Kirana Shop Cash Deposits During Demonetisation Cannot Be Treated as Unexplained Income Under Section 68 or Section 69A: ITAT Chandigarh

Overview

The Income Tax Appellate Tribunal, Chandigarh Bench, has delivered a significant ruling in the case of Usha Gupta Vs ITO (ITAT Chandigarh) for Assessment Year 2017-18, holding that cash deposited in a bank account during the demonetisation period by an assessee engaged in a Kirana and general merchandise business cannot be characterised as unexplained money merely on account of the timing of such deposits. Where books of account are audited, turnover is disclosed, and supporting records are furnished, the Revenue must identify concrete defects rather than rely on presumptions. The Tribunal deleted both the addition of ₹2,25,000 made under Section 69A and the addition of ₹13,71,060 made under Section 68 of the Income Tax Act, 1961.

Background: How a Wrong PAN Triggered Reassessment

The matter originated not in the assessee's own proceedings but in the scrutiny assessment of her husband, Shri Chaman Lal Gupta. During those proceedings, the Assessing Officer noticed cash deposits in an SBI account bearing Account No. 35889001616 and sought an explanation from Shri Chaman Lal Gupta. He clarified that the account did not belong to him — it was the business account of his wife, Smt. Usha Gupta, proprietor of M/s Vikki Traders, and that his PAN had been erroneously mapped to the account by the bank. The bank confirmed this position.

Following confirmation, information pertaining to cash deposits of ₹13,71,060 made during the demonetisation period was transferred to the assessee's case. The Assessing Officer issued a notice under Section 148 of the Income Tax Act, 1961, initiating reassessment proceedings against Smt. Usha Gupta for Assessment Year 2017-18.

First Round of Assessment: Addition of ₹2,25,000 Under Section 69A

Nature of Business and Disclosed Turnover

The assessee was running M/s Vikki Traders, a Kirana and general merchandise shop. Her total disclosed turnover for the relevant year stood at ₹1,05,95,395. The accounts had been duly audited and the audit report had been filed before the department.

What the Assessing Officer Found

During the course of reassessment, it emerged that out of the total cash deposits of ₹13,71,060, only ₹2,25,000 comprised Specified Bank Notes (SBN). The remaining deposits were not in demonetised currency. The assessee explained that all deposits represented cash receipts from her ordinary retail business operations.

The Assessing Officer accepted the explanation in respect of the non-SBN deposits. However, he made an addition of ₹2,25,000 under Section 69A, taking the position that the assessee had failed to produce the cash book, bank statement, and sales book during the course of assessment proceedings.

CIT(A) Order Dated 27.01.2026

The assessee challenged this addition before the Commissioner of Income Tax (Appeals) / NFAC. During appellate proceedings, the assessee submitted the cash book, bank statement, and sales book for the relevant period. Despite these submissions, the CIT(A) vide order dated 27.01.2026 confirmed the addition by simply reproducing the reasoning of the Assessing Officer. Critically, the appellate order recorded no finding whatsoever on the documents that had been submitted by the assessee before the CIT(A). This omission was specifically noted by the Tribunal.

Section 263 Intervention: The PCIT Steps In

While the appeal against the first assessment order was pending before the CIT(A), the Principal Commissioner of Income Tax (PCIT), Chandigarh, invoked jurisdiction under Section 263 of the Income Tax Act, 1961. The PCIT held that the original Assessing Officer had failed to conduct adequate inquiry and verification with respect to the cash deposits other than the SBN deposits. The assessment order was accordingly set aside and the matter was remitted for fresh examination.

A Telling Observation by the PCIT

The PCIT's order under Section 263 dated 20.03.2024 contained a notable direction in paragraph 7: