumar Pandya (Account No. 03030100002719), not to the assessee’s account.
• The Insight portal incorrectly flagged the cash deposit of Rs. 52,00,000 under the assessee’s name, despite no such deposit being made in his individual accounts.
• The AO issued notices under Section 142(1) on 11.11.2022 and 17.01.2023, which the assessee did not respond to, citing lack of clarity and absence of specific demand.
• The AO relied on Section 133(6) to obtain bank records and concluded the Rs. 52,00,000 was undisclosed income.
• The assessee submitted a certificate from Bank of Baroda showing the FD closure details and credit to his wife’s account.

Procedural History

• 17.08.2013: Three FD accounts opened jointly with spouse at Bank of Baroda.
• 28.04.2014: Two FDs closed, proceeds credited to wife’s account.
• 07.01.2015: Third FD closed, proceeds credited to wife’s account.
• 2014-15: Financial year during which the transactions occurred.
• 31.03.2022: Notice under Section 148 issued by AO.
• 11.11.2022: First notice under Section 142(1).
• 17.01.2023: Second notice under Section 142(1).
• 16.07.2025: CIT(A) order confirming addition of Rs. 52,00,000 under Section 69A.
• 10.03.2026: Hearing before ITAT Ahmedabad.
• 13.05.2026: ITAT judgment pronounced.

The Parties' Positions

For the Assessee

The assessee contended that:

• The three accounts flagged by the AO were fixed deposits, not savings accounts, and no cash deposits could be made into them.
• The Rs. 52,00,000 was not deposited in his name but in his wife’s savings account, funded by proceeds from the FDs.
• He had submitted a bank certificate proving the source and destination of funds.
• The AO failed to verify the information from the Insight portal independently.
• The addition was based on erroneous identification of account type and lack of due diligence.

For the Revenue

The Revenue contended that:

• The assessee did not file a return or respond to notices, indicating concealment.
• The Insight portal flagged the transaction under the assessee’s name, and he did not deny being a joint account holder.
• The burden of proof shifted to the assessee to establish the source of funds, which he failed to do with verifiable documents.
• The CIT(A) correctly applied Section 69A, as the explanation was unsubstantiated.

Relief Sought

The assessee sought deletion of the addition of Rs. 52,00,000 under Section 69A, quashing of the reassessment order, and restoration of the original position.

The Legal Issue

The central question was whether Section 69A of the Income Tax Act, 1961 permits an addition of undisclosed income based solely on a flagged transaction in an insight portal, without independent verification of the nature of the account and the source of funds, when the assessee has provided documentary evidence of a legitimate source.

Arguments Presented

For the Appellant

The assessee’s counsel submitted that:

• The AO misidentified fixed deposit accounts as savings accounts capable of cash deposits.
• The bank certificate produced by the assessee clearly showed that the proceeds from the FDs were credited to the wife’s account, not the assessee’s.
• The AO failed to verify the RTI-obtained bank records before making the addition.
• The Tribunal in CIT v. M/s. S. S. Enterprises held that mechanical application of Section 69A without verification is unsustainable.
• The assessee discharged his initial burden by producing bank records; the onus then shifted to the Revenue to disprove the source.

For the Respondent

The Revenue argued that:

• The assessee’s failure to file a return and respond to notices indicated a lack of cooperation.
• The Insight portal flagged the transaction under the assessee’s PAN, and he did not provide an affidavit from his wife or source of funds.
• The CIT(A) correctly held that the explanation was not substantiated with conclusive evidence.
• The principle in CIT v. S. R. Ramanathan supports addition where the source is not satisfactorily explained.

The Court's Analysis

The Tribunal observed that the AO’s entire case rested on the Insight portal alert and the mischaracterization of fixed deposit accounts as savings accounts. The AO did not verify whether the flagged transaction was a deposit into a savings account or a credit from FD closure. The RTI response obtained by the assessee confirmed that the three accounts were FDs, closed in 2014 and 2015, and the proceeds were credited to the wife’s account.

"The Assessing Unit under the Faceless Regime without verification of the same made addition of Rs.52,00,000/- u/s. 69A of the Act, which in our considered view is without making verification and the submission of the assessee."

The Tribunal emphasized that the faceless regime does not absolve the AO of the duty to verify information before making additions. The assessee had discharged his initial burden by producing the bank certificate. The Revenue failed to rebut this with any contradictory evidence. The CIT(A) erred in assuming that the assessee’s joint ownership of the FDs automatically linked the credit in his wife’s account to him, without requiring proof of beneficial ownership or source of funds.

The Tribunal further noted that the AO had not made any separate addition for the property purchase, indicating awareness of potential double taxation, yet proceeded to add Rs. 52,00,000 without establishing its origin. The absence of a specific amount in the RTI response further undermined the AO’s determination.

The Verdict

The appeal filed by the assessee is allowed. The addition of Rs. 52,00,000 under Section 69A of the Income Tax Act, 1961, is deleted. The reassessment order dated 16.07.2025 and the CIT(A) order dated 16.07.2025 are set aside. The case is restored to the status prior to the reopening. No costs are awarded.

What This Means For Similar Cases

Verification Is Mandatory Before Section 69A Additions

• Practitioners must challenge any addition under Section 69A based solely on portal alerts without independent verification.
• The faceless regime does not eliminate the requirement for due diligence; mechanical reliance on data is legally unsustainable.
• AO must cross-check account types (FD vs. savings) and transaction nature before attributing income.

Documentary Evidence Overrides Portal Alerts

• A bank certificate showing source and destination of funds is sufficient to discharge the initial burden under Section 69A.
• The Revenue must produce contradictory evidence to rebut such documentation; mere non-filing of return is not a substitute.
• Joint account holders must be given opportunity to explain the nature of transactions, especially where funds are credited to a third party.

Procedural Compliance in Faceless Assessments

• Notices under Section 148 must be accompanied by specific grounds and supporting data.
• Assessors must record reasons for rejecting documentary evidence submitted by the assessee.
• RTI-obtained records must be considered in assessment proceedings; ignoring them renders the order defective.