Addition under Section 69 for cash deposits up to ₹2.5 Lakhs during demonetization deleted per CBDT Instruction 3/2017

Issue

Section 69 Addition: Whether the Assessing Officer (AO) was justified in making an addition of ₹2 Lakhs under Section 69 for cash deposits made during the demonetization period, despite CBDT Instruction No. 3/2017 which directed no verification for deposits up to ₹2.5 Lakhs.
Credit for Self-Assessment Tax: Whether the matter regarding the non-credit of self-assessment tax of ₹21,700 requires remand for verification.

Facts

Business Profile: The assessee was engaged in a small-scale gold ornament business and offered income to tax under the presumptive taxation scheme of Section 44AD.
The Addition: During the demonetization period (AY 2017-18), the assessee deposited cash into their bank account. The AO accepted the source for ₹50,000 but treated the remaining ₹2 Lakhs as unexplained money under Section 69.
Assessee’s Plea: The assessee contended that the cash deposits were genuine sale proceeds from the gold business, which had already been offered to tax under Section 44AD.
CBDT Instruction: The assessee relied on CBDT Instruction No. 3/2017 dated 21-02-2017, which provided a Standard Operating Procedure (SOP) for verifying cash deposits. The instruction directed that for small depositors, cash deposits up to ₹2.5 Lakhs should generally be accepted without further verification.
Tax Credit Issue: The assessee also claimed that self-assessment tax of ₹21,700 deposited on 29-06-2017 was not given credit by the AO.

Decision

Addition Deleted (Sec 69): The Tribunal/Court held that the addition of ₹2 Lakhs was uncalled for. Relying on CBDT Instruction No. 3/2017, which set a threshold of ₹2.5 Lakhs for non-verification of cash deposits during demonetization, the tax authorities should not have scrutinized this small amount, especially when the income was offered under Section 44AD. The addition was deleted in favor of the assessee.
Remand (Tax Credit): Regarding the claim of unpaid tax credit, the Tribunal held that this is a factual matter requiring verification. The issue was remanded back to the AO to verify the payment of ₹21,700 and grant credit accordingly.

Key Takeaways

Safe Harbor of ₹2.5 Lakhs: CBDT Instruction No. 3/2017 acts as a binding circular for Revenue authorities. Cash deposits up to ₹2.5 Lakhs made during the demonetization period are generally immune from deep scrutiny or additions under Section 69, particularly for small taxpayers.

Presumptive Taxation Support: When a small business declares income under Section 44AD, cash deposits that reasonably align with the turnover (and fall within the SOP limits) should typically be accepted as business receipts rather than unexplained investments.

Rectification of Tax Credit: Courts routinely remand matters where the AO has failed to give credit for taxes paid (TDS/Self-Assessment) despite proof of payment, instructing the AO to verify and rectify the demand.

IN THE ITAT INDORE BENCH

Nikita Gupta

Income-tax Officer^*

PARESH M JOSHI, Judicial Member
and Manish Borad, Accountant Member

IT Appeal No. 255 (Ind.) of 2025
[Assessment year 2017-18]

OCTOBER 24, 2025

Milind Wadhwani, AR for the Appellant. Ms. Ila Parmar, CIT-Dr and Nihar Sahu for the Respondent.

ORDER

Dr. Manish Borad, Accountant Member.- This appeal by the assesse is directed against the order dated 17.02.2023 of the Commissioner of Income Tax (Appeals), New Delhi for A.Y.2017-18 which is arising from the assessment order u/s 144 r.w.s. 142(1) of the Act dated 24.12.2019 framed by Income Tax Officer-2, Ratlam.

