Hetaal Jaswantrai Parekh Vs ITO (ITAT Mumbai Bench)
Demonetisation Deposit Cannot Be Examined by Ignoring CBDT’s Own Rulebook: ITAT Restores ₹32.15-Lakh Addition U/s 69A for Verification of Cash Sales Declared U/s 44AD
Summary: The assessee, an individual, deposited cash aggregating to ₹32,15,383 in her bank account during the demonetisation period. The AO was not satisfied with the explanation regarding the source of the deposits and treated the entire amount as unexplained money u/s 69A. The assessee explained that the deposited cash represented cash sales and business receipts forming part of the turnover already disclosed in the return. The income from such turnover had been offered under the presumptive taxation scheme contained in section 44AD. Therefore, taxing the bank deposits once again u/s 69A would, according to the assessee, result in the same receipts being subjected to tax twice.
The CIT(A), NFAC, upheld the addition. The assessee therefore approached the Mumbai ITAT.
Apart from the original grounds, the assessee filed an application seeking admission of an additional ground that the AO had failed to examine the demonetisation-period cash deposits in accordance with the relevant CBDT Instructions and Circulars.
The assessee submitted that the additional ground raised a legal issue arising from facts already available on record and did not require investigation into any fresh facts. Reliance was placed upon the Supreme Court judgment in National Thermal Power Co. Ltd. v. CIT [229 ITR 383 (SC)], which permits a legal ground to be raised before the Tribunal where the relevant facts are already on record and consideration of the ground is necessary for determining the correct tax liability.
The Tribunal accepted the contention. It observed that the question concerning applicability of the CBDT Instructions governing verification of demonetisation cash deposits was a legal issue emerging from the existing record. Since no investigation into new facts was required merely for admitting the ground, the additional ground was admitted.
On merits, the assessee reiterated that the cash deposits arose from business receipts already included in the disclosed turnover. It was argued that the lower authorities had not carried out the verification prescribed by the CBDT specifically for cash deposits made during the demonetisation period.
The Tribunal noticed that an identical controversy had been considered by a Coordinate Bench in Mr. Jitendra Prajapati, Legal Heir of Late Dhanuben Madhubhai Prajapati v. ITO, ITA No. 3602/Mum/2025, decided on 24.11.2025. In that case also, an addition had been made with reference to cash deposited during demonetisation without examining the deposits in the light of the applicable departmental guidelines. The matter was consequently restored to the AO for proper verification.
The Coordinate Bench had specifically referred to CBDT Instruction No. 3/2017 dated 21.02.2017, Instruction No. 4/2017 dated 03.03.2017, Circular F. No.225/363/2017-ITA.II dated 15.11.2017, and Circular F. No.225/145/2019-ITA.II dated 09.08.2019.
Following the Coordinate Bench decision, the Tribunal held that the assessee’s case also required fresh verification. The issue was accordingly restored to the file of the AO.
The AO was directed to verify the cash deposited during the demonetisation period in the light of the CBDT Instructions and Circulars applicable to the assessee’s facts and circumstances. The verification was required to cover the nature and source of the cash deposits, nature of the business, turnover disclosed, return filed u/s 44AD wherever applicable, and the explanations and evidence furnished by the assessee.
The assessee was directed to produce all details and supporting evidence that the AO might reasonably require for verification. The AO was thereafter required to decide the matter afresh in accordance with law after granting the assessee a reasonable opportunity of being heard.
The appeal was accordingly allowed for statistical purposes.
Legal Principle
Where cash deposited during the demonetisation period is explained as business receipts already included in turnover offered u/s 44AD, the explanation cannot be rejected mechanically. The AO must examine the deposits in accordance with the relevant CBDT Instructions governing demonetisation cash verification, considering the nature of business, disclosed turnover, surrounding circumstances and supporting evidence.
Author’s Comment
This decision does not hold that every cash deposit made by a presumptive taxpayer automatically represents business turnover. Nor does section 44AD confer immunity upon an assessee from explaining a substantial and unusual bank deposit.
What the decision establishes is that the explanation must be examined through the correct factual and administrative framework. The CBDT had issued specific guidelines precisely to distinguish genuine business cash from unaccounted money deposited during demonetisation. The AO cannot disregard those guidelines and proceed directly from “cash deposited” to “unexplained money u/s 69A”.
At the same time, the assessee’s reliance upon section 44AD is only the beginning of the explanation, not its conclusion. The assessee should now demonstrate the business activity, pattern of cash sales, turnover declared, availability of cash before deposit, historical sales pattern, invoices or other contemporaneous material and consistency between the bank deposits and the turnover disclosed.
The plea of double taxation will succeed only if the assessee establishes that the very same cash receipts were already included in the business turnover offered to tax. A bare assertion that the return was filed u/s 44AD may not, by itself, establish the nexus.
Thus, the Tribunal has neither deleted nor confirmed the ₹32.15-lakh addition. It has directed the AO to conduct the verification that ought to have been undertaken originally. The order gives the assessee another opportunity—but the ultimate relief will depend upon whether the claimed cash sales can withstand the CBDT-prescribed verification.
Cases Discussed
- National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC)
- Mr. Jitendra Prajapati [Legal Heir of Late Dhanuben Madhubhai Prajapati] v. Ward-42(1)(2), ITA No. 3602/Mum/2025, order dated 24.11.2025
FULL TEXT OF THE JUDGMENT/ORDER OF IITAT, MUMBAI BENCHES
The present appeal filed by the assessee arises out of the order dated 11/03/2026 passed by the NFAC, Delhi [hereinafter “Ld.CIT(A)”] for A.Y. 2017-18.
