Not every cash deposit during demonetization is unaccounted cash: ITAT

A significant financial event that has occurred in our country during November 2016 to January 2017 was demonetization. To track, trace and curb black money and corruption, the government declared certain high-denomination currency notes as invalid. Citizens of our country were given a window to deposit their old currency notes into their bank accounts. The demonetization period witnessed a surge in cash deposits as people rushed to exchange their old notes for new currency or deposit them into their bank accounts. Many individuals and entities deposited large sums of cash, leading to investigations to ensure the legitimacy of these deposits.

The Bangalore bench Income Tax Appellate Tribunal (ITAT) heard an appeal where it was directed that not every cash deposit made during demonetisation period would fall under category of unaccounted cash.

Issues Involved:
Assessee being a salaried individual had deposited significant amount of cash during the demonetization period. However, this cash deposit does not fall in line with the income tax return submitted for the relevant assessment year. To give more insights on this, assessee had reported an income of Rs.3,48,370/- in his ITR for AY 2017-18 whereas cash deposits during FY 2016-17  amounted to Rs.12,26,000/-. The case was selected for scrutiny and show cause notices were issued to assessee. Claim of assessee involved loan repayments in cash from various persons.

Facts Explained:
Case of a salaried individual assessee was selected for scrutiny based on significant cash deposits made by him during demonetization. After submitting the response by assessee, AO unsatisfied by the same added this amount to income, applying provisions of Section 69A and 115BBE. Aggrieved assessee filed appeals before CIT(A) and later before Tribunal. Assessee submitted the entire submission work with respect to show cause notices and appeals to Tribunal.

Upon investigation ITAT re-iterated their focus on instructions received from government and CBDT with respect to treatment of cash deposits during demonetization. A comparative analysis of the cash sales, deposits, month wise sales was to be taken into consideration by AO and the authorities.

Therefore, it must be critically analysed by revenue, whether assessee falls into such statistical analysis which suggests that there is a booking of sales, which is non-existent and thereby being unaccounted money of the assessee in the form of old currency notes that were pumped into as unaccounted money.

ITAT re-affirmed that not every cash deposit during demonetization is unaccounted cash, however, the burden is on assessee to give a justifiable explanation regarding substantial deposit of cash.

As per assessee’s claim, the deposits were made in cash as the loan repayments from depositors were accepted in cash by him. ITAT ordered assessee to furnish details of such persons. 

Grounds raised by assessee were partly allowed by ITAT and was allowed a physical presence to justify his claims.

Cash deposits during demonetization were at the peak as people having old currency notes were directed to deposit the same in their bank accounts by government. This involved hard earned money of citizens but also it was possible that wrongdoers may use this channel to pump in their unaccounted money into the economy.

To monitor this CBDT gave instructions to authorities for identifying suspicious transactions. Since, the use of old currency notes was about to end, people started utilising these for making their mandatory payments. 

In the given case, assessee was allowed to justify his claim by submitting all the necessary documentation to ITAT and his appeal was partly allowed in the order.

About Author:
CA Chinmay Shirish Agate
Chinmay Agate is a Practicing Chartered Accountant having 4+ years of experience and expertise in the field of Direct Taxation and Auditing compliances. In the past, he worked in various CA firms and comes with wide industry experience from services, retail to manufacturing to trading where he has handled various complex assignments. He has keen interest in Forex and Derivative knowledge as well as fundamental analysis.

Chat now!
Inquire about our products
Hi Sinewave Team..