ITAT Restricts Demonetization Cash Addition to 25%; Accepts Loan Withdrawal as Major Source

By | November 17, 2025
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ITAT Restricts Demonetization Cash Addition to 25%; Accepts Loan Withdrawal as Major Source

Issue

Whether cash deposits of Rs. 11,24,000/- made during the demonetization period constitute unexplained money under Section 69A, when the assessee claims the source was a housing loan withdrawn shortly before but kept unutilized due to a family medical emergency.

Facts

  • The Deposit: The assessee, a pensioner, deposited specified bank notes (SBNs) aggregating to Rs. 11,24,000/- in his bank accounts between 09.11.2016 and 30.12.2016.

  • The Explanation: The assessee claimed the source was cash withdrawn from a housing loan of Rs. 13,00,000/- sanctioned jointly with his wife and son. The withdrawals occurred in late September and mid-October 2016 (just weeks before demonetization).

  • Reason for Holding Cash: He argued that construction work was suspended due to his wife’s serious illness and hospitalization, leaving the cash unspent in hand.

  • AO’s Rejection: The Assessing Officer (AO) added the amount as unexplained money u/s 69A, arguing:

    • Banking norms usually require utilization of the first installment before releasing the second.

    • Small withdrawals were made in between, implying the earlier bulk cash was used.

    • It was improbable to hold such large cash idle.

Decision

  • The Income Tax Appellate Tribunal (ITAT) partly allowed the appeal.

  • Nexus Established: The Tribunal found force in the assessee’s plea regarding the proximity in time between the loan withdrawals (Sept-Oct) and the deposits (Nov-Dec).

  • Medical Emergency: The explanation regarding the suspension of construction due to the wife’s illness was accepted as plausible and supported by medical records.

  • Estimation of Relief: However, the Tribunal noted that small intermittent withdrawals suggested some funds were indeed utilized. Since no cash flow statement or construction ledger was produced to prove the entire amount was intact, the Tribunal restricted the addition.

  • Final Ruling: The disallowance was restricted to 25% of the deposit.

    • Addition Sustained: Rs. 2,81,000/-

    • Relief Granted: Rs. 8,43,000/- (Deleted)

Key Takeaways

  • Proximity is a Valid Defense: A short time gap between the withdrawal of known funds (like a loan) and their re-deposit during demonetization is a strong indicator of genuineness.

  • Human Probabilities: Tribunals accept that personal emergencies (like hospitalization) can disrupt business plans, justifying the holding of idle cash.

  • Benefit of Doubt: When an explanation is credible but lacks perfect documentary proof (like a daily cash ledger), appellate authorities often resort to fair estimation rather than confirming the entire addition.

  • Section 69A: The burden of proof is on the assessee, but once a plausible source is shown, the Revenue cannot reject it entirely on mere suspicion without contrary evidence.

THE INCOME TAX APPELLATE TRIBUNAL,
CHANDIGARH BENCHES, “SMC” CHANDIGARH
Mohan Lal Bhapta
1, Bhapta Niwas, Rohru, Shimla
Himachal Pradesh-171207

Vs
The ITO
Ward- Rampur

Source:- 1762949213-kvTWDD-1-TO