ITAT Sets Aside Addition on Demonetisation Cash Deposit of Rs. 14.32 Lakh, Orders Fresh Assessment:

ITAT Sets Aside Addition on Demonetisation Cash Deposit of Rs. 14.32 Lakh, Orders Fresh Assessment The taxpayer could not provide documents on time to explain cash deposits made during demonetisation. Both AO and CIT(A) passed orders without giving enough opportunity. ITAT found this unfair and sent the case back to the AO for fresh examination. The present appeal has been filed by a taxpayer named Theeta Chowdayya Nagarathna (Appellant), against the ITO Ward 3(1)(1) Bengaluru (Respondent), in the Income Tax Appellate Tribunal (ITAT) “SMC” Bench: Bangalore, before Shri Waseem Ahmed (Accountant Member) and Shri Keshav Dubey (Judicial Member). The case is related to the assessment year 2017-18 and was decided on November 12, 2025.

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Background of Case: On July 12, 2017, the assessee, i.e., Theeta Chowdayya Nagarathna, filed her income tax return (ITR) for the assessment year 2017-18, declaring a total income of Rs. 351,600. Following this, the tax department chose the case for scrutiny under CASS to examine the deposited Rs. 14,32,500 made in cash by the assessee during the period of demonetisation in 2016. This huge amount attracted the attention of the Income Tax Department. The Assessing Officer (AO) asked her to explain where this money came from. When the assessing officer started the investigation on the case, she told AO that Rs. 12,32,500 came from her husband’s agricultural income, and Rs. 2,00,000 came as an unsecured loan from her cousin. However, she could not provide any documents as evidence for her claims at that point.

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Assessing Officer's Action As there was no valid evidence for the claims of the assessee, the AO did not accept the explanations given by her and treated the entire cash deposit of Rs. 14,32,500 as unexplained money under Section 69A, and made an addition to her taxable income. As a result, assessed on a total income of Rs. 17,84,100. Appeal Before CIT(A): The assessee, dissatisfied with the action of the Assessing Officer (AO), filed an appeal before the CIT(A); however, the CIT(A) dismissed her appeal on the grounds that no reliable evidence was produced. Appeal Before ITAT: The aggrieved assessee, with the decision of CIT(A), thereafter filed an appeal before the Income Tax Appellate Tribunal (ITAT). The tribunal made the observations that the assessee did not get a fair chance to present her documents, and the  AO passed its final order without even giving enough time to the assessee. The CIT(A) issued notices after 6 years and passed the order within a week, again giving very little time. The assessee now has documents such as the Pahani (land record) of her husband’s agricultural land, a Confirmation letter from her cousin and Bank statements. The authorised representative of the assessee had requested the tribunal to give them one more chance to represent themselves and submit all documents.

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ITAT’s Final Decision The ITAT agreed that in the present case, the provisions of natural justice were violated; hence, it announced its decision in favour of the assessee. Remand the case to the Assessing Officer (AO) for fresh consideration and direct the department to give the assessee a proper opportunity to submit evidence. Warned that if she defaults again, she will not get any more leniency Result: The appeal was allowed partly for statistical purposes.