Delhi man who deposited Rs 2.47 crore in cash during the demonetisation period has got major relief from the Income Tax Appellate Tribunal. The Delhi Bench of the ITAT deleted a total tax addition of Rs 3.32 crore after finding that the taxpayer had produced supporting documents to explain the cash deposits and the tax authorities had not been able to point out specific defects in those documents.
The case relates to Rakesh Kumar, who had deposited a total of Rs 2,47,91,057 in cash during financial year 2016-17 in three savings bank accounts maintained with Oriental Bank of Commerce. The Assessing Officer treated the entire amount as unexplained cash under Section 68 of the Income Tax Act and applied Section 115BBE. Kumar told the tax authorities that Rs 1,64,37,357 of the deposits came from cash sales in his retail pharmaceutical and medicines business. He also explained another Rs 83.70 lakh as cash withdrawals, personal savings and savings of family members.
The ITAT’s order in ITA No. 2746/Del/2026 deals with assessment year 2017-18. The appeal arose from the order of the CIT Appeals, NFAC, Delhi, which had confirmed the addition made by the Assessing Officer.
Why did the Income Tax Department question the Rs 2.47 crore cash deposit?
The cash deposits were made during the demonetisation period after specified bank notes were declared invalid from November 8, 2016.
The Assessing Officer took the view that the cash deposited by Kumar remained unexplained. The officer therefore added the entire Rs 2,47,91,057 to his income under Section 68.
Kumar, however, had a different explanation.
He said the major portion of the cash came from his business. He was engaged in the retail business of pharmaceuticals and medicines and claimed that the cash sales had subsequently been deposited into his bank accounts.
To support his explanation, he submitted his audited financial statements, balance sheet, profit and loss account, VAT returns, bank statements and sample sales invoices.
The CIT Appeals sent the matter back to the Assessing Officer for a remand report. That is where the tax department raised questions over the explanation.
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Tax officer questioned cash sales and business expenses
In the remand proceedings, the Assessing Officer noted that several expenses shown in the profit and loss account did not appear as corresponding debit entries in the bank accounts.
The officer also pointed out that Kumar had shown salary and bonus payments of Rs 5.80 lakh to employees during the year, but regular payments to employees were not found in the bank accounts.
The department’s reasoning was that if the cash generated from sales had been deposited into the bank, it was not clear how certain business expenses had been paid in cash. The officer therefore rejected Kumar’s claim that Rs 1,64,37,357 deposited in the bank represented sales receipts.
The CIT Appeals also did not accept the explanation. It observed that the taxpayer had not furnished what it considered sufficient reconciliation between the cash deposits and the corresponding sales, stock and cash balance. The dispute then reached the ITAT.
ITAT says authorities did not point out defects in documents
The Tribunal took a different view. It noted that Kumar had submitted complete financial statements, VAT returns, bank statements and sample sales invoices to establish that the cash deposits came from business sales.
More importantly, the Tribunal noted that the Assessing Officer and CIT Appeals had not found any specific defect in these documents. The ITAT also pointed out that neither of the lower authorities had rejected the books of account under Section 145 of the Income Tax Act.
The Tribunal said the cash deposits were directly correlatable with the cash sales made during the demonetisation period, considering that Kumar was engaged in the retail business of pharmaceuticals and medicines.
It also disagreed with the lower authorities’ approach of treating the VAT returns, bank statements, bills, vouchers, balance sheet and profit and loss account as self-serving documents. The Tribunal therefore deleted the Rs 2,47,91,057 addition.
There was another Rs 83.70 lakh cash addition
The case did not end with the Rs 2.47 crore deposit. The taxpayer was also facing another addition of Rs 83,69,770.
This amount consisted of: Rs 9,23,500 from cash withdrawals from his bank accounts; Rs 2,46,270 claimed as personal savings; and Rs 72 lakh claimed as savings of family members.
Kumar had produced bank account statements to explain the Rs 9.23 lakh withdrawals. The order records withdrawals from three bank accounts on different dates. The total of these withdrawals came to Rs 9,23,500.
The Assessing Officer questioned why Kumar would withdraw cash from the bank and later deposit it back. The officer also questioned the purpose of the withdrawals. Kumar had also claimed that Rs 2,46,270 came from his personal savings and submitted details of his personal savings bank account.
