ITAT Lucknow Deletes Rs. 3,70,500 Residual Addition Under Section 69A for Demonetisation-Period Cash Deposits — Subodh Chandra Seth Vs ITO
Background and Context of the Dispute
The Lucknow Bench of the Income Tax Appellate Tribunal rendered a significant ruling in the matter of Subodh Chandra Seth Vs ITO (ITAT Lucknow) concerning Assessment Year 2017-18. The central issue before the Tribunal revolved around cash deposits of Rs. 43,70,500 made in Specified Bank Notes (SBNs) during the demonetisation window, i.e., between 9 November 2016 and 30 December 2016.
The assessee was an individual actively engaged in the Sarafa (bullion and jewellery) trade — a business historically characterised by high-volume cash transactions, especially during festive seasons such as Diwali. The appeal arose out of the Assessing Officer's action of treating the entire deposit amount as unexplained money under Section 69A of the Income-tax Act, 1961, and the subsequent partial confirmation of that addition by the Commissioner of Income Tax (Appeals) [CIT(A)].
Facts of the Case
The Assessee's Position Before the Assessing Officer
During assessment proceedings for AY 2017-18, the Assessing Officer noticed that the assessee had deposited Rs. 43,70,500 in demonetised currency between 9 November 2016 and 30 December 2016. When called upon to explain the source, the assessee furnished the following particulars:
- Opening cash balance as on 1 April 2016: Rs. 3,86,779
- Cash sales recorded from 1 April 2016 to 8 November 2016: Rs. 1,86,08,211
- The assessee contended that the SBN deposits were directly sourced from accumulated cash sales receipts generated through legitimate jewellery trade operations.
The assessee further pointed out that bills, vouchers, and books of account had been duly produced before the Assessing Officer to corroborate the sales figures. Importantly, the books of account had not been rejected, and no defects in the recorded sales were identified or commented upon by the Assessing Officer in the assessment order.
The Assessing Officer's Action
Notwithstanding the documentation provided, the Assessing Officer proceeded to make the addition of Rs. 43,70,500 under Section 69A of the Income-tax Act, 1961. The key basis for the addition was a year-on-year comparison of cash sales between Financial Year 2015-16 and FY 2016-17, which revealed a sharp rise in sales during October and up to 8 November 2016. The Assessing Officer observed:
"The details in the above para 3 show that the assessee has deposited cash of Rs.43,70,500/- in SBN during demonetization period. The Reserve Bank of India had withdrawn legal tender character of old bank notes in the denomination of Rs.500/- and Rs.1000/- w.e.f. 8th November 2016 through Specific Bank Notes (Cessation of Liabilities) Act, 2017 and specified bank notes (deposit of confiscated notes) Rules, 2017... The sources of deposits of old currency notes (SBNs) were not explained. It is apparently clear that the cash deposits made in the bank accounts during financial year 2016-17 relevant to ASSESSMENT YEAR 2017-18, especially during demonetization period, are unexplained and from undisclosed sources, the same was not offered for taxation purposes... In this case, provisions of Section 69A of I T Act, 1961 are clearly attracted."
The Assessing Officer's reasoning was essentially based on presumption and preponderance of probability, without pointing to any specific defect in the books of account or the recorded sales.
The CIT(A)'s Order — Partial Relief Granted
On first appeal, the CIT(A) undertook a detailed review of the assessee's submissions and arrived at findings recorded in paragraphs 4.4 to 4.8 of the appellate order. The CIT(A) held: