This is one of those orders where the taxpayer both won and lost — and understanding exactly which part he won tells you how to handle your own scrutiny notice. The Hyderabad Bench of the ITAT sorted out two questions that come up constantly in cash-deposit cases: how far a limited-scrutiny officer can dig, and whether the same money can be taxed under two headings.

What happened

For AY 2017-18, the assessee filed a return declaring nil taxable income and ₹12 lakh of agricultural income. The case was flagged under CASS for limited scrutiny — the specific reason being large cash deposits compared with the income returned.

Notices under Sections 143(2) and 142(1) went out, but the assessee didn't respond. So the officer completed the assessment on the material on record and made two additions under Section 69A (unexplained money): ₹75,25,900 for the cash deposits across three bank accounts, and a separate ₹12 lakh for the declared agricultural income — both taxed at the punitive 60% rate under Section 115BBE.

Before the appellate authorities, the assessee explained the deposits as agricultural receipts: paddy from his own and his wife's land, plus roughly ₹50 lakh from a leased 6.20-acre plot cultivated with Tindoora (gherkins/Dondakaya) through a family arrangement. The problem — repeated at every level — was that none of it came with documentary proof. The CIT(A) confirmed the additions, and by the time it reached the Tribunal, all the assessee had produced was a list of bank deposits and withdrawals.

Question 1 — Did the officer overstep "limited scrutiny"?

The assessee argued the case was opened only to verify cash deposits, so examining and rejecting agricultural income was outside scope and needed prior approval to convert into complete scrutiny — and without it, the addition was void.

The Tribunal disagreed. The CASS reason required the officer to examine the large deposits against the returned income. The moment the assessee offered agricultural income as the source of those deposits, checking whether that income was really earned became inseparable from the very issue selected. The officer wasn't chasing an unrelated matter — he was testing the explanation for the flagged transaction itself. So no separate approval to expand the scrutiny was needed.

Question 2 — The double-addition point

Here the assessee succeeded. If the whole ₹75,25,900 of deposits is treated as unexplained money, then every claimed component of that deposit — including the ₹12 lakh of agri income — is already inside the larger figure. Adding it again separately taxes the same rupees twice. The Tribunal applied telescoping and deleted the standalone ₹12 lakh, while keeping the ₹75.25 lakh intact.

The same logic carried into a second, connected appeal. A revision under Section 263 had directed the officer to consider gross agricultural receipts rather than net, and the addition was enhanced from ₹12 lakh to ₹20 lakh. Even though the assessee hadn't separately challenged the 263 order (so that jurisdiction stood), the Tribunal held the enhanced ₹20 lakh still couldn't survive — it too was subsumed in the ₹75.25 lakh deposit addition. That amount was deleted as well.

What this means for you

Two practical lessons come out of this order, and they apply long before you ever reach a tribunal.

If you declare agricultural income, keep the evidence

Agricultural income is exempt — but "exempt" is not the same as "unquestioned." When receipts are large, the department will want to see the farming behind them. Bank deposits and withdrawals corroborate activity; they never prove it on their own. Build a file with:

• Land records. Pattadar passbooks / title for owned land, and registered lease deeds for any leased plots.
• Cultivation proof. Crop and acreage particulars, yield details, and the season-wise pattern of sowing and harvest.
• Expense trail. Bills and vouchers for seeds, fertiliser, labour, irrigation and transport — a credible cost side, not just receipts.
• Sale evidence. Mandi receipts, buyer/trader confirmations, and a clear link between the crop sold and the money banked.

If you get a scrutiny notice, engage with it

The entire mess here traces back to one avoidable mistake: the assessee didn't respond to the 142(1) and 143(2) notices, so the officer assessed on record and applied the 60% Section 115BBE rate. Silence doesn't make an assessment go away — it hands the officer the pen.

Disclaimer: This article summarises a specific tribunal order for general information and is current as at the date of publication. It is not legal or tax advice, and outcomes depend on the facts and evidence of each case. Please consult a qualified professional — talk to efiletax — before acting on anything here.