Cash deposits from business sales during demonetization are not unexplained without contrary evidence.
Issue
Can cash deposits made in a bank account during the demonetization period be automatically treated as unexplained money under Section 69A of the Income-tax Act, 1961, especially for a business operating under a presumptive tax scheme?
Facts
- The assessee, an individual running a jewellery shop in a rural area, deposited cash of ₹73.66 lakhs into their bank account during the 2016 demonetization period.
- The assessee was covered by the presumptive taxation scheme under Section 44AD, which does not require the mandatory maintenance of detailed books of account.
- The Assessing Officer (AO) disregarded the assessee’s explanation that the money came from regular business sales. Citing the lack of formal books, the AO treated the entire deposit as unexplained money under Section 69A and applied the higher tax rate under Section 115BBE.
- The assessee submitted evidence like cash flow statements and comparative business data. This data showed that the cash deposits were supported by corresponding sales, and the growth in sales during that period was not abnormal or disproportionate to past business trends.
- The revenue department failed to bring any specific evidence on record to contradict the assessee’s explanation.
Decision
The Tribunal ruled in favour of the assessee and deleted the addition.
- It acknowledged that the nature of the assessee’s business (jewellery in a rural/agricultural area) inherently involves a high volume of cash transactions.
- The Tribunal found the assessee’s explanation, which was supported by a plausible cash trail and consistent business data, to be credible.
- It held that an addition cannot be sustained solely on the basis of cash deposits in a bank account, especially when the revenue does not provide any specific material to disprove the assessee’s explanation of the source.
Key Takeways
- Cash Deposits Alone are Not Proof: The mere act of depositing cash into a bank account, even during demonetization, is not conclusive proof of unexplained income. The source of the funds is the critical factor.
- Presumptive Scheme Relief: Taxpayers opting for presumptive schemes like Section 44AD are relieved from maintaining elaborate books. Tax authorities cannot make adverse inferences based on the absence of documents that the law does not require the taxpayer to maintain.
- Onus of Proof: While the initial onus is on the taxpayer to explain the source of a deposit, once a plausible explanation supported by corroborating evidence (like business trends and cash flow) is provided, the onus shifts to the revenue to bring on record specific evidence to prove the explanation is false.
- Plausibility and Consistency Matter: A consistent business pattern and a logical explanation for cash transactions can be a strong defense against an addition, even without formal books of account.
IN THE ITAT CHENNAI BENCH
Muthusamy Mudaliar Prakasam
v.
Assistant Commissioner of Income-tax
Manu Kumar Giri, Judicial Member
and AMITABH SHUKLA, Accountant Member
and AMITABH SHUKLA, Accountant Member
IT Appeal No. 173 (Chny) of 2025
[Assessment year 2017-18]
[Assessment year 2017-18]
SEPTEMBER 8, 2025
T. Vasudevan, Adv. for the Appellant. Ms. R. Anitha, Addl. CIT for the Respondent.
ORDER
Manu Kumar Giri, Judicial Member.- The captioned appeal filed by the assessee is directed against order of the Ld. Commissioner of Income Tax (Appeals) (NFAC), Delhi [CIT(A)] dated 20.09.2024 for Assessment Year 2017-18.
2. There is a delay of 53 days in filing this appeal. The assessee has filed petition along with affidavit for condonation of delay stating therein the reasons for belated filing of the appeal. On perusal of the aforesaid reasons in the condonation application, we are of the view that there is sufficient cause for belated filing of this appeal. Hence, we condone the delay in filing this appeal and proceed to dispose of the appeals on merits.
3. Brief facts of the case are as under:
The brief facts of the case are that the assessee is an individual and runs a jewellery shop in the name and style Mrs KSM Thangamaligai. The assessee filed his return of income for the assessment year 2017-18 on 05/02/2018 declaring a total income of Rs.11,29,440/-. The case was selected for scrutiny and during the scrutiny the assessing officer (‘AO’ in short) examined the cash deposit of Rs.73,66,000 in the bank accounts of the appellant with Axis Bank and City Union Bank during the demonetization. In response to the notices issued, the assessee submitted that the assessee is in the jewellery business, and he had declared income under section 44AD of the Act. In the absence of regular books of accounts maintained the assessee submitted that the cash deposited during the demonetization was out of the regular cash balance available with the assessee in relation to its business. However, the assessing officer for want of the statement of affairs of the assessee and cash flow statement, held the sum of Rs.73,66,000/- deposited in specified bank notes (SBNs) as unexplained money u/s. 69A read with section 115 BBE of the Act.
