Badam Krishnamurthy Shobha Vs ITO (ITAT Bangalore)
Old Notes Deposited After 24 November 2016: Does That Make the Cash “Unexplained”?
During demonetisation, ₹19.53 lakh was deposited in a bank account held in the name of Badam Krishnamurthy Shobha. She explained that the account was used for the business of Mysore Kerosene Trading Co., a partnership firm in which she was a partner, and that the cash represented the firm’s kerosene sale proceeds.
The Assessing Officer (AO) did not reject that business explanation on the basis of fictitious sales or unreliable books. Instead, he treated ₹9,51,400 deposited after 24 November 2016 as unexplained money because the receipts involved specified bank notes allegedly accepted beyond the permitted date. He made an addition under section 69A, taxable under section 115BBE.
The Bengaluru ITAT deleted the addition. Its central point was straightforward: an alleged breach of the rules governing acceptance of old notes does not, by itself, prove that the source of the cash is unexplained.
Why was the cash deposited in the partner’s account?
The assessee filed her return for assessment year 2017–18 declaring income of ₹3,22,010. Her case was selected for scrutiny, among other reasons, to examine cash deposits made during demonetisation.
Although the bank account stood in her individual name, she told the AO that it was used for transactions of Mysore Kerosene Trading Co., a wholesale kerosene distributor. According to her explanation, customers had paid cash for kerosene supplied by the firm, and those collections were deposited in the account. She produced the partnership deed, customer details, invoices and other supporting material.
She also maintained that the transactions were recorded in the firm’s books, that the account was disclosed as one of the firm’s bank accounts in its return, and that the firm’s books were subject to tax audit. These facts mattered because the account holder and the person to whom the business receipts allegedly belonged were different.
What was the department’s objection?
The AO’s objection centred on the date of acceptance of specified bank notes. He took the view that such notes could be accepted only up to 24 November 2016 and treated deposits of ₹9,51,400 made thereafter as unexplained money in the assessee’s hands.
The Commissioner of Income Tax (Appeals) upheld the addition. The CIT(A) reasoned that, while certain specified persons could accept old notes beyond that date, the assessee did not fall within the permitted category.
Before the ITAT, the assessee argued that this reasoning confused whether the notes could lawfully be accepted with whether the source of the money was known. Her case was that every disputed deposit came from the firm’s business receipts and was entered in its books. She pointed out that the AO had not found the sales fictitious, rejected the firm’s records, or established that the money belonged to her personally.
The distinction that decided the appeal
The Tribunal identified the question under section 69A as whether the nature and source of the money had been satisfactorily explained. It noted that the AO had recorded the assessee’s explanation and the supporting documents relating to the firm’s kerosene business. The addition had been made essentially because of when the old notes were said to have been received, rather than because their business source had been disproved.
In the ITAT’s view, even an assumed violation of a notification governing specified bank notes would not automatically establish that the cash was unexplained money of the individual partner. For section 69A to apply on these facts, there had to be a basis for finding both that the money belonged to her and that the explanation of its nature and source was unsatisfactory.
The Tribunal found no material brought by the department to show that the disputed cash did not arise from the firm’s business or that the entries in the firm’s books were fictitious. It also referred to the decisions in Goldman Tapes Private Limited v. ACIT and Tamil Nadu State Marketing Corporation Ltd. v. ACIT while considering additions arising from deposits of specified bank notes.
The ITAT concluded that, once the ₹9,51,400 was explained as business receipts recorded in the firm’s books, it could not be taxed as the partner’s unexplained money solely because of the date on which the old notes were accepted. It directed the AO to delete the addition.
The 103-day delay was also condoned
The appeal before the ITAT had been filed 103 days late. The assessee explained in an affidavit that health issues, difficulty obtaining guidance and time taken to arrange professional assistance had caused the delay.
The Tribunal found the explanation reasonable. It saw nothing to suggest a deliberate delay or any advantage to the assessee from filing late. Referring to the Supreme Court’s decision in Collector, Land Acquisition v. Mst. Katiji, it condoned the delay and heard the appeal on its merits.
