ITAT: Ad-hoc Estimation of Unexplained Cash Deposits Not Sustainable; Upholds ALV Calculation Based on Inspector’s Report
Brief Facts of the Case
The case concerns two main issues for the Assessment Year 2017-18: the calculation of Annual Letting Value (ALV) for the assessee’s properties and an addition for unexplained cash deposits during the demonetization period.
- Annual Letting Value (ALV): The assessee, Arun Pruthi, owned five properties. The dispute arose over the notional rental income for three of them. The CIT(A) had already provided partial relief by accepting that one property was used for business purposes and therefore not subject to deemed rent. However, for the remaining two properties—one vacant and another under repair—the CIT(A) upheld the addition of notional rent, though reducing the total addition from ₹8.40 lakhs to ₹6.12 lakhs. The CIT(A) noted that the AO’s valuation was based on a report from an inspector and was not arbitrary.
- Unexplained Cash Deposits: The second issue involved an addition for unexplained cash deposits of ₹11.75 lakhs made during the demonetization period. 6In the first appeal, the CIT(A)/NFAC confirmed 50% of this amount, resulting in an addition of ₹5,87,500.
Decision of the Tribunal
The ITAT partly allowed the assessee’s appeal with the following key findings:
- ALV Addition Upheld: The Tribunal saw no merit in the assessee’s challenge to the ALV computation. It concluded that the CIT(A) had already granted sufficient relief and the assessee had not provided any further evidence to warrant interference. The addition of ₹6.12 lakhs on account of notional rent was therefore confirmed.
- Cash Deposit Addition Deleted: The Tribunal deleted the addition of ₹5,87,500 related to cash deposits. It held that the CIT(A)’s decision to sustain 50% of the addition was a lump-sum estimation, which is “not sustainable in law.” Since the addition was based on an ad-hoc estimate rather than a legal basis, it was struck down.
Case Citation
Arun Pruthi vs. Income Tax Officer, Ward-45(2), Delhi.
- Appeal Number: ITA No. 6002/Del/2024
- Date of Judgment: 6th October 2025
- Tribunal: Income Tax Appellate Tribunal, Delhi Bench ‘SMC’
Source:-Judgement