Demonetisation-Era Cash Deposits Traced to Prior Bank Withdrawals Cannot Be Taxed as Unexplained Money Under Section 69A: ITAT Mumbai

Case Background and Key Facts

Case Name: Jagdish Naraindas Chandan Vs ITO (ITAT Mumbai)
Appeal Number: ITA No. 5450/Mum/2026
Date of Order: 23/09/2026
Assessment Year: 2017-18

The Mumbai bench of the Income Tax Appellate Tribunal has delivered a significant ruling in the matter of Jagdish Naraindas Chandan Vs ITO (ITAT Mumbai), addressing a recurring dispute arising from the demonetisation period — whether cash deposited in bank accounts during November–December 2016 can be characterised as unexplained money under Section 69A solely on the basis that the assessee had retained withdrawn bank funds in cash before redepositing them.

The Tribunal answered this question decisively in favour of the assessee, deleting the entire addition of ₹73,70,300 and holding that the Revenue had failed to identify any positive evidence pointing to an undisclosed or alternative source for the deposits.

Background: Who Is the Assessee and What Was Assessed?

The assessee, Jagdish Naraindas Chandan, is an individual who operates a proprietary manufacturing concern under the name M/s Chandan Enterprises, which supplies spare parts to corporate clients including Mahindra & Mahindra. For Assessment Year 2017-18, a return of income was filed on 07.11.2017 declaring total income of ₹5,58,750, after availing deductions of ₹1,60,000 under Chapter VI-A.

The case was selected for scrutiny under CASS specifically on account of cash deposits made during the demonetisation window. The Assessing Officer identified total deposits of ₹73,70,300 across two bank accounts:

  • ₹71,17,365 deposited with Central Bank of India
  • ₹2,52,935 deposited with Corporation Bank

The Assessee's Explanation: Prior Withdrawals as the Source

The assessee's position before the Assessing Officer was consistent and specific: the cash deposited during November and December 2016 did not represent any fresh or undisclosed income. Instead, the source was cash withdrawn from his own disclosed bank accounts between April 2016 and October 2016, retained for business liquidity purposes in the manufacturing concern. Following the demonetisation announcement on 08.11.2016, the remaining cash was channelled back into the banking system.

The assessee further maintained that these transactions — both withdrawals and the subsequent redeposits — were recorded in the regular books of account as contra entries in the cash book, and therefore carried no element of unexplained income.

Assessment Order: Section 69A Addition and Consequential Proceedings

The Assessing Officer declined to accept this explanation on the following grounds:

  • The assessee had not furnished a cash book with adequate narration of entries
  • The purpose behind the earlier cash withdrawals was not adequately established
  • Cash sales during the year amounted to only ₹84,176, which the Assessing Officer considered insufficient to account for deposits of this magnitude

Treating the entire ₹73,70,300 as unexplained money, the Assessing Officer invoked Section 69A and subjected the amount to tax under Section 115BBE. Penalty proceedings were separately initiated under Section 271AAC. The assessment was completed under Section 143(3) vide order dated 25.12.2019, determining total income at ₹79,29,050.

Note: The Assessing Officer's analysis fundamentally conflated two different sources — cash sales and cash withdrawals — and evaluated the assessee's explanation against the wrong benchmark entirely.

First Appellate Stage: Commissioner (Appeals) Confirms the Addition

Before the appellate authority, the assessee reiterated that the explanation had never been based on cash sales and again pointed to the prior bank withdrawals as the sole identified source. He placed reliance on bank statements, the cash book, and a month-wise statement of withdrawals and deposits.

The Commissioner (Appeals) nevertheless upheld the addition, citing two principal reasons: