Section 69 Wrongly Invoked for Demonetisation Cash Deposits; Assessment Quashed: ITAT Raipur

Suman Poptani Vs ITO (ITAT Raipur)

The appeal arose from the order of the CIT(A)/NFAC dated 18.02.2026 for Assessment Year 2017-18. The assessee challenged an assessment framed under Section 143(3) of the Income-tax Act, 1961, in which an addition of ₹12,00,000 was made under Section 69 in respect of cash deposited during the demonetisation period.

During the assessment proceedings, the assessee submitted computation of income, capital accounts for the relevant and preceding years, and stated that income was earned from boutique activities and interest on petty advances given to tailors, employees and related persons. It was explained that the boutique activity consisted mainly of designing and stitching work, while interest income of ₹90,800 was received from small lending without any fixed rate of interest.

To verify these claims, the Assessing Officer deputed an Inspector to conduct field enquiries. The Inspector reported that enquiries made at the business and residential addresses indicated that the assessee was a housewife and no boutique or other business activity was being carried on. The Inspector also found no evidence of any business establishment or commercial activity at the premises.

The CIT(A)/NFAC observed that the case had been selected for limited scrutiny to verify cash deposits during the demonetisation period and that the assessee had deposited ₹12,00,000 on 11.11.2016. According to the appellate authority, although the assessee claimed that the cash represented accumulated capital from boutique work and petty lending, no documentary evidence such as bills, vouchers, customer confirmations, details of advances, borrower confirmations, repayment details or evidence of stitching charges was produced. The Assessing Officer accepted the disclosed interest income from Rajesh Traders and Vijaya Traders but held that the alleged accumulated capital lacked a credible source. The CIT(A) concluded that the assessee failed to satisfactorily explain the source of the cash deposit, upheld the invocation of Section 69 and confirmed the addition of ₹12,00,000.

The Tribunal examined the assessment records and held that the addition had been made under Section 69 treating the amount as unexplained investment, whereas the issue before the Department concerned cash deposits made during the demonetisation period and whether the assessee had explained their nature and source. The Tribunal found no evidence suggesting that the assessee had made any investment outside the books of account and noted that the Department had conducted enquiries only regarding the source of the cash deposits. It observed that there was no case made out by the Department regarding any unexplained investment. Accordingly, even without examining the merits of the addition, the Tribunal held that both the Assessing Officer and the CIT(A)/NFAC had invoked an incorrect statutory provision.

The Tribunal further held that the assessment reflected complete non-application of mind. It observed that, according to the Department’s own case, unexplained cash deposits, if not satisfactorily explained, would fall under Section 69A rather than Section 69. Invoking Section 69 for cash deposits was therefore held to be the result of a mechanical exercise and non-application of mind by the Assessing Officer. The Tribunal referred to judicial precedents relied upon in support of the principle that quasi-judicial authorities must independently apply their mind before invoking statutory provisions and framing assessments.

The Tribunal also referred to decisions including Bhawani Castings P. Ltd. v. DCIT, Sanjeev Kumar v. ITO, Smt. Sarika Jain v. Commissioner of Income Tax and its own earlier decision in Prakash Chand Agrawal v. ITO, observing that where the charging provision invoked is incorrect and the assessment demonstrates non-application of mind, the addition is unsustainable in law. It extracted portions of these decisions emphasising that additions relating to unexplained cash deposits cannot be sustained where an incorrect charging section has been applied.

Applying these judicial pronouncements, the Tribunal held that no case had been made out by the Department to tax the assessee under Section 69. It concluded that the charging provision invoked was wrong and misplaced, that there was utter non-application of mind by the Revenue authorities, and that the assessment had been framed mechanically without judicious reasoning. Consequently, the assessment framed under Section 143(3) was held to be arbitrary, bad in law and was quashed. Since the assessment itself was quashed, the Tribunal held that the subsequent proceedings became non est in law and the remaining grounds were rendered academic. The appeal of the assessee was accordingly allowed.