2. Registry has informed that there is delay of 7 days in filing the appeal before this Tribunal. The assessee has submitted Condonation of Delay application alongwith the affidavit. The Ld. AR for the assessee stated that the e-mail id of previous consultant was mentioned in Form No.35 due to which the assessee had no knowledge about the passing of the impugned order. Ld. AR also submitted that the delay is not intentional and therefore sought condonation of delay. The Departmental Representative opposed the request. On going through the reasons we notice that the delay was not intentional and assessee has not gained by delaying filing of appeal. Considering the ratio laid down by the Hon’ble Apex Court in the case of Inder Singh v. State of Madhya Pradesh [SLP (Civil) No. 6145 of 2024, dated 21-3-2025]/2025 INSC 382) and also observing that in filing appeal a delay is unintentional, we therefore condone the delay of 7 days and admit the appeal for adjudication.

3. At the outset Ld. Counsel for the assessee submitted that the only addition made is towards unexplained cash deposit during the demonetization period. He submitted that Central Board of Direct Taxes (CBDT) vide Instruction No.3/2017 dated 21.02.2017 has directed the revenue authorities that no verification shall be made for cash deposits below Rs.2.5 lakhs during the demonetization period in case of individual tax payers. He further submitted that the assessee has already included the alleged cash deposit as part of the sale proceeds and offered it to income u/s 44AD of the Act. He further submitted that the Ld. A.O has not granted the credit of self assessment tax at Rs.21,700/- paid on 29.06.2017 and the same needs to be allowed after due verification.

4. The Ld. Departmental Representative supported the order of lower authorities.

5. We have heard the rival contentions and perused the record placed before us. We notice that the addition of Rs.2,00,000/- has been made by the Ld. A.O for unexplained money u/s 69 of the Act for the cash deposited during the demonetization period. We note that the assessee deals in gold ornament business on small level and offers the income at presumptive section 44AD of the Act and also earns income from money lending business. During the course of assessment proceedings for the assessment year 2017-18 which have been initiated on account of cash deposits at Rs.13,24,062/-, Ld. A.O finally came to the conclusion that total amount deposited by the assessee during the demonetization period in the bank account held with Narmada Jhabua Grameen Bank, Alirajpur is only Rs.2,50,000/-. The assessee contended before the Ld. A.O that the cash deposits are sale proceeds of gold ornaments and income offered to tax under presumptive taxation section as provided u/s 44AD of the Act. However Ld. A.O was partly satisfied and only accepted the source of cash deposit of Rs.50,000/- and made addition of remaining amount of cash deposit of Rs.2 lakhs.

6. We observe that the Ld. A.O during the course of assessment has accepted the income declared by the assessee at Rs.4,95,270/-which includes the income declared u/s 44AD of the Act on the turnover of Rs.2 lakhs and there is other income from interest on Rs.4,82,297/-. The computation of income shows that the assessee is earning income from interest regularly and so far as the source of cash deposit of Rs.2 lakh is concerned CBDT vide Instruction No.3/2017 dated 21.02.2017 has directed the revenue authorities not to make further verification of the cash deposits of up to Rs.2.5 lakhs during the demonetization period since the source of such amount can be either household savings/savings from past or from claimed to have been received from any of the sources mentioned in para 2 to 6 of the circular. In other words no verification is required in case of individual less than the age of 70 years for the cash deposit of Rs.2.5 lakhs during the demonetization period. Considering the said direction by the CBDT dated 21.02.2017 and also considering the facts and circumstances of the case, we find that the impugned order making addition of Rs.2 lakh is uncalled for. Accordingly the finding of Ld. CIT(A) order is set aside and addition of Rs.2 lakh is deleted. Thus on merits assessee succeeds. Ground No. 1 to 8 are allowed.

7. We further observed that during the course of hearing the assessee has referred to the written submissions wherein it has been stated that the credit of pre-paid taxes under the head self assessment tax at Rs.21,700/- deposited on 29.6.2017 has not been given by Ld. A.O. This issue needs verification and the same is hereby restored to the file of Ld. A.O for necessary verification. Thus Ground No.9 is allowed for statistical purpose. Ground No.10&11 are general and consequential in nature which needs no adjudication.

8. In the result appeal of the assessee is partly allowed for statistical purpose.