ITAT Cancels Tax Addition of ₹10.46 Lakh on Cash Deposits During Demonetization

Introduction

Demonetization in 2016 was a stressful time for many people. The sudden ban on ₹500 and ₹1000 notes led to strict scrutiny from the Income Tax Department, especially when people deposited large amounts of cash. For senior citizens, explaining years of small savings kept at home became a major challenge.

In one such case, the Income Tax Appellate Tribunal (ITAT) gave big relief to a senior citizen. The taxpayer had deposited ₹10.46 lakh during demonetization. While the tax officer treated this as “unexplained money,” the ITAT cancelled the addition, accepting that the amount came from earlier withdrawals and genuine savings.

This ruling is an important reminder that simple explanations backed with records can protect taxpayers from unfair demands.

The Facts of the Case

• Who: A senior citizen taxpayer.
• What happened: They deposited ₹10.46 lakh in old ₹500 and ₹1000 notes during demonetization (Nov–Dec 2016).
• Tax department’s view: The Assessing Officer (AO) did not accept the explanation and treated the amount as unexplained money under Section 69A, raising a big tax demand.

Taxpayer’s stand:

• The money came from past withdrawals from their own bank account.
• Like many elderly people, they kept cash at home for medical needs, daily expenses, and emergencies.
• Bank statements showed regular withdrawals that supported the explanation.

In short, this was not new or hidden income. It was already taxed money saved in cash.

The ITAT’s Decision

The Tribunal looked at the case with a practical view and ruled in favour of the taxpayer.

Context of Demonetization

It accepted that demonetization forced people to deposit household savings and that keeping cash at home is common in India.

Probabilities, not rigid proof

The explanation that deposits came from earlier withdrawals was logical and believable. In tax law, this standard of proof is enough.

Evidence was sufficient

The taxpayer’s bank statements showing earlier withdrawals were strong support.

No contrary evidence by the Department

The Income Tax Department could not prove that the cash came from any undisclosed income. The case was based only on doubt.

Based on this, the ITAT cancelled the addition of ₹10.46 lakh made under Section 69A.

Understanding Section 69A

Section 69A lets the tax department treat money or valuables as unexplained income if the person fails to explain the source properly.

• Why it was used here: AO thought the ₹10.46 lakh was unaccounted money.
• Why it is serious: Income under Section 69A is taxed at a very high rate (about 78%). That is why such cases are critical for taxpayers.

Key Lessons from the Ruling

• A logical story matters: Your explanation should be clear and match your financial history.
• Keep records: Bank statements and other proofs are your best defence.
• No need for endless tracing: If your deposit came from earlier savings, you do not need to re-prove the original source of that income.
• Precedent for others: This ruling is good news for many taxpayers who faced similar scrutiny during demonetization.

Conclusion

The ITAT’s decision is a win for fairness. It shows the difference between genuine savings and undisclosed income. For this senior citizen, a simple explanation with supporting documents was enough to escape an unfair tax demand.

The case highlights a simple truth: keeping proper records and giving a reasonable explanation can protect you, even in tough tax situations.

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