Recent Cases Discussed

• Prakash Chand Agrawal Vs. ITO, Ward-2, Raigarh (C.G.), ITA No.205/RPR/2026, dated 22.05.2026.
• Adani Power Rajasthan Limited Vs. Assistant Commissioner of Income Tax, SLP Diary No.27752/2024.
• Bhawani Castings P. Ltd. Vs. DCIT, ITA No.1362/Del/2024, dated 19.11.2024.
• ACIT, Circle-1(2) Vs. Serajuddin & Co., SLP (C) Diary No.44989/2023, dated 28.11.2023.
• Sanjeev Kumar c/o M/s Raj Kumar & Associates Vs. ITO Ward 2(3)(2), Bulandshahr, 2023 (10) TMI 1027 – ITAT Delhi.

FULL TEXT OF THE ORDER OF ITAT RAIPUR

The present appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, dated 18.02.2026 for the assessment year 2017-18 as per the grounds of appeal on record.

2. The relevant facts as emanating from the assessment order are as follows:

Vide submissions filed during the course of assessment proceedings, along with computation of income, capital account for the year and preceding two years were furnished. It was stated that assessee derives income from Other sources and also Income from Boutique Income. Income from other sources included Income from Rajesh Traders and Vijay Traders and Interest income at Rs.90800/- was shown from petty advances to the tailors and employees of Boutique.

Vide notice issued u/s 142(1), assessee was asked to file the evidence in regard to the boutique income carried out by her and also regarding the petty interest earned from petty advances. Vide submission dated 19th August 2019, it was stated that assessee is not engaged in trading activity and that the income is derived mainly from designing and stitching work. In regard to the Interest income earned at Rs.90,800/- it was stated that the interest is earned from small lending which lends on various occasions to tailors, her employees and other related persons. No any fixed interest rate is charged.

In order to verify the contentions putforth during the course of assessment proceedings, Inspector of this office was deputed to conduct enquiry In regard to the actual state of affairs. Inspector, visited the house of the assessee at the availableaddresses.

And met the assessee, Smt.Surnan Poptani. It was stated by her that she is not into any kind of business or boutique work and that she is a home maker. Inspector report is attached along with the assessment order.

3. The order of the A.O had been upheld by the Ld. CIT(Appeals)/NFAC by observing as follows:

“6.1.2 I have carefully considered the assessment order passed u/s.143(3) of the Income Tax Act, 1961 dated 17/12/2019, the written submissions filed by the appellant before the Assessing Officer during the course of assessment proceedings, as well as the submissions made during appellate proceedings. The case was selected for Limited Scrutiny under CASS specifically for verification of “cash deposit during demonetization period”. It is an undisputed fact borne out from the assessment records that the appellant had deposited cash of Rs.12,00,000/- on 11/11/2016 in Union Bank of India, Main Branch, Raipur, during the demonetization period. The appellant had filed return declaring total income of Rs.4,12,960/- for A.Y. 2017­18.

During the assessment proceedings, notices u/s 143(2) dated 28/09/2018 and subsequently u/s 142(1) dated 02/05/2019 and on various other dates were issued and duly served. In response, the appellant furnished computation of income, capital account for the relevant year and preceding years, and claimed that she derived income from boutique work and from interest on petty advances given to tailors, employees and related persons. The appellant stated that she possessed skill in designing and stitching traditional dresses and undertook such work on job work basis, and that the interest income of Rs.90,800/- was earned from small lending activities without any fixed rate.

The AO, in order to verify the veracity of the claim of boutique business and petty lending, deputed an Inspector to conduct field enquiries at the given address as well as at the residential premises. The Inspector’s report. as incorporated in the assessment order, categorically stated that enquiries made from neighbours and local shopkeepers revealed that the appellant was a housewife and no boutique or business activity was being carried out by her. Further, when the Inspector visited the residence and enquired as a customer about boutique services, the lady present denied carrying on any such activity, and later introduced herself as Smt. Suman Poptani. The Inspector also noted that no evidence of any business establishment, tailoring setup, employees, or commercial activity was found at the premises.