4. Aggrieved, assessee preferred an appeal before the CIT(A). The ld. CIT(A) partly allowed the appeal of the assessee giving partial relief of Rs.25,00,000/- out of Rs.73,66,000/- deposited in Bank.
Now, assessee is in further appeal before us.
5. The ld. counsel for the assessee has filed written submissions and charts as under:
1. Cash deposits in bank:
1.1 Cash deposits in FY 2015-16
| a. | Total cash deposit in bank fy 2015-16 | 6296600 |
| b. | Total cash deposit in bank from 01.04.15 to 08.11.2015 | 3207100 |
| c. | Total cash deposit in bank from 09.11.15 to 31.12.2015 | 1115000 |
1.2 Cash deposits in FY 2016-17
| a. | Total cash deposit in bank fy 2016-17 | 9462000 |
| b. | Total cash deposit in bank from 01.04.16 to 08.11.2016 | 757500 |
| c. | Total cash deposit in bank from 09.11.16 to 31.12.2016 | 7366000 |
1.3. cash deposits comparison
| a. | Percentage increase between 1.2(a) and 1.1(a) | 50.27% |
| b. | Percentage increase between 1.2(b) and 1.1(b) | 76-38% |
| c. | Percentage increase between 1.2(c) and 1.1 (c) | 560.63% |
2. Cash sales:
2.1 Cash sales in FY 2015-16
| a. | Total cash sales in FY 2015-16 | 3073150 |
| b. | Total cash sales from 01.04.15 to 08.11.2015 | 2475274 |
2.2 Cash sales in FY 2016-17
| a. | Total cash sales in fy 2016-17 | 6388784 |
| b. | Total cash sales from 01.04.16 to 08.11.2016 | 5746996 |
2.3 Cash sales comparison
| a. | Percentage increase between 2.2(a) and 2.1(a) | 107.89% |
| b. | Percentage increase between 2.2(b) and 2.1(b) | 1.2.18% |
3. Analysis of month-wise cash sales and cash deposits from 01.04.15 to 08.11.2015
| Month wise | Opening cash in hand | Cash sales | Cash withdrawal from bank | Other cash receipts | Cash deposited in bank | Other cash payments | Closing cash in hand |
| April | 35691 | 462611 | 140000 | 20801 | 142000 | 246616 | 270487 |
| May | 270484 | 438017 | 60000 | 2273971 | 1004600 | 169093 | 1868782 |
| June | 1868782 | 499338 | 240000 | 20500 | 21500 | 556302 | 2050818 |
| July | 2050818 | 429363 | 350000 | 20750 | 1055000 | 694531 | 1101400 |
| Aug | 1101400 | 301797 | 35000 | 18750 | 5000 | 237170 | 1214777 |
| Sept | 1214777 | 558016 | 356500 | 14750 | 55000 | 1031665 | 1057378 |
| Oct | 1057378 | 501941 | 40000 | 19500 | 924000 | 387108 | 307711 |
| Nov till 08.11.15 | 307711 | 432461 | 0 | 3250 | 0 | 429428 | 313994 |
4. Analysis of month-wise cash sales and cash deposits from 01.04.16 to 08.11.2016
| Month wise | Opening cash in hand | Cash sales | Cash withdrawal from bank | Other cash receipts | Cash deposited in bank | Other cash payments | Closing cash in hand |
| April | 77274 | 292174 | 840000 | 272801 | 0 | 109979 | 1372270 |
| May | 1372270 | 438440 | 300000 | 212750 | 0 | 242526 | 2080934 |
| June | 2080934 | 458760 | 150000 | 229000 | 3000 | 179212 | 2736482 |
| July | 2736482 | 547114 | 0 | 116250 | 0 | 285126 | 3114720 |
| Aug | 3114720 | 376885 | 0 | 218250 | 0 | 193657 | 3516198 |
| Sept | 3516198 | 363825 | 400000 | 220500 | 650000 | 2689796 | 3610727 |
| Oct | 3610727 | 2935728 | 500000 | 14250 | 104500 | 867662 | 6188543 |
| Nov till 08.11.16 | 6188543 | 632690 | 700000 | 4500 | 0 | 126234 | 7399499 |
6. The assessee stated that he has not maintained regular books of accounts and his income is computed under provisions of section 44AD of Income Tax Act, 1961. The ld. Counsel further submitted that assessee is running his small business alongwith his family members. Most of the customers of the assessee are agriculturist. The assessee business is a family run business of trading in valuable jewellery and cash receipts are usually utilized towards payments of purchases and other expenses.
