ITO Vs Shreeji Paper Corporation (ITAT Mumbai)
Section 68: Demonetisation Deposits Explained by Earlier Bank Withdrawals Cannot Be Added Without Contrary Evidence
The controversy
The Mumbai Tribunal upheld deletion of a ₹90.50 lakh addition under Section 68, concerning cash deposited during demonetisation.
The assessee explained that the deposits originated from earlier bank withdrawals recorded in its regularly maintained cash book. The Commissioner (Appeals) accepted the explanation after examining the cash records, bank statements and supporting financial particulars.
The Tribunal found that the Assessing Officer had identified no defect in the books and brought no material findings contradicting the explanation. The Revenue’s appeal was therefore dismissed.
AO accepted only withdrawals made immediately before demonetisation
The assessee deposited ₹99.50 lakh in specified banknotes during the demonetisation period.
The Assessing Officer examined withdrawals made between 1 November and 8 November 2016. These comprised ₹4.90 lakh from Union Bank of India and ₹4.10 lakh from Abhyudaya Co-operative Bank.
He accepted those withdrawals aggregating to ₹9 lakh as an explained source.
However, the balance deposits of ₹90.50 lakh were treated as unexplained and added under Section 68, read with Section 115BBE.
The Assessing Officer also relied upon the absence of cash sales during the year and questioned the accumulation of such a substantial cash balance.
Assessee relied on the complete year’s cash records
The assessee, a dealer in paper and paperboard since 1975, maintained books of account and was subject to tax audit.
Its explanation was that the deposits came from cash available on 8 November 2016, principally representing withdrawals made earlier during the financial year.
To substantiate this, it furnished date-wise and month-wise cash books, bank books and bank statements. Detailed submissions were made during assessment through letters dated 3 December and 23 December 2019.
The assessee argued that the Assessing Officer had restricted his consideration to a short period immediately preceding demonetisation, without properly examining the earlier withdrawals and subsequent redeposits.
Audited records and supporting business particulars furnished
The assessee also produced audited financial statements for FYs 2015-16 and 2016-17, VAT returns, quantitative stock details and particulars of major expenses, debtors and creditors.
It maintained that the cash withdrawals were recorded in the ordinary course of business and that the cash remained available for deposit.
The Assessing Officer neither rejected the books nor identified a defect in the cash book or bank book.
The assessee therefore disputed the conclusion that the bank deposits necessarily represented income from activities on which tax had not been paid.
CIT(A) accepted the availability of cash
The Commissioner (Appeals) examined the evidence furnished during both assessment and appellate proceedings.
The appellate order recorded cash withdrawals of ₹99,02,429 during the period from 1 April to 8 November 2016 and accepted the cash availability reflected in the records as supporting the redeposits.
It found that the withdrawals had been entered in the regularly maintained books and that the cash movements were traceable.
The critical finding was therefore not merely that withdrawals had occurred, but that the cash records supported the assessee’s explanation concerning availability and redeposit.
Hardeep Dalal decision supported the reasoning
The Commissioner (Appeals) relied upon Hardeep Dalal v. ITO, [2025] 174 taxmann.com 968 (Delhi–Trib.).
In that case, earlier withdrawals were recorded in the cash book and supported the cash balance available on 8 November 2016. The explanation of subsequent deposit was accepted because the cash movements could be traced through the records.
Following that approach, the Commissioner (Appeals) deleted the ₹90.50 lakh addition.
Revenue sought restoration to the Assessing Officer
Before the Tribunal, the Revenue maintained that the assessee had not established continuous retention of the withdrawn cash or a sufficient nexus between withdrawals and deposits.
The Departmental Representative also requested that the matter be sent back because the Assessing Officer had not elaborately examined the withdrawal explanation.
The assessee supported the appellate order, relying upon the records already furnished and analysed.
The Tribunal upheld the relief on the existing evidence rather than ordering another examination.
Tribunal found no basis to disturb the factual conclusion
The Tribunal observed that the Commissioner (Appeals) had accepted the explanation after a detailed examination of the relevant facts and figures.
In contrast, the Assessing Officer had made the addition without bringing supporting material facts and findings on record.
The books had not been found defective and were not rejected. The Tribunal therefore found no infirmity in the appellate conclusion and dismissed the Revenue’s appeal.
Author’s comments
The decision demonstrates the importance of examining the complete cash trail, rather than restricting the inquiry to withdrawals immediately before demonetisation.
Absence of cash sales does not answer an explanation founded on bank withdrawals. The relevant inquiry is whether those withdrawals, intervening cash expenditure and the available balance support the later deposits.
Equally, an earlier withdrawal alone is not conclusive proof of retained cash. Relief here rested on the cash book, banking records and the factual findings accepting availability, coupled with the absence of identified defects or contrary evidence.
The ruling supports a documented redeposit explanation; it does not create an automatic exemption for every demonetisation deposit linked to an earlier withdrawal.
Cases Discussed
- Hardeep Dalal v. ITO, Ward 35(5), [2025] 174 taxmann.com 968 (Delhi–Trib.) — Earlier cash withdrawals recorded in the cash book accepted as the source of subsequent deposits; an exact TaxGuru case page was not verified.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The instant appeal emanating from the appellate order dated 30.01.2026 is preferred by the Revenue against the order passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s. 143(3) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 27.12.2019 for the Assessment Year [A.Y.] 2017-18.
2. The grounds of appeal are as under:-
1. Whether on the facts and in the circumstances of the case and in law the Ld.CIT(A) has erred in deleting the addition of Rs.go,5o,00o made by the Assessing Officer under section 68 of the Income Tax Act,1961 on account of unexplained cash deposits made during the demonetization period without properly appreciating the facts and material available on record.
2. Whether on the facts and in the circumstances of the case and in law the Ld.CIT(A) has erred in accepting the explanation of the assessee that cash deposits were made out of earlier cash withdrawals without appreciating that the assessee had failed to establish with credible and verifiable evidence the actual availability and retention of such cash at the time of deposit and failed to establish a direct nexus between withdrawals and deposits.
3. Whether on the facts and in the circumstances of the case and in law the Ld.CIT(A) has erred in ignoring the fact that the assessee had not reported any cash sales during the relevant financial year and therefore the accumulation and subsequent deposit of huge cash during the demonetization period remained unexplained and unjustified.
4. Whether on the facts and in the circumstances of the case and in law the Ld.CIT(A) has erred in deleting the addition without appreciating that under the provisions of section 68 of the Income Tax Act,1961 the burden of proof lies upon the assessee to satisfactorily explain the nature and source of cash credits, and the assessee had failed to discharge such burden with credible and verifiable evidence.
5. Whether on the facts and in the circumstances of the case and in law the Ld.CIT(A) has erred in placing reliance on the decision in the case of Hardeep Dalal v. ITO which is distinguishable on facts and failed to appreciate that in the present case the assessee had not established continuous availability and retention of cash withdrawn earlier.
6. Whether on the facts and in the circumstances of the case and in law the Ld. CIT A has erred in not appreciating that the Assessing Officer had made the addition after detailed 6 examination of bank statements, cash flow and submissions made by the assessee and had rightly invoked the provisions of section 68 read with section 115BBE of the Income Tax Act 1961.
7. Whether on the facts and in the circumstances of the case and provisions of law and not supported by proper appreciation of in law the order of the Ld.CIT(A) is erroneous, contrary to the facts and evidence on record.
3. All the grounds are interlinked, being related to the impugned addition of Rs 90.50 lakh. Facts of the case are that the AO the assessee had deposited cash of Rs 90,50,000/- in his various Current Bank Accounts during demonetization period. The said amount was stated to be deposited out of cash withdrawals from banks in earlier period for business purpose only. The AO made addition of the said cash deposit under section 68 r.w Sec ii5BBE of the Act.
4. Being Aggrieved by the assessment order passed under section 143(3) of the Act the assessee filed an appeal against the said order. The ld.CIT(A) noted that the assessee filed Return of Income for the relevant year declaring total income of Rs. Nil/-. The case was selected for scrutiny under CASS and the assessment was completed u/s.143(3) of the Act on a total income of Rs.90,50,000/-. The AO had observed that the assessee tried to explain the said deposit out of cash in hand in FY 2016-17 till 08.11.2016 which was mainly cash withdrawn from bank Account. It was noted that cash deposit in preceding F.Y. 2015-16 for the period 08/11/2015 to 30/12/2015 was Rs. 10,41,000/- whereas it was Rs. 99,50,000/- for the same corresponding period in earlier year. On perusal of case records it was found that cash sales during the year concerned is Rs. Nil/-. Hence, the assessee failed to provide any cogent explanation with respect of source of cash deposited during demonetization period. He further noted that analysis of bank statement with Union Bank of India revealed cash deposits made during the F. Y. 2016-17, especially during demonetization period. It was evident from bank credit entries, the assessee made cash deposits, but had not offered income from its activities and not paid taxes due on it. On perusal of bank statements and submission made by the assessee ,it was found that it had withdrawn Rs. 4,90,000/- in cash from its Union bank account and withdrawn Rs. 4,10,000/- from its Abhyudaya Co-Op Bank Ltd. account during the period of 01/11/2016 to 08/11/2016. Hence, its cash withdrawal amounted to Rs. 9,00,000/- during the period 01/11/2016 to 08/11/2016. Cash withdrawn in the period 01/11/2016 to 08/11/2016 was treated as explained and allowed. Total cash deposit in Specified bank notes during demonetization period was Rs. 99,50,000/, hence cash deposited during this period in excess of amount withdrawn during the period 01/11/2016 to 08/11/2016 was Rs. 90,50,000/- was not allowed. The cash deposits, appearing in the Bank Account of Rs. 90,50,000/- was accordingly, deemed as Unexplained u/s 68 of the Act and added to the total income which was taxed u/s 115 BBE of the Act at the rate of 6o%.
4.1 It was submitted before the appellate authority that the assessee, a dealer of all kinds of paper and paper board since 1975 regularly maintained books of accounts and was covered under tax audit. During the year, it filed return of Income on 29.10.2017 along with audited Profit and loss account and Balance Sheet. In respect of the impugned cash deposit, it was reiterated the deposit was from the balance available on 8th November 2016 and cash withdrawn during demonetization period. Detailed working along with tangible documents was also placed on record by it before AO. Further, to substantiate the claim of Opening balance, cash withdrawals and cash deposit, the assessee submitted date wise month wise cash book, bank book and bank statement for the financial year 2016-17 before the AO vide letter dated 3rd December 2019 as well as letter dated 23rd December 2019 who did not consider the submission and appreciated the fact there were several withdrawals and re-deposits of cash during the year under consideration. He did not provide any specific findings or justification on the submission/ claim of redeposit of cash from withdrawal made by the assessee and even, he did not specifically discuss its contentions while passing assessment order. The assessee also submitted audited financial statements for financial year 2015-16 and 2016-17. The Books of accounts including cash book, bank book were duly audited u/s.44AB of the Act and no defect had been observed in the same. Further, it had also submitted the VAT returns, quantitative stock details, party wise details of all expenses over Rs 1 lacs, party wise break up of sundry debtors and creditors above Rs.2 lacs. The AO neither disputed nor rejected any of the books of accounts submitted by it. The AO also erred in stating that “It is evident from bank credit entries, the assessee made cash deposits, but has not offered income from its activities and not paid taxes due on.” as the deposits were made from the cash withdrawn from Bank accounts during the year under consideration.
4.2 The ld.CIT(A) after taking into account the submissions made and also the evidences produced before him in this regard observed the assessee had at both the stages of assessment and appellate, filed the sources of funds for making the deposit. During the period from 01.4.2016 to 08.11.2016, the assessee had withdrawn cash of Rs.99,02,429/- and redeposited out of withdrawals. It was also observed that the cash withdrawal from the bank accounts were duly recorded in the books of account maintained in regular course of business and it was lying with the assessee itself and as per the cash book, the assessee had an opening cash balance of Rs.99,02,429/-as on 08.11.2016 which was duly deposited in the bank accounts by the assessee. In this regard, it the assessee submitted relevant extract of cash book. Therefore, there were enough cash withdrawals made by itduring the year and there were redeposits traceable like cash withdrawn on different dates as and re-deposited the same. Therefore, there were sufficient cash withdrawals to support the submissions of the assessee.
4.3 The ld.CIT(A) further noted that it is settled position of law that when the deposits are traceable to the recent withdrawals, the same could not be rejected. In this connection, reference was invited to the decision in the case of Hardeep Dalal v. ITO, Ward 35(5) [2025] 174 taxmann.com 968 (Delhi – Trib.) where on similar facts it was held:
“9. Considered the rival submissions and material placed on record. I observed that the case of the assessee was reopened on the basis of cash deposits in itsbank account and assessee has explained the sources of cash deposits. The AO has accepted the same, however rejected the cash deposits out of cash withdrawals. Before me, Id. AR of the assessee brought to our notice that during the year, assessee has withdrawn cash of Rs.24,40,000/-and redeposited out of withdrawals. I also observed that the assessee has submitted that the cash withdrawal from the bank accounts were duly recorded in the books of account maintained in regular course of business and it was lying with the assesseehimself and as per the cash book, the assessee has an opening cash balance of Rs.24,40,000/- as on 08.11.2016 which was duly deposited in the bank accounts by the assessee. In this regard, assessee submitted relevant extract of cash book kept at page 15 of the paper book. In my considered view, there are enough cash withdrawals made by the assessee during the year and there are re-deposits traceable like cash withdrawn on different dates as shown in the aforesaid chart and re-deposited the same. Therefore, there are sufficient cash withdrawals to support the submissions of the assessee, it is settled position of law that the deposits are traceable to the recent withdrawals, the same cannot be rejected. Accordingly, I am inclined to allow the grounds raised by the assessee. In the result, the appeal filed by the assessee is allowed.”
4.4 Following the decision in the case of Hardeep Dalal (supra),he concluded that there were enough cash withdrawals made by the assessee during the year and there were re-deposits traceable like cash withdrawn on different dates as and redeposited the same. Therefore, there were sufficient cash withdrawals to support the submissions of the assessee and therefore, the addition u/s 68 of the Act was deleted.
5. Before us, the ld.DR has relied upon the grounds of appeal and the assessment order claiming that the addition was rightly made. He however, submitted that as the AO did not elaborate the explanation regarding withdrawals, the case may be sent back to him for proper consideration and decision in this respect. Per contra, the ld.AR relied on the appellate order.
6. We have carefully considered all the relevant facts of the case, perused the records and heard rival submission. The only point of contention is the cash deposits made in the bank account of the assessee during demonetization period which have been explained from opening cash balance as on 08.11.2016. The said opening balance was claimed to be aggregate of various cash withdrawals made during the relevant financial years and the opening cash balance was available for making such deposit. Books of account were stated to be audited. VAT returns were also claimed to have been filed. The ld.CIT(A) after appreciating such reply, and the explanations adduced before him, accepted the contentions of the assessee and deleted the addition made after detailed analysis of the merits therein. On the other hand, we find that the addition was made by the AO without bringing on record any material facts and findings. The books of account were not found suffering from any defect and were not rejected.
6.1 Considering the factual matrix of the case and the judicious adjudication by the appellate authority on the basis of its reply alongwith necessary facts and figures, we find no infirmity in the conclusion drawn by him. Accordingly, the same is upheld, dismissing the grounds of appeal of the Revenue.
7. In the result, the appeal of the Revenue stands dismissed.
Order pronounced in the open court on 13/10/2026.
