ITAT Deletes Section 69A Addition as Cash Deposits Were Backed by Cash-in-Hand

Shantaben Manubhai Patel Vs ACIT (ITAT Surat)

The appeal before the ITAT Surat arose from an order of the Commissioner of Income Tax (Appeals) for Assessment Year 2017-18 confirming an addition under Section 69A of the Income-tax Act, 1961. The assessee, a senior citizen widow deriving income mainly from interest and agricultural activities, challenged the addition of cash deposits made during the demonetisation period and also raised an additional ground regarding the applicability of tax under Section 115BBE. The Tribunal admitted the appeal after considering the delay in filing.

The assessee had filed her return declaring total income of ₹13,57,400. Her case was selected for limited scrutiny to verify cash deposits of ₹29,98,000 made during the demonetisation period. She explained that the deposits were sourced from the opening cash-in-hand of ₹26,83,096 as on 01.04.2016 and ₹3,02,267 received from her deceased husband’s cash balance upon his death. According to the assessee, the cash balance had accumulated over earlier years primarily through withdrawals from bank accounts. To substantiate the explanation, she produced cash books for the relevant and preceding years, monthly cash summaries, bank statements showing withdrawals, and the cash book and return acknowledgement of her deceased husband.

The Assessing Officer rejected the explanation, observing that the assessee had no business activity, the cash book had been created after the event, and the claim of retaining substantial cash over a long period was improbable and contrary to normal human conduct. Accordingly, the Assessing Officer treated the cash deposits of ₹29,98,000 as unexplained money under Section 69A.

The Commissioner (Appeals) upheld the addition, holding that the cash book was unreliable and that the explanation regarding retention of a large cash balance was unsatisfactory.

Before the Tribunal, the assessee contended that Section 69A was wrongly invoked because the cash deposits were duly recorded in the books of account. It was argued that she was a senior citizen widow with substantial capital who preferred to keep cash for personal safety and emergencies after her husband’s death. The assessee further submitted that the source of the cash was fully supported by earlier bank withdrawals and cash received from her deceased husband, and that the Revenue had not identified any defect in the bank withdrawals or shown that the withdrawn amounts had been utilised elsewhere.

The Revenue supported the orders of the lower authorities, contending that there was no plausible explanation for maintaining a large cash balance for a prolonged period and that the cash book had been prepared only to justify the demonetisation deposits.

The Tribunal found that the assessee had consistently produced cash books for the relevant and preceding years, bank statements evidencing withdrawals, and records relating to the cash received from her deceased husband. It noted that the available cash balance arose from earlier bank withdrawals, which were not disputed by the Revenue, nor was any material produced to show that the withdrawn funds had been used elsewhere. The Tribunal held that the addition was sustained merely on assumptions regarding human conduct rather than cogent evidence. Considering the assessee’s status as a senior citizen widow with a substantial capital base and her explanation for retaining cash for personal comfort, emergencies, and security, the Tribunal held that the explanation could not be rejected merely on suspicion. It therefore directed the Assessing Officer to delete the addition made under Section 69A and allowed the appeal.

FULL TEXT OF THE ORDER OF ITAT SURAT

This appeal has been filed by the assessee against the order dated 12.09.2025 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as ‘Ld. CIT (A)’ in short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’ in short) for Assessment Year 2017-18.

2. The assessee has raised the following grounds of appeal:

“Ground 1:

The CIT (Appeals) erred in law and on facts by upholding the addition of Rs.29,85,000/- made under Section 69A of the Income Tax Act, 1961.

Ground 2:

The CIT (Appeals) erred in holding that the Appellant failed to satisfactorily explain the nature and source of the cash deposits. When the entire cash deposit was accounted for in the books of account (Cash Book) and was sourced from prior bank withdrawals and cash received from the deceased husband, which are verifiable sources, the addition should have been deleted.

Ground 3:

The CIT (Appeals) erred in rejecting the Appellant’s Cash Book/Books of Account and concluding that they were created post-facto. Since the Appellant is a non- business senior citizen having only interest income and all cash receipts (withdrawals) were verifiable through bank statements/passbooks, the rejection of the regularly maintained books of account is unwarranted, and the resort to Section 145(3) of the Act is unjustified.

Ground 4:

The CIT (Appeals) erred in making the addition solely based on the observation that the Appellant’s claim of keeping a large cash-in-hand stagnant was “inherently improbable” and contrary to “normal human conduct.” This conclusion ignores the facts that the Appellant is an illiterate senior citizen, living alone after her husband’s death, and her preference to keep cash-in-hand for immediate needs/emergencies (especially since her net worth is substantial) is a matter of her personal prudence and not an unexplained source of income.

Ground 5:

The CIT (Appeals) erred in confirming the applicability of Section 69A of the Act. Section 69A applies only when the money is unrecorded in the books of account. Since the cash. deposits were fully recorded in the Cash Book maintained by the Appellant, the provisions of Section 69A are not attracted, and the addition is bad in law.

Ground 6:

Without prejudice to the above grounds, the CIT (Appeals) erred in confirming the addition of Rs. 29,85,000/-, which differs from the AO’s addition of Rs. 29,98,000/-, without clear reasoning or quantification.

Ground 7:

In the facts and circumstances of the case there is slight delay in filing the appeal which may be condoned as there is a reasonable cause.

Ground 8:

It is prayed that the addition of Rs. 29,85,000/- confirmed by the CIT (Appeals) be deleted, and the appeal of the Appellant be allowed.

Additional Ground of Appeal

The Appellant craves leave to raise these additional Grounds of Appeal before the Hon’ble ITAT. This are legal grounds and therefore, as per the decision of Hon’ble Supreme court in the case of National Thermal Power (229 ITR 383), it can be raised before the Hon’ble ITAT. In view of the above, the appellant hereby raises following grounds as additional grounds of Appeal, which is without prejudice to the grounds raised by the appellant while filing appeal in Form 36.

1. Ld. AO has erred in applying higher rate of tax u/s115BBE though there was no such provision at the time of demonitisation and therefore the income tax taxed by the AO should be chargeable at normal rate of tax In view of the above, the additional grounds raised may kindly be admitted in view of natural justice to the appellant.”

3. Brief facts of the case are that the assessee is a senior citizen widow deriving income mainly from interest income and agricultural income. The return of income for A.Y. 2017-18 was filed on 13.11.2017 declaring total income of Rs.13,57,400/-. The case was selected for limited scrutiny for verification of cash deposits amounting to Rs.29,98,000/- made during the demonetisation period. During the course of assessment proceedings, the assessee explained that the impugned cash deposits were made out of cash balance available with her. It was submitted that the cash balance consisted primarily of opening cash-in-hand as on 01.04.2016 amounting to Rs.26,83,096/- and cash of Rs.3,02,267/- received on demise of her husband Late Shri Manubhai Ambalal Patel on 27.05.2016 as per his cash book.It was submitted that the cash balance had accumulated over earlier years mainly out of withdrawals from bank accounts.In support of the explanation, the assessee furnished cash book for the year under consideration and preceding years, monthly cash summaries, bank statements evidencing withdrawals and copy of cash book and return acknowledgment of her deceased husband.

3.1 The Assessing Officer, however, rejected the explanation observing that the assessee had no business activity, the cash book was created post facto, and the claim of holding huge cash balance for long period was improbable and against normal human conduct. The Assessing Officer accordingly treated the cash deposits of Rs.29,98,000/- as unexplained money under section 69A of the Act.

4. Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A). The Ld. CIT(A) confirmed the addition by observing that the cash book was not reliable and the explanation of the assessee regarding retention of huge cash balance was not satisfactory.

5. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.

6. Before us, the Ld. AR submitted that the authorities below erred in invoking provisions of section 69A despite the fact that the cash deposits were duly recorded in the books of account maintained by the assessee. The Ld. A.R. submitted that the assessee is a senior citizen widow lady having substantial capital and was mainly earning interest income. After the death of her husband, she preferred to keep cash-in-hand for personal safety and emergency requirements.The Ld. A.R. further submitted that the source of cash was fully explained through earlier bank withdrawals and cash received from the deceased husband. Attention was invited to the summary of cash book placed on record, which reflected continuous availability of cash balance over earlier years. It was argued that the Revenue authorities had not pointed out any defect in bank withdrawals or demonstrated that the cash withdrawn had been utilized elsewhere.

7. The Ld. DR, on the other hand, supported the orders of the lower authorities and submitted that the assessee had no business activity and there was no plausible explanation for maintaining huge cash balance for long period. The Ld. D.R. further submitted that the cash book was not produced earlier and was prepared only to explain demonetization deposits. Therefore, the Assessing Officer was justified in rejecting the books and invoking section 69A of the Act.

8. We have heard rival submissions and perused the material available on record.

8.1 The undisputed fact emerging from record is that the assessee had furnished cash books for the relevant year as well as preceding years, bank statements evidencing withdrawals and records relating to cash received from her deceased husband. The assessee has consistently explained before the lower authorities that the cash deposited during the demonetization period was sourced from opening cash-in-hand available as on 01.04.2016 and cash received on death of her husband. In support of the same, the assessee furnished cash books for the relevant year and preceding years along with bank statements evidencing withdrawals. The summary of cash book placed on record is reproduced as under:-

* Cash received on death of husband Late Shri Manubhai Ambalal Patel (Expired on 28.05.2016 – cash balandce as per his cash book.

** Agricultural income

8.2 From the aforesaid summary, it is evident that the cash balance available with the assessee was arising from withdrawals made from bank accounts over earlier years. The Revenue has not disputed the withdrawals reflected in the bank statements nor has any material been brought on record to establish that such withdrawals were utilized elsewhere.The entire addition has been sustained mainly on the premise that no prudent person would keep substantial cash-in-hand for a long period. In our considered opinion, such conclusion is based merely on assumptions regarding human conduct and not on any cogent material. The assessee being a senior citizen widow lady having substantial capital base of Rs.4.38 crores, her explanation regarding retention of cash for personal comfort, emergencies and security cannot be rejected merely on the basis of suspicion.

8.3 In view of the specific facts and circumstances of the instant case, we direct the Assessing Officer to delete the addition made under section 69A of the Act.

9. In the result, appeal of the assessee is allowed.

Orderpronounced in the open Court on 17.06.2026.