# Principal Commissioner Of Income Tax I, Lucknow v. Medharaj Techno Concept Pvt. Ltd

- **Citation:** (2026) 4 ILRA 640
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2026-04-08
- **Case number:** Income Tax Appeal No. 4 of 2026
- **Bench:** Shekhar B. Saraf, Abdhesh Kumar Chaudhary
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/principal-commissioner-of-income-tax-i-lucknow-v-medharaj-techno-concept-pvt-ltd-54464
- **Pages:** 7

## Text

640 INDIAN LAW REPORTS ALLAHABAD SERIES

15. The impugned judgment and award dated 31.03.2018 of the Reference Court is affirmed.
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(2026) 4 ILRA 640
APPELLATE JURISDICTION
CIVIL SIDE
DATED: LUCKNOW 08.04.2026

BEFORE

THE HON'BLE SHEKHAR B. SARAF, J.
THE HON'BLE ABDHESH KUMAR CHAUDHARY, J.

Income Tax Appeal No. 4 of 2026

Principal Commissioner Of Income Tax I, Lucknow ...Petitioner
Versus
Medharaj Techno Concept Pvt. Ltd. ...Respondent

Issue for Consideration
Matter pertains to whether, in exercise of jurisdiction u/s 260A of Income Tax Act, 1961, the High Court is
required to interfere with the order of Income Tax Appellate Tribunal on the ground that the findings recorded
by the Tribunal regarding the genuineness and explanation of cash deposits made during the demonetisation
period are perverse, contrary to the evidence on record, or give rise to any substantial question of law.

Headnotes
Income Tax Act, 1961 - ss. 68, 260A - Appeal - Substantial question of law - Scope of
interference - Demonetisation period - Cash deposits - Burden of proof - Cash credit - The
instant matter arose from an Income Tax Appeal preferred by Revenue u/s 260A of Income Tax
Act, 1961, challenging the judgment and order passed by Income Tax Appellate Tribunal,
Lucknow, whereby the Tribunal deleted the addition made u/s 68 of Income Tax Act in respect
of cash deposits made by the assessee during the demonetisation period - During assessment
proceedings, the Assessing Officer treated the cash deposits as unexplained cash credits and
made an addition, doubting the explanation furnished by assessee regarding availability of cash
in hand - The assessee argued that the deposits represented cash balance duly reflected in the
audited books of account, and no defect had been pointed out by Assessing Officer - The
Tribunal, upon appreciation of material available on record, accepted the explanation of
assessee and held that the addition was based merely on suspicion and conjectures - Aggrieved
by order of Tribunal, the Revenue approached the High Court, raising the issue whether the
findings recorded by Tribunal suffered from perversity or involved any substantial question of
law warranting interference u/s 260A of Act.
Held: Once the availability of cash in hand was established and Assessing Officer could not indicate anything
to the contrary as to how that cash in hand was spent, the explanation of assessee that the cash in hand was
deposited in the banks could not have been rejected by Assessing Officer - Thus, no substantial question of
law arises in the present case, as there is no perversity in the findings of Tribunal whatsoever - Accordingly,
appeal dismissed. [Paras 7, 14] (E-13)

Case Law Cited
Arulvelu v. State reported in (2009) 10 SCC 206; S.R. Tewari v. Union of India reported in (2013) 6 SCC
602; CIT v. Ajay Kapoor reported in 2013 SCC OnLine Del 2779 - referred to

Pr. CIT, Bareilly, UP v. Dharam Singh; (2025) 342 CTR 653: 245 DTR 369 - relied on
4 All. Principal Commissioner Of Income Tax-I, Lucknow Vs. Medharaj Techno Concept Pvt. Ltd.
641
List of Acts
Income Tax Act, 1961

List of Keywords
Income Tax Appeal; s. 260A of the Income Tax Act, 1961; Income Tax Tribunal; Assessment Year; Substantial
question of law; Addition u/s 68; Cash Balance; Books of Account; Genuineness; Credibility; Unexplained cash
credits; Cash in hand; Assessing Officer; Cash deposits; Demonetisation period; Audited Books; Defect in
Books of Account; Assessment order; Preponderance of probability; Appeal Dismissed.

Case Arising From
APPELLATE JURISDICTION: Income Tax Appeal No. - 4 of 2026

From the Judgment and Order dated 22.08.2025 passed by the Income Tax Tribunal, Lucknow for the
Assessment Year 2017-18

Appearances for Parties
Advs. for the Appellant(s):
 Kushagra Dikshit, Neerav Chitravanshi

Adv. for the Respondent(s):
P.K. Bajaj

(Delivered by Hon'ble Shekhar B. Saraf, J.
&
Hon'ble Abdhesh Kumar Chaudhary, J.)

1. Heard learned counsel for the petitioner and Sri P.K. Bajaj, learned counsel for the
respondent.

2. This is an appeal filed under Section 260 A of the Income Tax Act, 1961, by the revenue
interdicting the judgment and order dated 22.08.2025 passed by the Income Tax Tribunal,
Lucknow for the Assessment Year 2017-18:-

3. The revenue has raised the following substantial questions of law:-

"1. Whether, on the facts and in the circumstances of the case, the Ld. ITAT was justified
in law in deleting the addition made under section 68 of the Income-tax Act, 1961, merely on the
basis of availability of cash balance in the books of account, without examining whether the
assessee had discharged the statutory onus of proving the genuineness and credibility of such cash
balance?

2. Whether the Ld. ITAT erred in law in holding that the Assessing Officer could not
make an addition under section 68 when the books of account were not rejected, ignoring the
settled legai principle thatunexplained cash credits can be brought to tax independently of rejection
of books?

3. Whether the Ld. ITAT was correct in law in overlooking the relevance of abnormal
cash deposits during the demonetisation period and in failing to apply the test of human
642 INDIAN LAW REPORTS ALLAHABAD SERIES
probabilities, surrounding circumstances, and past business trends while adjudicating the issue
under section 68?

4. Whether the Ld. ITAT has misapplied the ratio of decisions relating to suspicion
versus proof, by treating a case involving unexplained cash deposits during demonetisation as one
of mere estimation or conjecture, rather than one involving statutory burden of proof under section
68?"

4. Primarily, the issue engaging the attention of this Court in the present appeal is with regard
to whether Tribunal has acted in a proper manner in appreciating the evidence that was provided by
the assessee with regard to cash deposits made by them during the demonetization period so as to
allow the appeal in their favour.

5. This Court finds that the Tribunal after considering all the evidences came to the conclusion
that books of the assessee were duly audited and the Assessing Officer had not pointed out a single
defect in the said books. The Tribunal further held that the Assessing Officer had completely
disregarded the voluminous evidences filed by the assessee and had proceeded to disbelieve the
explanation of the assessee without bringing on record anything to the contrary. The Tribunal while
setting aside the assessment order arrived at a finding that the Assessing Officer had acted on
presumption and on preponderance of probability and not on the evidences available on record. The
relevant portion of the judgment of Tribunal is delineated below:-

"11. Though preponderance of probability is an accepted principle to judge reliability of
evidences as held by the various Hon'ble Courts in plethora of cases but its application in judging
the quality of evidences should be done in a reasonable manner. The action of the AO is not
reasonable in as much as he was not able to point any defect in the books of account of the
assessee. When as per the submission of the assessee, cash in hand was the source of the impugned
cash deposit, then some further enquiries ought to have been made by the AO before rejecting the
Assessee's explanation outright.

12. It will not be out of place at this juncture to refer to the judgment of the Hon'ble Apex
Court in the case of Dhakeshwari Cotton Mills Ltd vs. CIT (1954) 26 ITR 775 (SC) on the issue of
suspicion vs. proof. The Hon'ble Apex Court held as under:

"As regards the second contention, although ITO is not fettered by technical rules of
evidence and pleadings, and that he is entitled to act on material which may not be accepted as
evidence in a court of law, but there the agreement ends; because it is equally clear that in making
the assessment under section 23(3) he is not entitled to make a pure guess and make an assessment
without reference to any evidence or any material at all and there must be something more than
bare suspicion to support the assessment under section 23(3). The rule of law on this subject has
been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh v. CIT
[1944] 12 393. In the instant case, the Tribunal violated certain fundamental rules of justice in
reaching its conclusions. Firstly, it did not disclose to the assessee what information had been
supplied to it by the departmental representative. Next, it did not give any opportunity to the
assessee to rebut the material furnished to it by him, and lastly, it declined to take all the material
that the assessee wanted to produce in support of its case. The result was that the assessee had not
had a fair hearing. The estimate of the gross rate of profit on sales, both by the ITO and the
4 All. Principal Commissioner Of Income Tax-I, Lucknow Vs. Medharaj Techno Concept Pvt. Ltd.
643
Tribunal, was based on surmises, suspicions and conjectures. The Tribunal took from the
representative of the department a statement of gross profit rates of other cotton mills but did not
show that statement to the assessee did not give him a opportunity to show that statement had no
relevancy whatsoever to the case of the mill in question. It was not known whether the mills which
had disclosed these rates were similarly situated and circumstanced. Not only did the Tribunal not
show the information given by the representative of the department to the assessee, but it refused
even to look at books and papers which assessee's representative produced before the Accountant
Member in his chamber. The assessment in this case and in the connected appeal, was above the
figure of Rs. 55 lakhs and it was just and proper when dealing with a matter of this magnitude not
to employ unnecessary haste and show impatience, particularly when it was known to the
department that the books of the assessee were in the custody of the Sub-Divisional Officer. Thus
both the ITO and the Tribunal in estimating the gross profit rate on sales did not act on any
material but acted on pure guess and suspicion. It was thus a fit case for the exercise of power
under Article 136.In the result, the appeal was to be allowed and the order of the Tribunal was to
be set aside and the case was to be remanded to it with direction that in arriving at its estimate of
gross profits and sales it should give full opportunity to the assessee to place any relevant material
on the point that it has before the Tribunal, whether it is found in the books of account or elsewhere
and it should also disclose to the assessee the material on which the Tribunal is going to found its
estimate and then afford him full opportunity to meet the substance of any private inquiries made
by the ITO if it is intended to make the estimate on the foot of those enquiries."

13. The issue of cash deposits during demonetization has come up before various
Benches of this Tribunal. The Ld. AR has also referred to many such cases during the course of his
arguments. The Pune Bench of the ITAT has recently, vide order dated 24.04.2023, in Usha
Nararayan Chaware vs. ITO deleted the addition of cash deposits during demonetization on proper
explanation as to utilization of the cash deposit. The Bench noted that "Once the availability of
cash in hand was established and it was not shown by the AO that such cash was spent elsewhere,
the explanation of the assessee as to its utilization has to be accepted."

14. Keeping the above cited judicial precedents in mind and also on the facts of this case,
we are of the considered view that the AO was not legally correct in making the impugned addition
that that the Ld. First Appellate Authority has rightly deleted the said addition. Accordingly, the
grounds raised by the Department are dismissed.

15. In the final result the appeal of the Department is dismissed."

6. Upon a perusal of the judgment of the Tribunal, it is crystal clear that the cash deposits by
the petitioner during the period of demonetization were from the cash in hand that was available to
the petitioner and was very much explained.

7. In light of the above, once the availability of the cash in hand was established and the
Assessing Officer could not indicate anything to the contrary as to how that cash in hand was spent,
the explanation of the assessee that the cash in hand was deposited in the banks could not have
been rejected by the Assessing Officer. We are of the view that no substantial question of law
arises in the present case, as there is no perversity in the findings of the Tribunal whatsoever.
644 INDIAN LAW REPORTS ALLAHABAD SERIES

8. The Hon'ble Apex Court has defined 'perversity' by tracing various earlier precedents in the
case of Arulvelu v. State reported in (2009) 10 SCC 206 wherein the Supreme Court arrived at a
conclusion, which is extracted hereinbelow:

"24. The expression "perverse" has been dealt with in a number of cases. In Gaya Din v.
Hanuman Prasad ((2001) 1 SCC 501] this Court observed that the expression "perverse" means
that the findings of the subordinate authority are not supported by the evidence brought on record
or they are against the law or suffer from the vice of procedural irregularity.

25. In Parry's (Calcutta) Employees' Union v. Parry & Co. Ltd. [AIR 1966 Cal 31] the
Court observed that "perverse finding" means a finding which is not only against the weight of
evidence but is altogether against the evidence itself. In Triveni Rubber & Plastics v. CCE [1994
Supp (3) SCC 665: AIR 1994 SC 1341] the Court observed that this is not a case where it can be
said that the findings of the authorities are based on no evidence or that they are so perverse that
no reasonable person would have arrived at those findings.

26. In M.S. Narayanagouda v. Girijamma [AIR 1977 Kant 58] the Court observed that
any order made in conscious violation of pleading and law is a perverse order. In Moffett v. Gough
[(1878) 1 LR Ir 331] the Court observed that a "perverse verdict" may probably be defined as one
that is not only against the weight of evidence but is altogether against the evidence. In Godfrey v.
Godfrey [106 NW 814] the Court defined "perverse" as turned the wrong way, not right; distorted
from the right; turned away or deviating from what is right, proper, correct, etc.

27. The expression "perverse" has been defined by various dictionaries in the following
manner:

1. Oxford Advanced Learner's Dictionary of Current English, 6th Edn.

"Perverse. Showing deliberate determination to behave in a way that most people think is
wrong, unacceptable or unreasonable."

2. Longman Dictionary of Contemporary English, International Edn.

Perverse. Deliberately departing from what is normal and reasonable.

3. The New Oxford Dictionary of English, 1998 Edn.

Perverse. Law (of a verdict) against the weight of evidence or the direction of the judge
on a point of law.

4. The New Lexicon Webster's Dictionary of the English Language (Deluxe Encyclopedic
Edn.)

Perverse. Purposely deviating from accepted or expected behavior or opinion; wicked or
wayward; stubborn; cross or petulant.

5. Stroud's Judicial Dictionary of Words & Phrases, 4th Edn.

"Perverse. A perverse verdict may probably be defined as one that is not only against the
weight of evidence but is altogether against the evidence."

9. Furthermore, the Hon'ble Supreme Court in the case of S.R. Tewari v. Union of India
reported in (2013) 6 SCC 602 has laid down the attributes of perversity in the following manner:-

"30. The findings of fact recorded by a court can be held to be perverse if the findings
have been arrived at by ignoring or excluding relevant material or by taking into consideration
irrelevant/inadmissible material. The finding may also be said to be perverse if it is "against the
weight of evidence", or if the finding so outrageously defies logic as to suffer from the vice of
4 All. Principal Commissioner Of Income Tax-I, Lucknow Vs. Medharaj Techno Concept Pvt. Ltd.
645
irrationality. If a decision is arrived at on the basis of no evidence or thoroughly unreliable
evidence and no reasonable person would act upon it, the order would be perverse. But if there is
some evidence on record which is acceptable and which could be relied upon, the conclusions
would not be treated as perverse and the findings would not be interfered with. (Vide Rajinder
Kumar Kindra v. Delhi Admn. [(1984) 4 SCC 635: 1985 SCC (L&S) 131: AIR 1984 SC 1805],
Kuldeep Singh v. Commr. of Police [(1999) 2 SCC 10: 1999 SCC (L&S) 429: AIR 1999 SC 677],
Gamini Bala Koteswara Rao v. State of A.P. [(2009) 10 SCC 636: (2010) 1 SCC (Cri) 372: AIR
2010 SC 589] and Babu v. State of Kerala [(2010) 9 SCC 189: (2010) 3 SCC (Cri) 1179].)"

10. The Delhi High Court in case of CIT v. Ajay Kapoor reported in 2013 SCC OnLine
Del 2779 has further elaborated as to what constitutes 'perversity'. The relevant paragraphs of the
judgment are extracted below:

"14. Perversity, in the present case, is occasioned due to two reasons: firstly, by wrongly
placing onus on the revenue though the facts were in personal knowledge of the assessee, and
secondly, by ignoring the admission of the respondent that they had indulged in unaccounted sales
of Rs. 9.7 crores. In spite of admission and the seized document, it has been observed that there
was no material with the revenue to prima facie justify any addition towards unrecorded
investment in stock. Allegations, in the present case, are not based upon weighing of evidence but
for altogether a wrong decision. The decision suffers from vice of irrationality, rendering it infirm
in law. In Municipal Committee, Hoshiarpur v. Punjab SEB (2010) 13 SCC 216 it has been held
that:

