Cash Deposits During Demonetization Sourced From Prior Bank Withdrawals: ITAT Deletes Penalty

The assessee filed her income tax return on 30 July 2017. The case was selected under Computer-Assisted Scrutiny Selection (CASS). The Assessing Officer then issued several notices requesting clarification on ambiguous cash deposits made during the demonetization period. The assessee, however, failed to respond adequately, leading to a best judgment assessment under Section 144 of the Income Tax Act, 1961.

An addition of Rs. 24,21,000 was made under Section 69A as unexplained money.

CIT(A) dismissed the assessee’s appeal, citing a delay of 92 days. The assessee then appealed to the ITAT.

Issues Framed

• Whether the CIT(A) was justified in dismissing the appeal as time-barred without issuing a show cause notice.
• Whether the cash deposits of ₹24,21,000 during the demonetization period were satisfactorily explained as arising from past bank withdrawals.
• Whether the addition under Section 69A was sustainable in light of the evidence presented.

Petitioner argued that the CIT(A) erroneously dismissed the appeal due to a 92-day delay, despite acknowledging timely filing earlier in the order. This violated principles of natural justice.

Then Assessee explained the source of cash deposits, which was clearly traceable to past bank withdrawals:

• Rs. 15,00,000 withdrawn via cheque dated 29.12.2016.
• Rs. 9,15,500 withdrawn via cheque dated 08.03.2016.
• Total Rs. 24,15,500 withdrawn.

These withdrawals and re-deposits were supported by bank evidence. Deposits of Rs. 24,15,500 and Rs. 5,500 made during demonetization matched the withdrawn sums.

Respondent (Revenue) Relied upon the orders of lower authorities, including the AO’s conclusion that the assessee failed to properly respond or explain the cash deposits.

Tribunal’s Decision & Rationale

CIT(A) erred in dismissing as time-barred

The Tribunal noted that the assessment order was received on 17.01.2020 and the appeal was filed on 06.02.2020 via e-filing. Therefore, the appeal was filed within the prescribed 30-day limit, and CIT(A) erred in dismissing it as time-barred.

Deleted Cash Addition

• The Tribunal accepted the assessee’s documentary evidence showing that cash deposits were sourced from prior bank withdrawals.
• The timing and amount of deposits closely aligned with the previous withdrawals.
• It held that the explanation regarding the cash deposits was satisfactory and substantiated.

Thus, the addition under Section 69A could not be sustained.