In a ruling recently, the Income Tax Appellate Tribunal ( ITAT ) of Bangalore, directed an individual assessee to substantiate the genuineness of a large cash deposit made during the 2016 demonetization period. The tribunal’s order came in response to an appeal filed by the assessee, who was contesting the addition of over ₹50 lakh to his taxable income by the Income Tax Department, citing it as unexplained cash.
The case originated during the government’s demonetization drive in November 2016, when high-value ₹500 and ₹1,000 currency notes were withdrawn from circulation. The assesssee/appellant, Veeranna Murthy Raghavendra Deekshith, a wholesale distributor of Cadbury products in Bangalore, had deposited ₹65,13,410 in cash into his bank accounts between November 9 and November 12, 2016. The deposits were made in both Canara Bank and ICICI Bank, with the amounts being part of his regular business transactions, according to the appellant.
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However, during an assessment for the financial year 2016-17, the Income Tax Officer (ITO) flagged ₹50,25,540 of this amount as unexplained. While the department accepted that ₹14,87,870 of the deposits were legitimate, based on the assessee’s financial records and closing cash balances, the remaining sum was added to his taxable income as unexplained cash credits under Section 68 of the Income Tax Act 1961 (ITA).
The assessee argued that the cash deposits were part of his business turnover, as his distribution business primarily operated in cash transactions with small retailers. He contended that the deposits were legitimate business income collected from customers in the days leading up to demonetization. Despite his claims, the assessing officer found discrepancies, particularly pointing out that the assessee continued to accept demonetized currency notes after the government’s cutoff time on November 8, 2016.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
Aggrieved by the lower authority’s order, the assessee appealed before ITAT.
Before the ITAT, the assessee maintained his previous contentions.
After reviewing the case in detail, the bench of Mr Wasim Ahmed and Mr Keshav Dubey directed the assessee to provide concrete evidence establishing the genuineness of the cash deposits. The tribunal stressed the need for the appellant to substantiate his claims with proper documentation, including bank statements, invoices, and proof that the deposits were indeed part of his business turnover and not an attempt to launder old currency.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
In result, the ITAT remitted the case back to the Income Tax Officer for a fresh assessment, instructing the appellant to provide all necessary documents to prove the authenticity of the deposits.
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