The bigger issue was the remaining Rs 72 lakh claimed as money available with family members.
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Family members had Rs 72 lakh, taxpayer claimed
Kumar submitted details of five family members and the amounts claimed to have been received from them.
The amounts were: Meenu, brother’s wife: Rs 15 lakh; Vijay Kath, wife: Rs 16 lakh; Bimal Kath, brother: Rs 14 lakh; Aditi Kath, daughter: Rs 14 lakh; and Himanshu Kath, son: Rs 13 lakh. The total came to Rs 72 lakh.
The order records that documents relating to the family members were also submitted. These included ITR and computation details and declarations. The details of the five family members and their respective amounts are recorded on page 5 of the Tribunal order.
Income Tax officer questioned the source of family cash
The Assessing Officer was not convinced with this explanation either. The officer said that the taxpayer had mainly submitted signed confirmations from the family members but had not, according to the remand report, initially submitted sufficient evidence regarding the source of the cash.
The officer wanted details of the family members’ income, business or profession and bank accounts to establish how they had accumulated the money.
The officer also questioned the source of the cash gifts and said that the bank accounts could have been examined to see whether cash had been withdrawn or deposited around the demonetisation period.
Based on these concerns, the officer rejected the explanation and described it as a device to explain the cash deposits.
ITAT accepts evidence supporting cash availability
The Tribunal again disagreed with the lower authorities. It said the taxpayer had produced evidence relating to the cash withdrawals, personal savings and savings of family members.
The Tribunal noted that the taxpayer had supported his explanation with bank accounts and evidence showing availability of cash funds. It also observed that the Assessing Officer had not brought any evidence to establish that the amounts were unaccounted money.
The Tribunal said the explanation submitted by the taxpayer, along with evidence regarding the availability of cash, was sufficient to establish his claim. It therefore deleted the entire Rs 83,69,770 addition.
Expert: Documentary trail becomes important in cash deposit cases
According to CA and Advocate Kinjal Bhuta, Joint Secretary, Bombay Chartered Accounts Society, the order highlights the importance of maintaining proper records when large cash transactions are involved.
“The ruling underscores that taxpayers should preserve a documentary trail like bank statements, audited financials, VAT returns and sales invoices and income tax returns of relatives/friends to establish the source of cash deposits. Importantly, the Tribunal accepted the cumulative evidentiary picture without insisting on transaction-by-transaction reconciliation, particularly where the books were not rejected and authorities found no defects or adverse comments on the submissions filed by the taxpayer.”
This is important for taxpayers because simply stating that a cash deposit came from business sales or family savings may not be enough in a tax proceeding. The source needs to be supported by documents that can establish the financial trail.
At the same time, the ITAT’s order is based on the specific facts and evidence produced in this case. It should not be read as saying that every large cash deposit will automatically be accepted if a taxpayer gives a similar explanation.
What is the key takeaway from the case?
The case shows why documentation can become crucial when the Income Tax Department questions a large cash deposit.
Kumar was able to place several types of records before the authorities. These included financial statements, VAT returns, bank statements and sales invoices for the business deposits. For the other cash amounts, he produced bank records and details relating to family members.
The ITAT ultimately found that the lower authorities had not adequately rebutted this evidence or identified specific defects in the records.
The Tribunal therefore allowed the appeal and deleted the combined addition of Rs 3,31,60,827, comprising Rs 2,47,91,057 and Rs 83,69,770.
The broader lesson for taxpayers is straightforward: when a large cash deposit is questioned, the explanation needs to be backed by a clear documentary trail. Bank statements, business records, tax returns, invoices and evidence of the source of funds can become important in establishing where the money came from.
Source: Income Tax Appellate Tribunal, Delhi Bench, ITA No. 2746/Del/2026, assessment year 2017-18.
Disclaimer: This article is based on the order of the Income Tax Appellate Tribunal, Delhi Bench, in ITA No. 2746/Del/2026. The Tribunal’s decision is based on the facts, documents and explanations presented in this particular case. It should not be treated as general tax advice or as a precedent that every cash deposit will be accepted by the tax authorities. Tax treatment can vary depending on the facts and evidence in each case.
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