Top Stories Cash Deposits Duly Recorded in Books Cannot Be Taxed as Unexplained Money Without Rejecting Accounts: ITAT [Read Order] The Tribunal asserted that cash deposits made during the demonetization period were duly recorded in the books of account and properly disclosed as trade receipts by the assessee. Without rejecting the books, the AO’s action treating the cash as unexplained is not sustainable in law By Eeva Mary Sanil – On May 3, 2025 8:54 am – 3 mins read The Patna Bench of the Income Tax Appellate Tribunal ( ITAT ) held that cash deposits made during the demonetization period cannot be treated as unexplained money under Section 69A of the Income Tax Act, 1961, when they are already recorded in the books of account and the books have not been rejected by the Assessing Officer (AO).

The case arose from an appeal filed by the revenue against the order passed by the National Faceless Appeal Centre (NFAC), which had allowed relief to the assessee, Mohamad Israil Cold Storages Pvt. Ltd., a company based in Ara, Bihar, for the Assessment Year 2017–18. What Happens After an F.I.R.? Get the full legal roadmap here – Click Here The case was originally selected for scrutiny to examine cash deposits made during the demonetization period (08.11.2016 to 31.12.2016). During this period, the assessee had deposited ₹1,13,96,000 in various bank accounts. The AO alleged that the cash balance had been artificially inflated just before demonetization, observing a sudden spike in cash on hand in the company’s books. The average cash balance, which hovered around ₹12–14 lakhs earlier, jumped to over ₹82 lakhs by 08.11.2016. Cash Deposit on Demonetization not to be Taxed as Unexplained Income u/s 69A of Income Tax Act on Explanation of Source: ITAT Read More Finding this increase unusual and unsupported by detailed party-wise receipts or invoices, the AO invoked Section 69A, treating the entire deposit as unexplained money. The sum was then taxed at a steep 60% under Section 115BBE, a special provision applied to undisclosed income post-demonetization.

However, the CIT(A), after reviewing the matter, took a different view. It noted that the assessee had produced its audited books of account, cash book, profit and loss account, and balance sheet. More importantly, the AO had not rejected the books of account nor pointed out any specific discrepancies in them. The CIT(A) emphasized that once the cash deposits are already accounted for in the books and those books are accepted as genuine, no addition under Section 69A is permissible. ITAT Upholds Legitimacy of Cash Deposits, Rejects Unexplained Classification u/s 68 of Income Tax Act [Read Order] Citing the landmark judgment of the Patna High Court in Laxmi Rice Mills vs. CIT, the CIT(A) held that unless it is proven that the books are unreliable or false, amounts duly recorded therein cannot be deemed as secreted or unexplained. The appeal was accordingly allowed in favour of the assessee. What Happens After an F.I.R.? Get the full legal roadmap here – Click Here The revenue challenged this decision before the ITAT, arguing that the assessee had failed to produce specific supporting documents like invoices and party-wise rent details. However, the assessee countered that all necessary documents, including audited financials and bank statements, were duly submitted, and no adverse findings had been recorded by the AO regarding the books. Treating Cash Deposit During Demonetization as unexplained cash without rejecting Books of account is Invalid: ITAT Read More After hearing both sides, the Bench comprising Shri Sonjoy Sarma (Judicial Member) and Shri Sanjay Awasthi (Accountant Member) dismissed the revenue’s appeal.

The Tribunal affirmed that the AO’s failure to reject the books of account invalidated the basis for the addition under Section 69A. The Bench observed that “The cash deposits made during the demonetization period were duly recorded in the books of account and properly disclosed as trade receipts by the assessee. Without rejecting the books, the Assessing Officer’s action treating the cash as unexplained is not sustainable in law.” What Happens After an F.I.R.? Get the full legal roadmap here – Click Here It also warned against the consequences of double taxation, noting that since the receipts were already included in the income computation, taxing them again as unexplained would violate legal principles. Accordingly, the Tribunal upheld the order of the CIT(A), reiterating the legal position that mere suspicion or timing of deposits during the demonetization window cannot override accepted accounting records. To Read the full text of the Order