The appeal was ultimately partly allowed. The interest grounds were treated as consequential, while the challenge concerning initiation of penalty proceedings was held to be premature.
Author’s comment
The value of this ruling lies in keeping two questions separate. Was there a breach of the demonetisation rules? And was the source of the deposited cash unexplained for income-tax purposes? The AO relied on the first proposition to make an addition under section 69A, but the Tribunal found that it did not establish the second.
The result depended on the evidence connecting the deposits to the firm: the partner’s explanation, the business records and the absence of a finding that the sales or book entries were fictitious. It should therefore be read as a decision on explained business receipts deposited in a partner’s account, rather than as a general ruling on the legality of accepting specified bank notes after the permitted date.
Cases Discussed
- Collector, Land Acquisition vs. Mst. Katiji & Ors., 167 ITR 471 (SC) — relied upon for liberal construction of “sufficient cause” to advance substantial justice while condoning the 103-day delay.
- Goldman Tapes Private Limited v. ACIT, ITA No. 547/Mum/2024 dated 17.06.2025 — relied upon on the treatment of deposits of Specified Bank Notes during the demonetisation period.
- Tamil Nadu State Marketing Corporation Ltd. v. ACIT, ITA No. 431/Chny/2023 dated 07.10.2024 — Division Bench decision followed in Goldman Tapes Private Limited and referred to while deciding the issue in favour of the assessee.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
The present appeal filed by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals) (hereafter, the Ld. CIT(A)) u/s 250 of the Income Tax Act, 1961 (hereafter, the Act) pertaining to A.Y. 2017-18.
2. At the outset, we find that there is a delay of 103 days in filing the present appeal before the Tribunal. The assessee has filed an application for condonation of delay dated 07.04.2026 supported by an affidavit. The assessee explained that, as a housewife, and due to certain health issues, there was a delay in approaching the auditor with the relevant details. Thereafter, some further time was taken in identifying a suitable advocate for handling the appeal before the Tribunal. It is submitted that the delay was neither intentional nor deliberate and occurred due to the aforesaid circumstances and lack of proper guidance. Accordingly, the assessee prayed that a lenient view should be adopted and the delay should be condoned.
2.1 Per contra, the Ld. DR opposed the condonation of delay and submitted that the assessee had not filed the appeal within the prescribed time. He therefore prayed that the delay may not be condoned.
3. We have heard the rival submissions of both the parties and perused the materials available on record. We find that the delay in filing the present appeal is 103 days. The explanation of the assessee is that she was facing certain health issues and, being a housewife, could not obtain proper guidance for filing the appeal within time. There was also some delay in arranging professional assistance for filing the appeal before the Tribunal. The aforesaid explanation is also supported by an affidavit filed by the assessee.
3.1 In our view, the explanation given by the assessee appears a reasonable cause for the delay. There is nothing on record to suggest that the delay was deliberate or that the assessee stood to gain by filing the appeal belatedly. We also note that the Hon’ble Supreme Court in the case of Collector, Land Acquisition vs. Mst. Katiji & Ors., 167 ITR 471, has held that the expression “sufficient cause” should receive a liberal construction so as to advance substantial justice. It was held that “when substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay”.
3.2 Considering the reasons explained by the assessee and the facts of the present case, we are of the opinion that there was sufficient cause for not filing the appeal within the prescribed time. Therefore, in the interest of substantial justice, we condone the delay of 103 days in filing the present appeal and proceed to adjudicate the appeal on merits.
4. In the memo of appeal, the assessee has 13 grounds of appeal which we, for the sake of brevity, are not inclined to reproduce here. The grounds raised by the assessee are interconnected and revolve around the addition of Rs. 9,51,400 as unexplained money u/s 69A of the Act.
5. The brief facts of the case in hand are that the assessee is an individual who filed her return of income for the captioned AY, offering an income of Rs. 3,22,010/- only. The case was selected for scrutiny, inter alia, to examine the cash deposits made during the demonetisation period. During the assessment proceedings, it was noticed that cash aggregating to Rs. 19,53,000/- had been deposited in the bank account standing in the name of the assessee. The assessee explained that she was not carrying on any independent business and that the said bank account was being used for the business transactions of M/s. Mysore Kerosene Trading Co., in which she was a partner.
5.1 The assessee further explained that the firm was engaged in the business of wholesale distribution of kerosene and had received cash from its customers during the demonetisation period. The assessee furnished the partnership deed, details of customers, certain invoices and other supporting documents.
5. The AO, however, observed that Specified Bank Notes were permitted to be accepted only up to 24.11.2016 and that the assessee had received and deposited old currency even thereafter. Accordingly, the AO treated cash deposits aggregating to Rs. 9,51,400/- made after 24.11.2016 as unexplained money u/s 69A of the Act and brought the same to tax u/s 115BBE of the Act.
6. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A) and reiterated that she was not carrying on any independent business and that the impugned bank account was being operated for and on behalf of M/s. Mysore Kerosene Trading Co. It was submitted that the cash deposits represented the business receipts of the firm and that the transactions in the said account had been recorded in the books of the firm. It was further submitted that the said bank account had also been disclosed as one of the bank accounts of the firm in its return of income and that the books of the firm were subject to tax audit.
7. The Ld. CIT(A), however, was not convinced with the submissions of the assessee. The Ld. CIT(A) held that although certain specified persons were permitted to accept Specified Bank Notes beyond 24.11.2016, the assessee did not fall within the category of such specified persons. Accordingly, the Ld. CIT(A) upheld the addition of Rs. 9,51,400 made by the AO u/s 69A of the Act and dismissed the appeal of the assessee.
8. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us. Before us, the Ld. AR for the assessee has filed a paper book running from pages 1 to 232, along with written submissions and supporting case laws. The Ld. AR submitted that the basic source of the impugned cash deposits has never remained unexplained. It was submitted that the assessee was a partner of M/s. Mysore Kerosene Trading Co. and the current account standing in her name was used for the banking transactions of the firm. Every cash deposit represented the business receipts of the firm and was duly recorded in its books of account.
8.1 The Ld. AR further submitted that even assuming that there was any violation of the notifications governing acceptance of Specified Bank Notes, the same cannot by itself convert an otherwise explained business receipt into unexplained money u/s 69A of the Act. It was submitted that the AO has not recorded any finding that the business receipts were fictitious, that the books of the firm were unreliable or that the impugned amount actually belonged to the assessee in her individual capacity. Reliance was placed on the decision of the Mumbai Bench of the Tribunal in Goldman Tapes Private Limited v. ACIT, ITA No. 547/Mum/2024 dated 17.06.2025 and the decision of the Chennai Bench in Tamil Nadu State Marketing Corporation Ltd. v. ACIT, ITA No. 431/Chny/2023 dated 07.10.2024.
9. The Ld. DR, on the contrary, vehemently supported the orders of the lower authorities and submitted that the assessee was not permitted to accept Specified Bank Notes after 24.11.2016. Therefore, the AO was justified in treating the cash deposits of Rs. 9,51,400 as unexplained money u/s 69A of the Act and the Ld. CIT(A) rightly confirmed the same.
10. We have heard the rival submissions of both the parties and perused the materials available on record. The limited controversy before us relates to the addition of Rs. 9,51,400 u/s 69A of the Act. It is an admitted fact that the assessee was a partner in M/s Mysore Kerosene Trading Co. The assessee’s consistent explanation before the lower authorities has been that the bank account standing in her name was being used for the business transactions of the said firm and that the cash deposited therein represented the sale proceeds of the firm’s kerosene business. The AO himself has recorded that the assessee furnished the partnership deed, details of customers to whom kerosene was supplied and other supporting documents.
10.1 What is important for the purpose of section 69A of the Act is whether the nature and source of the money found in the possession of the assessee have been satisfactorily explained. In the present case, the reason given by the AO for making the addition is essentially that the assessee was not authorised to receive Specified Bank Notes after 24.11.2016. Thus, the addition has been made because of the period during which the old currency was received and not because the source of the money was found to be unexplained. This distinction goes to the root of the matter.
10.2 We further find that the AO has accepted the explanation regarding the business from which the cash arose, but has treated Rs. 9,51,400 as unexplained only because the Specified Bank Notes were stated to have been received after 24.11.2016. The Ld. CIT(A) has also proceeded on the same basis and held that the assessee did not fall within the category of specified persons who could accept Specified Bank Notes beyond the permitted period. Neither the AO nor the Ld. CIT(A) has brought any material on record to establish that the impugned cash did not arise from the business receipts of the partnership firm or that the entries in the books of the firm were fictitious.
10.3 In our considered view, the question whether the firm was legally permitted to accept Specified Bank Notes after a particular date is distinct from the question whether the source of the cash is explained for the purpose of section 69A of the Act. Even if there was any violation of the notification governing acceptance of Specified Bank Notes, such violation by itself would not establish that the money represented unexplained money of the assessee. For invoking section 69A of the Act, there should first be a basis to hold that the money belongs to the assessee and that the explanation regarding its nature and source is not satisfactory. In the present case, the addition has not been made on such a finding.
10.4 We also find support from the decision of the Mumbai Bench of the Tribunal in the case of Goldman Tapes Private Limited v. ACIT (supra), wherein the Tribunal considered a similar issue relating to deposit of Specified Bank Notes during the demonetisation period. The Tribunal observed that if the Specified Bank Notes were not legal tender for the assessee, the same would also not have been legal tender for the banks, whereas the banks had accepted such deposits. The Tribunal thereafter followed the decision of the Division Bench of the Chennai Tribunal in the case of Tamil Nadu State Marketing Corporation Ltd. v. ACIT (supra) and decided the issue in favour of the assessee. The relevant findings of the Tribunal are reproduced hereunder:
“8. We are of the considered view that after assuming that it was not a legal tender for the assessee then the same was also not legal tender for the banks but the banks have accepted the deposit. Therefore, we do not find any merit in the accusation of the AO. Though the decision of the SMC Bench of ITAT Chennai (supra) is in favour of the revenue bu the same author sitting in Division Bench in the case of TamilNadu State Marketing Corporation Ltd. vs. ACIT (supra) has decided the impugned issue in favour of the assessee. The relevant findings read as under:-
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9. Since the decision of the Division Bench is subsequent to the decision of the ‘SMC’ Bench, we are inclined to follow the decision of the Division Bench (supra) and on finding parity of facts, we direct the AO to delete the impugned addition. 10. In the result, appeal of the assessee is allowed”
10.5 In the present case also, the source of the impugned cash has been explained as the business receipts of M/s. Mysore Kerosene Trading Co. and the Revenue has not brought any material on record to establish that the impugned amount represented any unexplained money belonging to the assessee. Therefore, merely because the Specified Bank Notes were stated to have been received after the date considered permissible by the AO, the same cannot, by itself, justify an addition u/s 69A of the Act.
10.6 Considering the totality of the facts and circumstances of the case, we are of the view that once the source of the impugned amount is shown to be the business receipts of M/s. Mysore Kerosene Trading Co. and the same stands recorded in the books of the firm, the amount cannot be assessed in the hands of the assessee as unexplained money merely because the receipts consisted of Specified Bank Notes accepted after the date considered permissible by the AO. Accordingly, the addition of Rs. 9,51,400 made u/s 69A of the Act cannot be sustained. We therefore set aside the order of the Ld. CIT(A) on this issue and direct the AO to delete the addition of Rs. 9,51,400. Accordingly, the assessee’s ground of appeal is allowed.
10.7 The grounds relating to levy of interest are consequential in nature. The ground relating to initiation of penalty proceedings is premature and does not require separate adjudication in the present appeal.
11. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 24th Sept. 2026.
