ITAT Deletes Demonetisation Cash Deposit Addition as Withdrawals Exceeded Deposits

Vinita Nitin Chaudhary Vs ITO (ITAT Delhi)

No Section 69A Addition Merely Due to Time Gap Between Cash Withdrawal and Redeposit;  Salaried Employee Not Required to Maintain Cash Book for Explaining Cash Deposits;  ITAT Quashes Unexplained Cash Addition as Revenue Failed to Prove Alternate Use of Withdrawals.

Summary: In Vinita Nitin Chaudhary Vs ITO, the Delhi ITAT deleted an addition of ₹12.08 lakh made under Section 69A for cash deposits during the demonetization period, holding that the deposits were sufficiently explained through earlier withdrawals from the assessee’s own bank account. The assessee, a salaried government scientist, had withdrawn substantial cash before demonetization and later redeposited part of it. The Assessing Officer treated the deposits as unexplained money due to alleged non-compliance and absence of detailed records, while the CIT(A) upheld the addition citing time gaps between withdrawals and redeposits and absence of a cash book. The Tribunal held that there is no legal requirement for a salaried individual to maintain a cash book and that mere time gaps cannot justify additions unless the Revenue proves the cash was used elsewhere. Since withdrawals exceeded deposits and the source was identifiable, the addition was deleted.

Core Issue: The Delhi ITAT dealt with the issue whether cash deposits made during demonetization could be treated as unexplained money under section 69A merely because there existed a time gap between earlier cash withdrawals and subsequent redeposit.

The assessee, a salaried Government employee working as Scientist ‘E’ in the Department of Biotechnology, had deposited cash of ₹12,08,000 during the demonetization period and explained that the source of such deposit was earlier withdrawals from the same bank account coupled with accumulated savings from disclosed salary income. The Assessing Officer completed assessment under section 144 and made addition under section 69A on the ground that the assessee failed to maintain a cash book and could not establish continuity of cash availability. The CIT(A) confirmed the addition primarily relying upon the time gap between withdrawal and redeposit.

The Tribunal deleted the addition and held that once withdrawals from bank accounts are duly reflected in the bank statement and accepted by the department, the burden shifts upon the Revenue to establish that such cash was utilized elsewhere before treating subsequent redeposit as unexplained money. The Tribunal observed that there is no statutory requirement for a salaried individual to maintain a cash book and that mere suspicion or conjecture cannot substitute legal evidence required under section 69A. It was further held that mere time gap between withdrawal and redeposit cannot by itself justify addition unless the department demonstrates with evidence that the withdrawn cash was spent or diverted elsewhere. The ITAT also noted that the total withdrawals of the assessee substantially exceeded the amount redeposited and therefore the source stood satisfactorily explained. Relying upon earlier decisions including Baldev Raj Charla, Veena Awasthi, Gordhan v. ITO and Deepali Sehgal, the Tribunal held that addition under section 69A was unsustainable and accordingly deleted the entire addition.

FULL TEXT OF THE ORDER OF ITAT DELHI

1. This appeal is filed by the assessee against the order of the Ld. Addl/JCIT (A), Panchkula [hereinafter referred to as ‘ld. JCIT (A)]dated 01.08.2025 for the Assessment Year 2017-18.

2. Brief facts of the case are, the assessee filed her return of income electronically declaring income of Rs.8,01,480/- under the head income from salary/pension, Income from House Property and other source, after claiming of deduction of Rs.2,68,885/- under chapter VI-A. The case was selected for scrutiny under CASS for the following reasons:-

“assessee has deposited substantial cash during demonetization period as compared to returned income”

Accordingly notices u/s 143(2) and 142 (1) of the Income-tax Act, 1961 (for short ‘the Act’) were issued for filling of details of source of cash deposit but no reply was filed by the assessee. Further penalty notice u/s 272A(1)(d) was issued to assessee for non-compliance of notice issued u/s 142(1) but still no reply was filed by the assessee. Further to another penalty notice u/s 272A(1)(d) issued, assessee filed a reply and bank account statement and stated that she is salaried person employed in the Department of Biotechnology and am maintaining my bank account in the State Bank of India, Lodi Estate Branch, New Delhi. She further submitted that the sources of sources of cash deposit is cash withdrawal from my savings account. However, after perusing the bank statement, the AO was not satisfied with the details and asked for the assessee to give the narration of the some debit and credit entries but no reply was filed. Accordingly, the AO observed that during the year the assessee had deposited cash of Rs.12,08,000/- during demonetization period. Since the assessee has not filed any documentary evidence in support of her claim of source of cash deposit in bank account, therefore, the AO added the amount of Rs.10,43,000/- back to the income of the assessee as unexplained money u/s 69A and charged tax as per section 115BBE of the Act.

