Bangalore ITAT Quashes Section 69A Addition on Demonetisation Cash Deposits Traced to DRT Property Sale Proceeds

Case Reference

Late Pathangejayarao Gopal Krishna Rao Vs ITO (ITAT Bangalore)
Assessment Year: 2017-18
ITA Nos. 2824/Bang/2025 & 2825/Bang/2025
Order Pronounced: 23rd June, 2026

Background and Overview

The Bangalore Income Tax Appellate Tribunal delivered a significant ruling in favour of the legal representative of a deceased assessee, setting aside additions totalling ₹13,35,000 that had been made under Section 69A of the Income Tax Act, 1961 in connection with cash deposits made during the demonetisation period. The Tribunal also condoned a 90-day delay in filing the appeals and simultaneously resolved a connected dispute concerning the rate of tax applicable under Section 115BBE of the Act.

This decision carries considerable relevance for assessees who deposited cash during the demonetisation window and whose source of funds was rooted in earlier legitimate banking transactions — particularly those arising from property disposals or debt recovery proceedings.

Facts of the Case

The assessee, an individual, had filed his return of income on 27/03/2018 for Assessment Year 2017-18. The case was picked up for scrutiny primarily on account of cash deposits detected during the demonetisation period.

Source Explained by the Assessee

Before the Assessing Officer, the assessee put forth the following explanation:

  • The assessee and his wife had received two cheques from the Debt Recovery Tribunal (DRT) in connection with a distress sale of their property.
  • These cheques were deposited into their HDFC Bank account on 12/12/2013 and 18/01/2014 respectively.
  • Subsequently, amounts were withdrawn from the said bank account and kept in hand as cash.
  • The same cash was later redeposited into the bank account during the demonetisation period.

Assessing Officer's Rejection

The Assessing Officer did not find the explanation acceptable and proceeded to treat the entire amount of ₹13,35,000 as unexplained money, making an addition under Section 69A of the Income Tax Act, 1961. Thereafter, in a separate rectification order passed under Section 154, the AO revised the rate of tax on this amount from 30% to 60%, invoking the amended provisions of Section 115BBE with effect from 01/04/2017.

First Appellate Stage

The assessee challenged both orders before the CIT(A)/NFAC, Delhi. However, the learned CIT(A), by separate orders dated 26/06/2025 and 11/09/2025, confirmed the additions as well as the rectification order enhancing the tax rate.

Delay Condonation: Compassionate Approach Adopted

Before proceeding to the merits, the Tribunal had to address the 90-day delay in filing both appeals. The legal representative (L/R) of the assessee — who had stepped into the proceedings following the death of the assessee on 29/02/2020 — submitted the following grounds: