Pre-Demonetisation Withdrawals Can Explain Post-Ban Cash Deposits

Assessee’s case was selected for scrutiny to verify large cash deposits during demonetisation. AO noted cash deposits of ₹25.52 lakh on 10-11-2016 & 15-11-2016 and rejected the explanation that the same came from earlier withdrawals, treating them as unexplained money. CIT(A), NFAC confirmed the addition.

Before ITAT, the assessee demonstrated that during May–October 2016, he had withdrawn ₹32.50 lakh from bank, duly recorded and undisputed, primarily for his cousin’s marriage held on 11-11-2016, along with personal expenses. Due to the sudden demonetisation announcement on 08-11-2016, the unutilised cash was redeposited into the bank.

ITAT noted two crucial facts which Revenue never disputed:
(i) genuineness and quantum of cash withdrawals, and
(ii) occurrence of the marriage event.

The Tribunal rejected the Revenue’s stand based purely on “human probability” that cash withdrawn must have been spent, observing that in Indian social practice it is normal to accumulate cash over months for weddings. The demonetisation announcement fundamentally changed the situation, making redeposit of unused cash logical and prudent.

Relying on Shiv Charan Dass (P&H HC) and Gurjeet Singh (ITAT Chandigarh), ITAT held that in the absence of any evidence showing alternative utilisation of withdrawn cash, an addition u/s 69A cannot be sustained merely on presumption. The chain of events—withdrawals, marriage date proximity & demonetisation—was found coherent and credible.

Accordingly, ITAT deleted the entire addition of ₹25.52 lakh and allowed the appeal.

Key takeaway:
Pre-demonetisation cash withdrawals from disclosed sources, saved for a genuine family event and redeposited after 08-11-2016, cannot be taxed u/s 69A on assumptions of “human probability” alone. Facts + social reality + demonetisation context override conjecture.