3. Further AO observed that as per form 26QB details, the assessee had entered into the transaction of sale of immovable property for total sales consideration of Rs.58,00,000/- during the year under consideration. The assessee did not disclose this transaction in her return of income. Since the assessee did not disclosed this transaction in her return of income, therefore, Rs.58,00,000/- is added back to income of the assessee under the head ‘Long Term Capital gain’. However, assessee filed an application dated 28.12.2019 for rectification stating that during the year the assessee has not sold any immovable property therefore question of long term capital gain never arises and in the rectification order dated 13.01.2020, after verifying the records, AO found the contention of the assessee as correct and accordingly, rectified the same and removed the said addition.

4. Aggrieved against the above order, assessee preferred an appeal before the ld. CIT (A) and filed detailed submissions. Ld. CIT (A) after going through the detailed submissions, confirmed the order of the AO.

5. Aggrieved against the above order, assessee is in appeal before us raising following grounds of appeal :-

“1. That on the facts and in the circumstances of the case, the impugned Assessment Order framed under section 143(3) by the Assessing Officer (AO for short) is bad in law and deserves to be quashed.

2. That on the facts and in the circumstances of the case, the learned AO erred in including a sum of Rs.12,08,000/- (Twelve Lakhs Eight Thousand) in the total income of the appellant u/s 69A of the Income Tax Act, 1961 (hereinafter called the Act for short) by ignoring the facts that the cash deposited in bank account was not out of the books it was from tax paid income and withdrawals from Assessee bank account only. Further Learned CIT Appeal disallowed the Assessee appeal with reason appellant’s explanation, including the claim that the amount was retained in cash for several months, is not supported by any contemporaneous record of cash flow, cash book, or household withdrawals to prove that the cash was preserved unutilized by ignoring the facts that appellants is not a business entity and discretionary for maintaining such records. She has income from salary and other income generated through her savings only and due to some contextual appellant has made such withdrawals of cash and again due to coincidental appellant force to deposit back the cash withdrawn.

3. That on the facts and in the circumstances of the case, the learned AO erred in including interest paid on housing loan, initially in assessment order dated 25.12.2019 the learned AO has allowed the interest paid on housing loan but in rectification order dated 13.01.2020 the same has been disallowed.

4. That the tax liability raised by the AO vides the Computation Sheet attached to the impugned Assessment Order is erroneous.”

5. At the time of hearing, ld. AR of the assessee brought to our attention brief facts of the case and also submitted his submissions which were narrated in the detailed written submissions and the same is reproduced below :-

A. Key Facts

1. The appellant is a salaried individual employed as Scientist ‘E’ in the Department of Biotechnology, Government of India. The return of income for A.Y. 2017-18 was filed declaring total income of ₹8,01,480/-. The case was selected for scrutiny on account of cash deposits during the demonetization period.

2. During the demonetization period, cash amounting to ₹12,08,000/-was deposited in the bank account. The source of such cash deposit was earlier withdrawals made from the same bank account prior to demonetization. The appellant had sufficient cash balance available out of regular salary income and earlier bank withdrawals. Explanation given: redeposit of earlier withdrawals.

The withdrawals made prior to demonetization were duly reflected in the bank statement. The redeposit of cash during demonetization was out of such withdrawals and savings and does not represent any unexplained income.

3. AO completed assessment u/s 144 (best judgment) alleging non­compliance.

4. LTCG addition was later rectified and deleted u/s 154.

5. Only addition surviving: ₹12,08,000 u/s 69A By Assessing Officer

B. Brief Facts of the Case

I. No Independent Finding of Unexplained Money

The learned Assessing Officer has made the addition merely on the ground of alleged non-compliance and absence of detailed explanation during assessment proceedings. However, no independent inquiry has been conducted to establish that the cash deposits were from undisclosed sources.

It is settled law that addition u/s 69A can be made only when the assessee is found to be the owner of unexplained money and fails to offer a satisfactory explanation. In the present case, the explanation is reasonable, supported by salary income and prior withdrawals.