Based on the Inspector’s report and other material gathered, the AO issued a detailed show cause notice dated 06/12/2019 confronting the appellant with the findings that (i) no boutique activity was found to be in existence, (ii) no evidence of petty advances or receipt of interest had been furnished, and (iii) the capital claimed to have been accumulated in earlier years lacked credible source. In response, the appellant merely reiterated that she was doing such work out of personal interest and not as a regular business, and that income was offered under the head “Income from Other Sources.” However, no supporting documentary evidence such as bills, vouchers, customer confirmations, details of job work undertaken, list of customers, details of advances given, confirmations from borrowers, repayment details, or evidence of receipt of stitching charges was produced either before the Assessing Officer or during appellate proceedings.

The AO has specifically observed that in the computation of income the appellant herself had described the income as “Income from Boutique business”, which contradicted her later claim mat no regular business was carried on. The Assessing Officer further examined the capital formation in earlier years and noted that except for interest income from M/s Rajesh Traders and M/s Vijaya Traders, on which only TDS had been deducted and refund claimed, there was no substantial disclosed income capable of generating the accumulated capital as claimed. The interest income of Rs.1,28,100/- from Rajesh Traders and Rs.43,125/- from Vijaya Traders was accepted; however, the alleged capital buildup prior to A.Y. 2016-17 was held to be unsubstantiated and unsupported by credible evidence. The Assessing Officer therefore concluded that the so-called accumulated capital was a self-generated figure without real source.

As per Section 69 of the Act, where an assessee has made an investment which is not recorded in the books of account and offers no satisfactory explanation about the nature and source thereof, the value of such investment may be deemed to be income of the assessee. In the present case, the burden was squarely upon the appellant to establish the source of cash deposit of Rs.12,00,000/- with cogent and credible evidence. The explanation that the deposit was out of accumulated capital from boutique and petty lending activities remained unsubstantiated. Mere production of capital account and self-serving statements, without independent corroborative evidence, cannot be regarded as satisfactory explanation within the meaning of Section 69.

The addition has been made only after issuing statutory notices, conducting field enquiry, confronting the appellant with adverse material through show cause notice, and considering her reply. Thus, adequate opportunity of being heard was provided. The conclusion drawn by the Assessing Officer is based on material gathered during enquiry and is not founded on mere suspicion or conjecture.

In view of the foregoing discussion, I find that the appellant has failed to discharge the burden cast upon her to explain satisfactorily the nature and source of the cash deposit of Rs.12,00,000/- made during the demonetization period. The AO was justified in invoking Section 69 of the Act and treating the same as unexplained investment. I therefore find no infirmity in the assessment order. The addition of Rs.12,00,000/- is confirmed and the ground of appeal is dismissed.”

4. I have carefully considered the submissions of the parties herein, analyzed the facts and circumstances in this case. That from trail of enquiries as conducted by the both the authorities below and as evident from assessment order, the addition has been made u/s.69 of the Income Tax Act, 1961 (for short ‘the Act’) as unexplained investment whereas the issue was that the assessee had deposited cash of Rs.12 lakhs during demonetization period and whether the nature and source of such cash deposits were proved by the assessee or not. In the case of the assessee there is no evidence to suggest that any investment is made by the assessee outside the books of account and in fact, the purpose of ground verification by deputing Inspector to verify whether the assessee was earning through boutique business or not, was to examine the nature and source of such cash deposits only and there is nothing with regard to the applicability of Section 69 of the Act in the case of the assessee. The assesse had made cash deposits during demonetization period and she was required to explain the nature and source of such cash deposits. There is no trail of enquiry by the Department regarding any unexplained investment made during the year by the assesse. It is not the case of the Department that some investment has been made by the assessee which is not explained or outside the books of account of the assessee. Therefore, even without going into the merits of the addition, both A.O as well as Ld. CIT(Appeals)/NFAC has erred in invoking incorrect provision for making addition in the hands of the assessee.

5. There is absolutely non application of mind by the A.O in the case of the assessee. The wrong charging provision to the facts and circumstances of the case regarding the assessee is the result of non-application of mind by the Assessing Officer. That as per the Department when the source of cash deposits have remained unexplained by the assessee the correct provision for charging should have been Section 69A of the Act and not u/s. 69 of the Act. The fact of non-application of mind and mechanical exercise of power by the Revenue Authorities have been heavily condemned by the various Courts and Tribunals. The decision of the Co­ordinate Bench, Mumbai in the case of Shrilekha Damani Vs. DCIT, 173 TTJ 332 (Mumbai) which was approved by the Hon’ble High Court of Bombay in the decision reported in 307 CTR 218 (Bom.) wherein the question of law before the Court was whether the Tribunal was justified in holding that there was non-application of mind on the part of the Revenue authorities while granting approval and the decision of the Tribunal was upheld that the approval granted by the ACIT was without application of mind, therefore, not a valid approval in the eyes of law. In the case of ACIT, Circle-1(2) Vs. Serajuddin & Co., the Hon’ble Supreme Court vide order in SLP (C) Diary No.44989/2023, dated 28.11.2023 dismissed the appeal filed by the Revenue against the order passed by the Hon’ble High Court of Orissa, wherein the Hon’ble High Court had quashed the assessment order on the ground of inadequacy in procedure adopted for granting approval u/s.153D of the Act by expressing dis-coherent note of such mechanical exercise and ritualistic approval processes vitiate the entire assessment proceedings. There are plethora of judgments in which it has been held that quasi-judicial authority has to specially apply mind to the facts of the assessee’s case as well as enquiry conducted and justify the reasoning through which the tax liability is imposed on the assessee. That in absence of proper application of mind or when there is mechanical exercise of power, in such scenario, the Courts have always struck down the order of the Revenue authorities. In the recent decision of the Hon’ble Supreme Court in the case of Adani Power Rajasthan Limited Vs. Assistant Commissioner of Income Tax, (SLP Diary No.27752/2024) has held that the A.O cannot Act mechanically or merely echo audit parties objection or higher authorities directions. The A.O must conduct independent enquiry and independently frame reasons to believe that income has escaped assessment. Reassessment and assessment order requires statutory approval. The Hon’ble Supreme Court mandates that sanctioning authority must apply its mind rather granting approval as empty ritual when the assessment was initiated and finalized by the assessing authority without application of mind, hence, the said order is liable to be struck down.

6. Reverting to the facts of the present case, the trail of enquires conducted by the Revenue authorities as evident from the assessment order as well as from the impugned order that though the additions has been made u/s.69 of the Act as unexplained investment whereas, the issue was regarding explaining of the source of cash deposits by the assessee of Rs.12 lacs during demonetization period. The unexplained cash deposits had to be charged u/s.69A of the Act and not u/s.69 of the Act. There is complete non-application of mind by the A.O regarding the enquiry that had been made before finalizing the assessment order and finally the charging section that is invoked against the assessee. In other words, the A.O had framed assessment against the assessee without recording valid satisfaction and reasoning regarding provisions of law, in which, he had proceeded against the assessee.

7. I find that it has been held by the Co-ordinate Bench of the Tribunal, Delhi in the case of Bhawani Castings P. Ltd. Vs. DCIT ITA No.1362/Del/2024, dated 19.11.2024 that when there is no coherence in the reasons recorded for reopening and additions made in the assessment, it is utter non application of mind by the A.O while recording reasons for reopening.

8. In the decision of the Co-ordinate Bench of Delhi in the case of Sanjeev Kumar c/o M/s Raj Kumar & Associates vs. ITO Ward 2(3)(2), Bulandshahr, reported in 2023(10) TMI 1027-ITAT Delhi on the same issue of non-application of mind, it was observed and held as follows:

“14. In view of foregoing discussion, I reach to a logical conclusion that the complete cash book statement clearly explains the source of cash deposit to the bank account of assessee, wherein the assessee has not only included cash receipts as salary and capital withdrawal from two partnership firms M/s Umang Beverages and M/s Mohan Oil & Cattle Feed and a cash salary from Bihar Milk Foods Pvt. Ltd. and has also reduced the amount of drawings for household expenses. The copy of return of income of wife of assessee Smt. Shalini and father of assessee Shri Kalu Mal co-jointly established that the other family members of assessee are also earning and contributing towards household expenses. Therefore, in my humble understanding the source of cash deposit during demonetization to the bank account of assesses is properly explained by the assessee by way of self speaking documentary evidence and explanation. Secondly, the AO has made addition u/s 69 of the Act which pertains to unexplained investments, whereas the assessee has not made any investment either in movable or any immovable property during the relevant period by way of using cash amount. The Ld.CIT(A) though has given credit of 25% of Impugned cash deposit confirming the remaining part of addition but there is no logic of this segregation. From the relevant operative part of first appellate order, I also note that the Ld.CIT(A) has upheld the part addition without mentioning any charging section and impliedly adopting section 69 of the Act in the line of assessment order. Therefore, respectfully following the proposition rendered by the Hon’ble Jurisdictional High Court of Allahabad in the case of Sarika Jain (supra). I have no hesitation to hold that the addition made by the AO by mentioning incorrect and irrelevant charging section is not sustainable and valid being bad in law. Accordingly, grounds of assessee are allowed and AO is directed to delete the entire addition.

15. In the result, appeal of the assessee is allowed.”

17. Similarly, in the decision of Hon’ble High Court of Allahabad in the case of Smt. Sarika Jain Vs. The Commissioner of Income Tax, Bareilly and Another, reported in (2018) 407 ITR 254 (All) which decision was referred to and applied in the earlier decision of the Co­ordinate Bench of Delhi (supra), the Hon’ble High Court of Allahabad held as follows:

“In the present case, it is apparent that the subject matter of the dispute all through before the Tribunal in appeal was only with regard to the addition of alleged amount of the gift received by the appellant-assessee as his personal income under Section 68 of the Act and not whether such an addition can be made under Section 69-A of the Act.

In view of the above, it can safely be said that the Tribunal travelled beyond the scope of the appeal in making the addition of the said income under Section 69-A of the Act. It may be worth noting that the Tribunal has recorded a categorical finding that “it is clear that under the provisions of Section 68, the addition made by the Assessing Officer and sustained by the CIT (Appeals) cannot be sustained, meaning thereby that the Tribunal was of the opinion that the Assessing Officer and the CIT (Appeals) committed an error in adding the aforesaid amount in the income of the appellant-assessee under Section 68 of the Act.

In view of the above, when the said income cannot be added under Section 68 of the Act and the Tribunal was not competent to make the said addition under Section 69-A of the Act, the entire order of the Tribunal stand vitiated in law.

Accordingly, we answer the question of law, as framed above, in favour of the appellant-assessee and against the Revenue and hold that the Tribunal was not competent to make any addition under Section 69-A of the Act and as the same was subject matter of the appeal before it.”

10. This Bench in the case of Prakash Chand Agrawal Vs. ITO, Ward- 2, Raigarh (C.G.), ITA No.205/RPR/2026, dated 22.05.2026, has held that when charging section itself is wrong and misplaced and that the Department had proceeded against the assessee without independent application of mind, in such a case, the addition cannot be made in the hands of the assessee based on such wrong provision of law. The relevant observations of the Tribunal are extracted as follows:

“………. I further observe that the additions have been made u/s. 68 of the Act which pertains to unexplained cash credit. But in this case, regarding both the additions, there is no trail of any evidence or enquiry by the Department regarding any loan transaction so to justify addition u/s. 68 of the Act as unexplained cash credit. The entire trail of examination is regarding the nature and source of cash deposits and since the addition has been made by the Department stating the said cash deposits were unexplained then the relevant charging section should have been Section 69A and not Section 68 of the Act. Therefore, charging provision itself has been wrongly invoked by the Department which is clearly non application of mind by the quasi judicial authority. I find that it has been held by the Co-ordinate Bench of the Tribunal, Delhi in the case of Bhawani Castings P. Ltd. Vs. DCIT (supra) that when there is no coherence in the reasons recorded for reopening and additions made in the assessment, it is utter non application of mind by the A.O while recording reasons for reopening.

16. In the decision of the Co-ordinate Bench of o Delhi in the case of Sanjeev Kumar c/o M/s Raj Kumar & Associates vs. ITO Ward 2(3)(2), Bulandshahr, reported in 2023(10) TMI 1027-ITAT Delhi on the same issue of non-application of mind, it was observed and held as follows:

“14. In view of foregoing discussion, I reach to a logical conclusion that the complete cash book statement clearly explains the source of cash deposit to the bank account of assessee, wherein the assessee has not only included cash receipts as salary and capital withdrawal from two partnership firms M/s Umang Beverages and M/s Mohan Oil & Cattle Feed and a cash salary from Bihar Milk Foods Pvt. Ltd. and has also reduced the amount of drawings for household expenses. The copy of return of income of wife of assessee Smt. Shalini and father of assessee Shri Kalu Mal co-jointly established that the other family members of assessee are also earning and contributing towards household expenses. Therefore, in my humble understanding the source of cash deposit during demonetization to the bank account of assesses is properly explained by the assessee by way of self speaking documentary evidence and explanation. Secondly, the AO has made addition u/s 69 of the Act which pertains to unexplained investments, whereas the assessee has not made any investment either in movable or any immovable property during the relevant period by way of using cash amount. The Ld.CIT(A) though has given credit of 25% of Impugned cash deposit confirming the remaining part of addition but there is no logic of this segregation. From the relevant operative part of first appellate order, I also note that the Ld.CIT(A) has upheld the part addition without mentioning any charging section and impliedly adopting section 69 of the Act in the line of assessment order. Therefore, respectfully following the proposition rendered by the Hon’ble Jurisdictional High Court of Allahabad in the case of Sarika Jain (supra). I have no hesitation to hold that the addition made by the AO by mentioning incorrect and irrelevant charging section is not sustainable and valid being bad in law. Accordingly, grounds of assessee are allowed and AO is directed to delete the entire addition.

15. In the result, appeal of the assessee is allowed.”

17. Similarly, in the decision of Hon’ble High Court of Allahabad in the case of Smt. Sarika Jain Vs. The Commissioner of Income Tax, Bareilly and Another, reported in (2018) 407 ITR 254 (All) which decision was referred to and applied in the earlier decision of the Co­ordinate Bench of Delhi (supra), the Hon’ble High Court of Allahabad held as follows:

“In the present case, it is apparent that the subject matter of the dispute all through before the Tribunal in appeal was only with regard to the addition of alleged amount of the gift received by the appellant-assessee as his personal income under Section 68 of the Act and not whether such an addition can be made under Section 69-A of the Act.

In view of the above, it can safely be said that the Tribunal travelled beyond the scope of the appeal in making the addition of the said income under Section 69-A of the Act. It may be worth noting that the Tribunal has recorded a categorical finding that “it is clear that under the provisions of Section 68, the addition made by the Assessing Officer and sustained by the CIT (Appeals) cannot be sustained, meaning thereby that the Tribunal was of the opinion that the Assessing Officer and the CIT (Appeals) committed an error in adding the aforesaid amount in the income of the appellant-assessee under Section 68 of the Act.

In view of the above, when the said income cannot be added under Section 68 of the Act and the Tribunal was not competent to make the said addition under Section 69-A of the Act, the entire order of the Tribunal stand vitiated in law.

Accordingly, we answer the question of law, as framed above, in favour of the appellant-assessee and against the Revenue and hold that the Tribunal was not competent to make any addition under Section 69-A of the Act and as the same was subject matter of the appeal before it.”

18. Therefore, on both these counts, additions made by the A.O and sustained by the Ld. CIT(Appeals)/NFAC is unjustified, arbitrary and bad in law.

11. In the facts and circumstances and as per applicability of judicial pronouncements as afore-stated even without going into the merits of the matter, I am of the considered view that there is no case brought out by the Department against the assessee to tax u/s.69 of the Act. Charging section itself is wrong and misplaced and as evident, there is utter non application of mind by the Revenue authorities. The assessment has been framed in a mechanical manner without judicious reasoning. In view thereof, the assessment framed u/s.143(3) of the Act is held as arbitrary, bad in law, hence, quashed.

12. Since assessment itself is quashed, subsequent proceedings becomes non-est as per law. Rest other grounds stand academic only.

That as per the above terms, the appeal of the assessee is allowed.

Order pronounced in open court on 25^th day of May, 2026.