Bangalore ITAT Deletes Demonetisation Addition; Recorded Cash Receipts Cannot Be Treated as Unexplained Money

Mysore Diagnostic Center Private Limited Vs ACIT (ITAT Bangalore)

Bangalore ITAT Deletes Demonetisation Addition; Recorded Cash Receipts Cannot Be Treated as Unexplained Money

The Bangalore ITAT in Mysore Diagnostic Center Pvt. Ltd. v. ACIT deleted the addition of ₹13.36 lakh made under section 69A in respect of cash deposits during the demonetisation period. The Assessing Officer had treated part of the cash deposits as unexplained on the ground that the assessee had accepted specified bank notes (SBNs) after demonetisation.

The Tribunal noted that the deposits were fully reflected in the assessee’s regular books of account, supported by the cash book, audited financial statements and details of patients/customers from whom receipts were collected. Neither the Assessing Officer nor the CIT(A) pointed out any defect in the books, nor was it alleged that the professional receipts recorded in the accounts were bogus or undisclosed.

ITAT held that merely because the deposits included demonetised currency notes, the amounts could not automatically be treated as unexplained money when the corresponding receipts were duly recorded in the books and offered to tax. Once the books are audited and accepted without adverse findings, addition under section 69A cannot be sustained solely on the basis that specified bank notes were deposited. Accordingly, the entire addition of ₹13,36,573 was deleted and the assessee’s appeal was allowed.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

1. This appeal by Mysore Diagnostic Centre Pvt. Ltd. relates to Assessment Year 2017-18 and is directed against the order dated 1 October 2025 passed by the Commissioner of Income Tax (Appeals), Aurangabad. By that order, the assessee’s appeal against the assessment order dated 21 December 2019, passed under section 143(3) of the Income Tax Act by the Assistant Commissioner of Income Tax, Circle 1(1) and TPS, Mysore, was dismissed.

2. The assessee is aggrieved by the confirmation of an addition of ₹13,36,573 made by the Assessing Officer in respect of cash deposits in specified bank notes.

3. Briefly stated, the assessee filed its return of income for Assessment Year 2017-18 on 28 October 2017, declaring total income of ₹29,66,180. The assessee is engaged in the business of running a diagnostic center and earned income from that business during the relevant financial year. The return was selected for complete scrutiny and notice under section 143(2) of the Act was issued on 26 September 2018.

4. During the assessment proceedings, the Assessing Officer noted that the assessee had accepted specified banknotes. A notice under section 133(6) was issued, requiring the assessee to furnish audited financial statements and a note on its business activities. The assessee submitted the required details. On verification, the Assessing Officer found cash deposits aggregating to ₹48,95,500, of which ₹21,67,061 represented deposits in new currency notes. The assessee was asked to explain the source of the deposits. After considering the explanation and cash balances disclosed by the assessee, the Assessing Officer treated ₹13,36,573 as unexplained excess cash deposits and made an addition under section 69A of the Act while passing the assessment order dated 21 December 2019.

5. Before the Commissioner of Income Tax (Appeals), the assessee contended that it had produced its cash book, audited accounts, and details of receipts before the Assessing Officer. It was therefore concluded that the addition was unjustified.

6. The Commissioner of Income Tax (Appeals) considered the assessee’s explanation but held that the assessee was not permitted to accept specified bank notes during the relevant period, as those notes had ceased to be legal tender. Accordingly, the Commissioner upheld the addition of ₹13,36,573 made by the Assessing Officer and dismissed the assessee’s appeal.

7. Aggrieved by the appellate order, the assessee preferred the present appeal. The assessee’s principal submission is that the cash deposits arose in the regular course of its diagnostic business and were supported by the cash book, audit report, and other records produced before the Assessing Officer. It was therefore argued that the addition confirmed by the Commissioner of Income Tax (Appeals) is not sustainable.

8. The learned Departmental Representative strongly supported the orders of the lower authorities and submitted that the assessee was not eligible to collect specified banknotes. The acceptance of such notes, according to the Department, was contrary to the instructions of the Reserve Bank of India.

9. We have carefully considered the rival submissions and perused the orders of the lower authorities. The addition has been made solely on the ground that the assessee was not an eligible entity to receive specified bank notes after 8 November 2016. However, the deposits are recorded in the assessee’s regular books of account and are supported by details of people from whom the receipts were collected. The assessee also had cash balances as reflected in its books on the date of demonetization. The books of account were produced before the Assessing Officer and the Commissioner of Income Tax (Appeals), and no defect was pointed out in them. It is also not the Revenue’s case that the professional receipts credited to the profit and loss account were undisclosed or that bogus receipts were recorded. Since the books were audited under section 44AB of the Act and were not found to be defective, there is no basis to sustain the addition merely because the deposits included specified bank notes.

10. The judicial precedents relied upon by the assessee also support the view that where cash sales or receipts are duly recorded in the books of account and no defect is found in those books, addition on account of such deposits is not warranted. Accordingly, the action of the lower authorities in confirming the addition is unsustainable.

11. The decisions relied upon by the lower authorities are distinguishable, as they involved cases where the assessments failed to explain the nature and source of the receipts to the satisfaction of the Assessing Officer. That is not the position in the present case. None of the receipts has been shown to be bogus or artificially recorded to generate cash in the books of account. Nor has it been shown that the assessee failed to disclose these receipts as income in its income and expenditure account or profit and loss account.

12. Accordingly, the appeal of the assessee is allowed.

Order pronounced in the open court on 22^ndJune, 2026