Explained cash deposits during demonetisation cannot be treated as unexplained money merely because they were specified bank notes.

Cash deposits made during the demonetisation period were not unexplained money under section 69A where the assessee showed that the receipts came from members in the ordinary course of business and were recorded in its books. The Tribunal held that the source of the money was not in dispute, and the mere fact that the notes were specified bank notes accepted after 08.11.2016 did not, by itself, transform explained receipts into deemed unexplained income. On those facts, the addition under section 69A was unsustainable and was deleted.

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Issues: Whether cash deposited in bank accounts during the demonetization period, sourced from members and recorded in the books, could be treated as unexplained money and added under section 69A of the Income-tax Act, 1961 merely because the notes were specified bank notes accepted after 08.11.2016.

Analysis: The assessee established that the cash deposited represented receipts from its members in the ordinary course of business and that the relevant transactions were recorded in its books of account. The addition was sustained by the lower authorities principally on the ground that the assessee was not authorised to accept specified bank notes after 08.11.2016. The Tribunal held that the source of the money was not in dispute and that the mere acceptance of specified bank notes after the demonetization announcement did not, by itself, convert otherwise explained and recorded receipts into unexplained money. It also noted that the legal position under the Specified Bank Notes (Cessation of Liabilities) Act, 2017 did not support treating the deposits as unexplained on the facts found.

Conclusion: The addition under section 69A was not sustainable and was deleted.

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