Unexplained cash deposits during demonetisation failed the probability test, sustaining addition under section 69.

Cash deposits during the demonetisation period were treated as unexplained income where the assessee failed to satisfactorily link the deposits to earlier cash withdrawals and gift-related claims. The explanation was undermined by a gap of more than three and a half years between the alleged withdrawal and the deposits, inconsistent versions at different stages, and the absence of corroborative evidence on preservation or utilisation of the cash. Applying the preponderance of probabilities and surrounding circumstances, the explanation was found unconvincing and the addition under section 69 of the Income-tax Act was sustained.

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Issues: Whether the cash deposits of Rs. 48,59,000 made during the demonetisation period were satisfactorily explained so as to avoid addition as unexplained income under section 69 of the Income-tax Act, 1961.

Analysis: The assessee claimed that the deposits represented money received from his sister-in-law arising out of sale of ancestral property and supported the claim with a bank statement and gift-related documents. The explanation, however, suffered from a long gap of more than three and a half years between the alleged withdrawal in January 2013 and the deposits in November-December 2016, and the explanations advanced at different stages were inconsistent. No corroborative material was produced to explain why the cash remained unutilised for such a long period, how it was preserved, or how it was linked to the deposited amounts. Applying the test of preponderance of probabilities and the surrounding circumstances, the explanation was found to be unconvincing.

Conclusion: The addition under section 69 was sustained and the explanation for the cash deposits was rejected.

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