Top Stories ITAT Slashes Addition, Allows Partial Relief to Assessee on Cash Deposit during Demonetization [Read Order] The Tribunal concluded that some cash availability at the time of demonetization was plausible By Adwaid M S – On January 7, 2025 8:50 pm – 2 mins read In a significant ruling, the Surat Bench of the Income Tax Appellate Tribunal ( ITAT ) granted partial relief  by reducing the addition made under Section 69A of the Income Tax Act, 1961. The appeal pertained to the unexplained cash deposit of Rs.40,00,000 during the demonetization period in the financial year 2016-17.

Om Sai Contractors, appellant-assessee, a Surat-based firm engaged in painting job works and leasing of machinery, had declared an income of Rs.6,46,790 for the relevant assessment year. During scrutiny, the Assessing Officer (AO) raised concerns regarding cash deposits made in the bank account during the demonetization period, arguing that the source of the funds was not adequately substantiated. The AO treated the deposits as unexplained and added the amount to the assessee’s income under Section 69A, taxing it at the higher rate prescribed under Section 115BBE.

Upon appeal, CIT(A) upheld the addition, observing that the withdrawals claimed by the assessee did not directly correlate with the cash deposits and that there was a lack of third-party evidence to substantiate the opening cash balance as of April 1, 2016.  Become a PF & ESIC expert with our comprehensive course – Enroll Now In its final appeal before the ITAT, the assessee argued that it had withdrawn more than Rs.76,00,000 during the financial year and maintained proper books of accounts, which were not disputed by the authorities.

The firm contended that it was forced to deposit the cash on hand during the demonetization period and sought relief on the grounds that the funds were accumulated from regular business activities.  Judicial Member Shri Pawan Singh noted that while the assessee had demonstrated cash withdrawals exceeding Rs.76,00,000 during the year, there was no third-party corroboration of the opening cash balance. However, considering the nature of the assessee’s labor-intensive business, where cash transactions are routine, the Tribunal concluded that some cash availability at the time of demonetization was plausible.

In a balanced approach, the ITAT directed a token disallowance of 10% of the total cash deposit to address the possibility of revenue leakage. Importantly, it also ruled that the remaining amount should be taxed at the regular rates applicable to the assessee instead of the punitive rates under Section 115BBE.  In Conclusion,the appeal was partially allowed.