7. Per contra, the ld. DR relied upon the orders of the authorities below and pleaded for the dismissal of the appeal of the assessee.
8. We have heard the both parties and perused the record and given data. The ld. counsel for the assessee has filed written submissions along with supporting charts and data, which are taken on record. The same are summarised as under:
1. Cash Deposits in Bank Accounts
1.1. Cash Deposits During FY 2015-16
| a. | Total cash deposits during the financial year 2015-16 amounted to Rs.62,96,600. |
| b. | Cash deposits made between 01.04.2015 to 08.11.2015 totalled Rs.32,07,100. |
| c. | Cash deposits made between 09.11.2015 to 31.12.2015 totalled Rs.11,15,000. |
1.2. Cash Deposits During FY 2016-17
| a. | Total cash deposits during the financial year 2016-17 amounted to Rs.94,62,000. |
| b. | Cash deposits made between 01.04.2016 to 08.11.2016 totalled Rs.7,57,500. |
| c. | Cash deposits made between 09.11.2016 to 31.12.2016 amounted to Rs.73,66,000. |
1.3. Comparative Analysis of Cash Deposits
| a. | Percentage increase in total annual deposits (FY 2016-17 v. FY 2015-16): 50.27% |
| b. | Percentage increase in deposits during the pre-demonetisation period (01.04 to 08.11): 76.38% |
| c. | Percentage increase during the post-demonetisation window (09.11 to 31.12): 560.63% |
2. Cash Sales
2.1. Cash Sales During FY 2015-16
| a. | Total cash sales for the financial year amounted to Rs.30,73,150. |
| b. | Sales from 01.04.2015 to 08.11.2015 stood at Rs.24,75,274. |
2.2. Cash Sales During FY 2016-17
| a. | Total cash sales during the financial year amounted to Rs.63,88,784. |
| b. | Cash sales from 01.04.2016 to 08.11.2016 totalled Rs.57,46,996. |
2.3. Comparative Analysis of Cash Sales
| a. | Increase in total annual sales: 107.89% |
| b. | Increase during the period 01.04 to 08.11: 131.88% |
3. Month-wise Analysis of Cash Sales and Cash Deposits
3.1. For the period 01.04.2015 to 08.11.2015
The month-wise summary includes details of opening cash in hand, cash sales, cash withdrawals from bank, other cash receipts, cash deposits in bank, other cash payments, and closing cash in hand. These figures are provided to substantiate the source and flow of cash during the relevant period.
3.2. For the period 01.04.2016 to 08.11.2016
Similar details for the subsequent financial year have been furnished, reflecting higher cash sales and cash availability during the relevant assessment year.
9. The assessee has further submitted that no regular books of accounts have been maintained, and income is declared under the presumptive taxation as per Section 44AD of the Income Tax Act, 1961. It has been contended that the assessee is engaged in a small, family-run jewellery trading business, where most customers are agriculturists, and cash transactions are common. Cash receipts are regularly utilised towards purchase payments and business-related expenses.
10. Upon careful consideration of the submissions made by the ld. counsel for the assessee, along with the charts and data referred supra, and having regard to the factual matrix and the peculiar circumstances of the case, we find merit in the contentions of the assessee. It is an admitted fact that the assessee has declared income under the presumptive taxation as per the provisions of Section 44AD of the Income Tax Act, 1961. Under this presumptive taxation, the assessee is not mandatorily required to maintain regular books of accounts. The cash flow statements submitted by the assessee, including the month-wise analysis of cash sales and deposits, demonstrate a consistent and plausible cash trail. The data indicates that the cash deposits made during the relevant periods are supported by corresponding cash sales and withdrawals, and there is no apparent mismatch or unexplained cash inflow. Further, the significant increase in cash sales and cash deposits during FY 2016-17, particularly in the months preceding and following the demonetisation announcement, is adequately explained by the assessee. The nature of the assessee’s business i.e. trading in jewellery in a rural / agricultural area inherently involves high-value cash transactions. This is not uncommon in such trades, especially in the absence of a strong digital payment infrastructure in rural areas during the relevant assessment years. The comparative data furnished also reflects a steady and proportionate pattern of growth in business activity, and the increase in cash sales is not found to be abnormal or disproportionate to the past trend.
11. In view of the above, and in the absence of any specific incriminating material brought on record by the Revenue to disprove the assessee’s explanation or to establish that the cash deposits represented unaccounted income, we are of the considered view that the addition made solely on the basis of cash deposits in the bank account is unsustainable. Accordingly, the addition made by the AO is directed to be deleted.
12. In the result, the appeal of the assessee is therefore allowed.