II. Assessment Completed u/s 144

The assessment was completed under best judgment due to alleged non-compliance. However, the appellant had subsequently furnished relevant documents, and even the rectification order u/s 154 accepted the appellant’s contention regarding capital gains addition. This establishes that the assessment was framed without proper appreciation of facts.

III. Legal Position

It is a settled judicial principle that cash deposited out of earlier withdrawals cannot automatically be treated as unexplained unless the Revenue proves that the withdrawals were not available with the assessee at the time of redeposit.

The appellant being a salaried government employee with disclosed sources of income, there is no justification for invoking section 69A.

C. Arguments

1. No peak cash theory applied

2. No finding that withdrawals were spent elsewhere

3. Mere suspicion cannot replace evidence

4. Addition u/s 69A requires ownership + unexplained nature

Further, Learned CIT(A) has confirmed the addition mainly on the ground that:

• • Mere withdrawals do not prove continuity of cash
  • No cash book maintained
  • Small withdrawals before demonetization show absence of cash balance
  • Time gap between withdrawal (July/August) and deposit (December)

√ CIT Vs Baldevraj Charla and others 121 TTJ 0366 Delhi TS-5893-ITAT -2008 (Delhi) date of order 29.12.2008: ITAT held that merely because there was a time gap between the withdrawal and corresponding cash deposit, the assessee’ s explanation not be rejected, and hence the addition confirmed by the Ld. CIT(A) is not correct.

√ DCIT Vs Veena Awasthi Lucknow ITAT TS-10298- ITAT – 2018: ITAT held that there is no law in the country which prevents citizens from frequently withdrawing and depositing his own money into the bank account held by them.

√ Gordhan Vs ITO Delhi – ITAT TS-6602-ITAT – 2015 (Delhi): ITAT held that no addition can be made on the ground of time gap of 5 months between the date of cash withdrawal and re-deposit, unless the A.O. demonstrate that the amount in question has been utilized for any other purpose.

D. ERRONEOUS CONFIRMATION OF ADDITION U/S 69A

The Ld. CIT(A) erred in law and on facts in confirming the addition of ₹12,00,000 u/s 69A without appreciating that:

• The source of cash was duly explained
• Bank withdrawals were substantially higher (₹22,10,000)
• No evidence was brought on record that cash was spent elsewhere

i. Burden under Section 69A Incorrectly Applied

Section 69A applies only when:

• • Assessee is found owner of money
  • And offers no satisfactory explanation

Here:

> Source = Own bank withdrawals

> Identity = Self

> Capacity = Government salaried employee

> Genuineness = Reflected in bank statement

* Once withdrawals are accepted, onus shifts to Revenue to prove utilization elsewhere.

* CIT(A) wrongly shifted burden back to assessee to prove “continuity of cash”.

* There is no statutory requirement to maintain cash book for salaried individual.

ii. No Evidence of Utilization Elsewhere

CIT(A) did not establish:

• • That cash was spent
  • That cash was invested
  • That cash was used in any unexplained transaction Judicial principle:

Suspicion, however strong, cannot replace evidence.

Unless Revenue proves diversion of cash, addition cannot survive.

• • • ITO vs Mrs. Deepali Sehgal Delhi ITAT TS-6737-ITAT-2014 (Delhi) order dated 05.09.2014: It was held by ITAT that nothing was mentioned by the A.O. that the amount withdrawn was utilized anywhere else. It is not mandatory under any law of the land that an individual has to keep his/her saving in the bank account only and not as cash in hand.
    • ITO Vs Baburao K Pisal Mumbai ITAT TS- 6767- ITAT -2014 (Mumbai): ITAT held that source of deposit in the bank account is important and there is no prohibition to keep cash out of bank withdrawal. No provision in the act requires that cash once withdrawn has to be re-deposited immediately if not utilized. Once the source of these cash deposit is not in doubt, the same cannot be termed as unexplained.

iii. Time Gap is Not a Valid Ground for Addition

The Learned CIT(A) has erred in sustaining the addition merely on the basis of a time gap between withdrawal and redeposit of cash.

Withdrawal: July–August 2016

Deposit: December 2016

Time Gap: Approximately 4 months

It is respectfully submitted that the existence of a time gap, by itself, cannot be a valid ground for making or sustaining an addition under Section 69A of the Act.

Numerous decisions of the Hon’ble ITATs and Hon’ble High Courts have consistently held that, the case laws on identical facts and circumstances have already been cited hereinabove and form part of the present submission;

Mere time gap between withdrawal and redeposit of cash does not automatically justify an addition;

There is no statutory requirement under the Income-tax Act mandating immediate redeposit of withdrawn cash;

An individual is legally entitled to retain cash at home for personal, household, or business contingencies.

In the present case, the Learned CIT(A) has failed to properly appreciate and distinguish the binding judicial precedents cited by the Appellant and has not provided any cogent reasoning for disregarding the settled legal position.

Accordingly, the addition sustained solely on the basis of time gap is arbitrary, unsustainable in law, and liable to be deleted.

iv. Small Withdrawals Before Demonetization – Faulty Inference

CIT(A) relied on:

₹3,000 withdrawn on 27.10.2016

₹10,000 withdrawn on 02.11.2016

And concluded: no cash balance existed.

This inference is legally flawed because:

• • • Small withdrawals for daily expenses do not negate larger cash balance.
    • Human conduct test must be realistic.
    • Cash availability cannot be rejected on conjecture. The finding is based on presumption, not evidence.

v. Cash Withdrawals Exceed Deposit

Total withdrawals: ₹22,10,000

Deposit questioned: ₹12,00,000

There is excess cash withdrawal of ₹10,10,000.

Even applying peak theory, addition cannot survive.

CIT(A) ignored this fundamental arithmetic fact.

vi. Rectification Order Shows Initial Assessment Was Erroneous

AO wrongly added ₹58,00,000 LTCG which was later deleted u/s 154. This shows:

• • • Assessment was passed without proper verification.
    • Non-application of mind.
    • Similar approach taken in cash addition.

vii. Legal Position Supported by Jurisprudence

Settled law:

• • • Withdrawal redeposit cannot be treated unexplained without proof of utilization.
    • No requirement to maintain cash book by salaried person.
    • Burden shifts to department once source shown. CIT(A)’s reasoning contradicts settled ITAT/HC jurisprudence.

In view of the above, it is humbly prayed that the addition of ₹12,00,000/- confirmed u/s 69A be deleted in full.”

6. On the other hand, ld. DR of the Revenue objected to the submissions of the assessee and relied on the orders of the authorities below.

7. Considered the rival submissions and material placed on records. We observed that the assessee is a salaried individual employed as Scientist ‘E’ in the Department of Biotechnology, Government of India. During the demonetization period, the assessee deposited cash amounting to Rs.12,08,000/- in the bank account. We observed from the ld. AR’s submission that the source of such cash deposit was earlier withdrawals made from the same bank account prior to demonetization and the assessee had sufficient cash balance available out of regular salary income and earlier bank withdrawals. Further we observed from the bank statement that the withdrawals made prior to demonetization were duly reflected in the bank statement and the same redeposited during demonetization and the same does not represent any unexplained income. Further we observed that the AO made the addition merely on the ground of alleged non-compliance and absence of detailed explanation during assessment proceedings, however, no independent inquiry has been conducted to establish that the cash deposited were from undisclosed sources. Further we also observed that it is settled law that addition u/s 69A can be made only when the assessee is found to be the owner of unexplained money and fails to offer a satisfactory explanation and in the present case, the explanation is reasonable, supported by salary income and prior withdrawals. Further we observed that the assessee being a salaried government employee with disclosed sources of income, there is no justification for invoking section 69A. Further we observed that in the case of CIT vs Baldevraj Charla and others (supra), ITAT held that merely because there was a time gap between the withdrawal and corresponding cash deposit, the assessee’s explanation not to be rejected, and hence the addition confirmed by the ld. CIT(A) is not correct. Further we observed that the Ld. CIT(A) erred in law and on facts in confirming the addition u/s 69A without appreciating the fact that bank withdrawals were substantially higher and the assessee has proved the source and genuineness, once withdrawals are accepted, onus shifts to Revenue to prove utilization of the funds were elsewhere and ld. CIT(A) wrongly shifted burden back to assessee to prove “continuity of cash” and there is no statutory requirement to maintain cash book for salaried individual. Further we observed from the submissions and record that cash withdrawals exceed deposit. Accordingly, after relying on judicial precedents and finding that cash deposited is more than the withdrawals, there is direct source of cash available on record, the assessee has proved the source, we delete the addition and accordingly allow the grounds raised by the assessee.

8. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on this 6^TH day of May, 2026.