ITAT Quashes Section 69A Addition: Relief for Cash Deposits During Demonetisation
If you made cash deposits during the demonetisation period and later faced scrutiny under Section 69A of the Income-tax Act, a recent ITAT ruling may offer some relief. In a key judgment, the Tribunal deleted part of the income tax addition, holding that cash sales were backed by evidence.
Here’s what this means and how it could apply to your case.
What is Section 69A of the Income Tax Act?
Section 69A allows the Assessing Officer (AO) to treat any unexplained cash or valuables found in a taxpayer’s possession as undisclosed income, unless the taxpayer offers a satisfactory explanation.
This was widely invoked post-demonetisation (Nov–Dec 2016) when many businesses and individuals deposited large sums of old currency.
What Happened in the ITAT Case?
Case Summary:
The assessee, a businessman, deposited over ₹88 lakh in cash during demonetisation. The AO made a full addition under Section 69A, alleging the cash was unexplained. However, the assessee provided:
- Books of accounts
- Day-wise cash sales ledgers
- VAT return copies
- Evidence of regular business turnover
ITAT’s Observation:
The Tribunal accepted the sales figures partially and quashed a substantial portion of the ₹88 lakh addition, citing:
- Sales were reflected in books
- VAT returns matched cash deposits
- No evidence was found to prove that sales were fake
Legal Angle: How ITAT Interpreted Section 69A
In this case, the Ahmedabad ITAT Bench held that:
“Where proper sales evidence is available, mere cash deposit post-demonetisation cannot be presumed as unexplained.”
This ruling reaffirms the view taken in similar cases like:
- CIT v. Associated Distributors Ltd. (1996)
- Kailash Jewellery House v. ITO (ITAT Delhi, 2021)
Also, the CBDT had earlier issued Press Release dated 10.11.2016 stating that cash deposits up to ₹2.5 lakh in savings accounts during demonetisation will not be routinely scrutinised unless inconsistent with the profile.
How to Defend Section 69A Notices
If you’re facing scrutiny under Section 69A, especially for FY 2016–17, you must gather:
✅ Books of accounts (audited if applicable)
✅ Cash ledger entries with narration
✅ GST/VAT returns for relevant months
✅ Stock registers (before and after deposit)
✅ Customer invoices or bank reconciliation
✅ Income trend to support plausibility
Expert Tip: Maintain Day-wise Reconciliation
Sales during demonetisation spiked for many businesses. But without day-wise sales records and matching deposits, your case may collapse. Ensure:
- POS or invoice trail exists
- You can show advance collections, not just sales
- Sales patterns are consistent with previous Diwali season
Even for MSMEs not maintaining books, presumptive tax payers (44AD) should retain bank passbooks and customer logs.
Why This Ruling Matters for Taxpayers
- Sets precedent for fair treatment under Section 69A
- Shows that sales evidence can override AO suspicion
- Prevents blanket addition of demonetisation deposits
- Reinforces importance of documented compliance
Related: How to File Income Tax Response to Section 142(1) or 148 Notices – Efiletax Blog
Conclusion
If your business faced a Section 69A addition for cash deposits during demonetisation, this ITAT judgment shows that proper books and supporting documents can lead to full or partial relief. Don’t ignore a tax notice—build your defence early.
Let Efiletax help you draft responses, compile evidence, and represent your case before the department or Tribunal.
FAQs
Q1: Does this mean all demonetisation deposits are safe from scrutiny?
No. You must prove the source. This ruling only helps when supported by valid sales or business income records.
Q2: Can I still be scrutinised if I filed ITR for FY 2016–17?
Yes. Reassessment windows were reopened post 2021. But the burden of proof lies with the AO.
Q3: What if I didn’t maintain digital invoices back then?
Submit any available records — even paper bills, stock statements, or VAT filings can help.
Summary
ITAT quashed a major Section 69A addition on cash deposits made during demonetisation, accepting sales as valid explanation. The case highlights that proper documentation like VAT returns, cash ledgers, and books of accounts can help avoid harsh income tax additions. Learn how to defend such notices.