ITAT Quashes Income Tax Addition for Cash Deposits During Demonetisation; Retired Officer Wins Relief
The present appeal has been filed by an individual named Karansinh Patel (Appellant) against the ITO (Income Tax Officer) Ward-2, Dahod (Respondent) in the Income Tax Appellate Tribunal (ITAT), Ahmedabad “D” Bench before Dr Brr Kumar (Vice President) and Ms Suchitra Kamble (Judicial Member). The case was heard on September 04, 2025, and the final decision was announced on November 04, 2025. The matter is related to the assessment year 2017-18.
The appeal has been registered challenging an order dated July 30, 2024, passed by the National Faceless Appeal Centre (NFAC), Delhi. The assessee is an officer who was a government employee and retired on May 10, 2016. During the first quarter of the financial year, the assessee received gratuity and other retirement benefits worth Rs. 1,835,054, and he withdrew the same for personal and family needs. Among that amount, he deposited Rs. 10 lakh in his bank account during the period of demonetisation, but the assessee did not file ROI (Return on Investment) within the statutory time limit. Following which, the assessee received notice under Section 142(1) of the Act on 04-06-2019, 13-06-2019, 31-08-2019 and 19-09-2019.
The assessee received several notices but only provided some of the required information. On September 20, 2019, the assessee filed his income tax return (ITR), declaring his total income as Rs. 450,800 from his job at the District Health Office in Dahol. During the assessment, the Income Tax Officer discovered that the assessee had deposited Rs. 10 lakh in cash at the Bank of Baroda, Devgarh Branch, during the demonetisation period. However, the taxpayer did not respond properly to the notice asking for the source of this cash. Because the assessee did not give all the necessary details, the assessment was completed under Section 144. The officer made an addition of Rs. 5,094,553 to the assessee’s income under Section 69A of the Income Tax Act, 1961, for unexplained cash deposits.
Dissatisfied with the action of the assessing officer, the assessee then filed an appeal before the CIT(A). However, the CIT(A) partly announced its decision in favour of the assessee.
The lawyer of the representative claimed that the amount deposited in the bank does not fall under activities including Insurance Payout, Cash deposited during demonetisation, Cheque bounced, and amount credited, Amount received from sale of milk, Gratuity payout, Leave encashment after retirement, Salary difference payout, The receipts of car loan, crop loan, loan given to Sanjay Modi, etc.
Assessee did submit documentary evidence such as a loan agreement, invoices, bills and vouchers related to gratuity received, salary arrears, leave encashment and milk sales; however, he did not submit bank account statements of his accounts in the Bank of Baroda and the Bank of India and also not PAN details of Sanjay Modi. The assessee’s representative argued that the observations made by the CIT(A) were unfair because all necessary details had already been submitted. Despite this, the CIT(A) still added Rs. 21,90,289 out of the total Rs. 50,94,553 to the assessee’s income.
Regarding the cash deposits in the bank account, the representative explained that Rs. 18,35,054 of it came from the taxpayer’s gratuity, leave encashment, and salary arrears, all received in the same year, as the taxpayer had retired on May 10, 2016.
When the case was taken before the Income Tax Appellate Tribunal Ahmedabad “D” Bench, the bench listed the arguments of both sides and concluded that although the details of two bank accounts (Bank of Baroda and Bank of India) were not fully presented as expected by the Assessing Officer, the cash deposited during demonetisation was properly explained and already accepted in part based on the milk sales and other credit details. The Assessing Officer accepted around Rs. 19,04,264, but it is unclear how he calculated the revised addition of Rs. 21,90,289. Therefore, this extra addition is not valid.
Regarding the loan given to Sanjay Modi, the assessee proved that Rs. 4,95,000 was repaid and confirmed with proper documentation. As the confirmation was not filed earlier, this added amount should not be included. So, this addition is also invalid. In the final ruling, the tribunal allowed the assessee’s appeal.
Citation: Karansinh Patel Vs ITO, Ward-2, Dahod (ITAT Ahmedabad); ITA No. 1566/Ahd/2024; 04/11/2025; 2017-18
Refer to the official judgement for complete information.