"28. If a finding of fact is arrived at by ignoring or excluding relevant material or by
taking into consideration irrelevant material or if the finding so outrageously defies logic as to
suffer from the vice of irrationality incurring the blame of being perverse, then the finding is
rendered infirm in the eye of the law. If the findings of the Court are based on no evidence or
evidence which is thoroughly unreliable or evidence that suffers from the vice of procedural
irregularity or the findings are such that no reasonable person would have arrived at those
findings, then the findings may be said to be perverse. Further if the findings are either ipse dixit of
the Court or based on conjecture and surmises, the judgment suffers from the additional infirmity
of non-application of mind and thus, stands vitiated. (Vide Bharatha Matha v. R. Vijaya
Renganathan [(2010) 11 SCC 483: AIR 2010 SC 2685].)"

15. Earlier in Dhirajlal Girdharilal v. CIT (1954) 26 ITR 736 (SC) it was observed:-"

....if the court of fact, whose decision on a question of fact is final, arrives at this decision
by considering material which is irrelevant to the enquiry, or by considering material which is
partly relevant and partly irrelevant, or bases its decision partly on conjectures, surmises and
suspicions, and partly on evidence, then in such a situation clearly an issue of law arise....

.....It is well established that when a court of fact acts on material, partly relevant and
partly irrelevant, it is impossible to say to what extent the mind of the court was affected by the
irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of the use
of inadmissible material and thereby an issue of law arises,"

16 . In CIT v. Daulat Ram Rawat Mull (1973) 87 ITR 349 it has been held that onus of
proving what is apparent is not real is on the party who claims it to be so. There should be direct
nexus between the conclusions of fact arrived at, or inferred, and the primary facts upon which the
conclusion is based. When irrelevant consideration and extraneous materials form the substratum
646 INDIAN LAW REPORTS ALLAHABAD SERIES
of an order, or the authority has proceeded in a wrong presumption which is erroneous in law, as
in the present case, question of law arises and when the said contention is found to be correct, then
the order is perverse. A factual decision is perverse when it is without any evidence or when the
factual decision, in view of the fact on record, cannot be reasonably entertained. Finding based
upon surmises, conjectures or suspicion or when they are not rationally possible have to be struck
down. In CIT v. S.P. Jain (1973) 87 ITR 370 (SC) it has been observed that a factual conclusion is
regarded as perverse when no person duly instructed or acting judicially could upon the record
before him, have reached the conclusion arrived at by the tribunal/authority."

11. As a sequel to the aforesaid judgment of the Hon'ble Supreme Court and High Court, we
are of the view that unless there is perversity in the findings of fact, no substantial questions of law
would arise. Further more, as far as the present case is concerned, we find that findings of the
Tribunal are supported by cogent evidence brought on record and they are not in any manner
against law or suffers from any procedural irregularities.

12. Thus, we are unable to subscribe to the view of the learned counsel appearing for the
revenue and reject that there is any perversity in the impugned judgment of the Tribunal. We hold
that the findings are based on the available records that clearly indicates that the cash deposited in
the banks was only the cash in hand available with the assessee. In the judgment of a Co-ordinate
Division Bench of this Court one of us (Hon'ble Shekhar B. Saraf,J.) examined an identical issue
wherein the Bench after examining a catena of judgments of Hon'ble Supreme Court and High
Court categorically held in Pr. CIT, Bareilly, UP Vs. Dharam Singh; (2025) 342 CTR 653: 245
DTR 369 (Allahabad High Court) that unless there is perversity in findings of fact, no substantial
questions of law would arise.

13. In the present case, keeping in view the findings arrived at by the Tribunal to be in great
detail and based on evidence brought on record by the assessee, we do not find any perversity
whatsoever nor any substantial questions of law arises, which is required to be decided.

14. Accordingly, the appeal is dismissed.
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(2026) 4 ILRA 646
APPELLATE JURISDICTION
CIVIL SIDE
DATED: LUCKNOW 03.04.2026

BEFORE

THE HON'BLE RAJAN ROY, J.
THE HON'BLE MANJIVE SHUKLA, J.

Special Appeal No. 163 of 2021
With Writ A No. 8721 of 2021

U.P.P.S.C. ...Appellant
Versus
Ashish Tyagi & Ors. ...Respondents