Cash deposits during demonetization claimed as redeposit of old withdrawals, but unsupported link led to sustained addition u/s 69A

The dominant issue was whether cash deposits during the demonetization period could be explained as redeposit of earlier cash withdrawals so as to negate addition u/s 69A. The ITAT held that the explanation of hoarding salary cash to avoid claims by an estranged spouse was not credible, particularly as the assessee maintained multiple bank accounts and deposited funds into other savings accounts. In the absence of corroborative material linking past withdrawals to the impugned deposits, and since the withdrawals were made 5-7 years prior and not proximate to demonetization, they could not constitute the source. The partial relief granted by CIT(A) was affirmed; addition of the balance amount was sustained and the appeal was dismissed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether cash deposits during the demonetization period could be treated as unexplained money under section 69A when the assessee claimed they were sourced from past cash withdrawals from salary bank account.

1.2 Whether cash withdrawals made 5-7 years prior to the demonetization period could be accepted as a credible source for cash deposits made during the demonetization period.

1.3 Whether the special rate of tax under section 115BBE, as amended with effect from 15.12.2016, is applicable to additions made under section 69A for the assessment year 2017-18.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Unexplained cash deposits during demonetization and reliance on past withdrawals as source (section 69A)

Legal framework (as discussed)

2.1 The Assessing Officer invoked section 69A to treat cash deposits of Rs. 39,22,500/- (to the extent not explained) during the demonetization period as "undisclosed money", on the ground that the assessee failed to satisfactorily explain the nature and source of such money.

Interpretation and reasoning

2.2 The Tribunal recorded that it was an admitted fact that: (i) the assessee deposited Rs. 39,22,500/- in cash during the demonetization period in the relevant previous year; and (ii) the assessee had made cash withdrawals of Rs. 21,54,000/- from his salary savings bank account during financial years 2014-15, 2015-16 and 2016-17.

2.3 The assessee's explanation was that: (a) he had divorced his wife in 2009; (b) on legal advice and in apprehension that the estranged spouse might later claim further compensation if funds accumulated in bank, he routinely withdrew salary from his salary account and kept the money in cash at home; and (c) the cash deposited during demonetization represented such accumulated withdrawals after meeting domestic and medical needs.

2.4 The Tribunal noted that the assessee was maintaining as many as nine bank accounts, and that "amounts were deposited in other savings bank" accounts, which undermined the plea that he avoided banking channels merely due to matrimonial apprehensions.

2.5 The Tribunal held that there was no evidence or material on record to demonstrate that the specific cash withdrawn in earlier years was actually kept in hand and then redeposited during the demonetization period. The mere existence of withdrawals, without a demonstrated nexus or continuity of cash-in-hand, was held insufficient.

2.6 The Tribunal emphasised the temporal gap: the withdrawals relied upon were made "5 to 7 years back" and "not immediately before demonetization". On this basis, it reasoned that such old withdrawals cannot be accepted as the source of cash deposits during the demonetization period, in the absence of corroborative evidence of retention.

2.7 The Tribunal noted that the Assessing Officer, on an estimated basis, had allowed Rs. 15,00,000/- as personal expenditure out of total withdrawals of Rs. 21,54,000/- and had given credit of Rs. 6,54,000/- against the demonetization deposits. The appellate authority, considering the assessee to be a single individual without dependants, found annual household expenditure at Rs. 5,00,000/- excessive and reasonably restricted estimated living expenses to Rs. 3,00,000/- per year (aggregating Rs. 9,00,000/- for three years), thereby enhancing the set-off of withdrawals against cash deposits to Rs. 11,54,000/- and granting additional relief of Rs. 6,00,000/-.

2.8 The Tribunal concurred with the appellate authority's approach in partially accepting the withdrawals as a source to the extent considered reasonable after estimating living expenses, and in rejecting the balance explanation as unsubstantiated.

Conclusions

2.9 The Tribunal held that the assessee failed to substantiate his claim that the entire cash deposits during the demonetization period were sourced from past salary withdrawals held as cash in hand, particularly given the long time gap and absence of corroborative material.

2.10 The Tribunal affirmed the partial relief granted by the appellate authority and upheld the addition of Rs. 26,68,000/- as unexplained money under section 69A. The grounds challenging the addition were dismissed.

Issue 3: Applicability of section 115BBE to additions under section 69A for A.Y. 2017-18

Legal framework (as discussed)

3.1 The appellate authority recorded that section 115BBE, which prescribes a special rate of tax for income assessed inter alia under section 69A, was amended with effect from 15.12.2016.

Interpretation and reasoning

3.2 The appellate authority held that, in view of the amendment being effective from 15.12.2016, the special rate under section 115BBE was applicable for the assessment year 2017-18 to income brought to tax under section 69A.

Conclusions

3.3 The objection to taxing the addition under section 69A at the special rate prescribed by section 115BBE for the assessment year 2017-18 was rejected, and that ground was decided against the assessee.

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