2. The assessee has raised the following grounds of appeal before this Tribunal:
“1) That on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in upholding the order of the Ld. A.O. wherein an addition of Rs.32,15,383/- was made on account of unexplained money u/s 69A of the Income Tax Act, 1961.
2) That on the facts and circumstance of the case and in law, the Ld. CIT(A) and the Ld. A.O. failed to appreciate the fact that the source of deposit is cash sales, which has already been offered to tax. Therefore, the addition made u/s 69A of the Act is bad-in-law and should be deleted.
3) Without prejudice to the above, it is submitted that the entire income is already offered to tax. Therefore, if the deposit made out of the said revenue is taxed again, the same will result into double taxation which is not permissible as per the Act.
4) That on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the Appellant has filed a return of income under presumptive scheme under section 44AD of the Act and therefore, the Appellant is not required to maintain any books of account.
5) That on the facts and circumstances of the case and in law, the Ld. AO has failed to consider the CBDT Circulars to verify the demonetized cash deposited during the assessment year.
6) That the appellant craves leave to add, alter or delete all or any of the grounds of appeal.”
2.1. The assessee has also filed an application dated 23/07/2026 seeking admission of the following additional ground:
“That on the facts and circumstances of the case and in law the Ld. AO has failed to consider the CBDT Circulars to verify demonetized cash deposited during the Assessment Year 2017-18.”
2.2. The Ld. AR submitted that the additional ground raises a legal issue arising from the material already available on record and does not require investigation into any fresh facts. Reliance was placed on the decision of the Hon’ble Supreme Court in National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) for admission of the additional ground.
2.3. We have considered the submissions advanced by both sides. The additional ground relates to the applicability of CBDT Instructions/Circulars governing verification of cash deposits made during the demonetisation period. The issue raised is a legal issue arising out of the facts already available on record and no fresh investigation into facts is required for its adjudication. Respectfully following the ratio laid down by the Hon’ble Supreme Court in National Thermal Power Co. Ltd. v. CIT (supra), the additional ground is admitted.
3. Brief facts of the case are as under:-
The assessee is an individual. During the year under consideration, cash deposits were made in the bank account of the assessee during the demonetisation period. The Ld. AO was not satisfied with the explanation furnished by the assessee regarding the source of such cash deposits and made an addition of Rs.32,15,383/- u/s. 69A of the Act treating the same as unexplained money.
3.1. The case of the assessee is that the cash deposited in the bank account represented cash sales/business receipts which already formed part of the turnover offered to tax. It was thus contended that bringing the very same amount to tax once again u/s. 69A of the Act would result in taxation of the same receipts twice.
3.2. The assessee further contended that the return of income was filed under the presumptive taxation scheme u/s. 44AD of the Act and that the authorities below failed to examine the cash deposits keeping in view the applicable CBDT Instructions/Circulars specifically issued for verification of cash deposits made during the demonetisation period. The Ld. CIT(A), upheld the addition made by the Ld. AO.
Aggrieved by the same, the assessee is in appeal before this Tribunal.
4. The Ld.AR reiterated that the impugned cash deposits were required to be examined in accordance with the specific guidelines issued by the CBDT in respect of cash deposited during the demonetisation period. He submitted that such examination has not been carried out by the authorities below.
4.1. The Ld.DR relied on the orders passed by the authorities below.
We have perused the submissions advanced by both sides in light of the record placed before us.
5. We note that an identical issue came up for consideration before the Coordinate Bench of this Tribunal in Mr. Jitendra Prajapati [Legal Heir of Late Dhanuben Madhubhai Prajapati] v. Ward-42(1)(2), ITA No.3602/Mum/2025, order dated 24/11/2025. In the said case also, the addition arose out of cash deposited during the demonetisation period. The Coordinate Bench noted that the authorities below had not considered the relevant CBDT Instructions/Circulars and restored the issue to the Ld. AO for verification.
5.1. The Coordinate Bench specifically took note of the following CBDT Instructions/Circulars:
a) Instruction No.3/2017 dated 21/02/2017;
b) Instruction No.4/2017 dated 03/03/2017;
c) Circular F. No.225/363/2017-ITA.II dated 15/11/2017; and
d) Circular F. No.225/145/2019-ITA.II dated 09/08/2019.
5.2. Considering the facts of the present case and respectfully following the above decision of the Coordinate Bench, we deem it appropriate to restore the issue to the file of the Ld. AO. The Ld. AO is directed to verify the cash deposited during the demonetisation period in the light of the CBDT Instruction/Circular applicable to the facts and circumstances of the present assessee. The Ld. AO shall examine the nature and source of cash deposits, the business carried on by the assessee, the turnover disclosed, the return of income filed u/s. 44AD, wherever applicable, and the explanation/evidences furnished by the assessee, in accordance with law.
5.3. The assessee is directed to furnish such details and supporting evidences as may be required by the Ld. AO for verification of the cash deposits. The Ld. AO shall thereafter decide the issue afresh in accordance with law after granting reasonable opportunity of being heard to the assessee.
Accordingly, the grounds raised by the assessee stands allowed for statistical purposes.
In the result, the appeal filed by the assessee stands allowed for statistical purposes.
Order pronounced in the open court on 11-09-2026
