ITAT Bangalore Drops Section 69A Addition on Demonetisation Cash Deposits Recorded in Books

Overview of the Decision

The Bangalore bench of the Income Tax Appellate Tribunal in Mysore Diagnostic Center Private Limited Vs ACIT examined whether cash deposits made during the demonetisation window, comprising specified bank notes (SBNs), could be treated as unexplained money under Section 69A when those receipts were already recorded in the regular books of account.

The Tribunal ultimately deleted an addition of ₹13,36,573, holding that once cash receipts are properly recorded in audited books and not found to be bogus or suppressed, the mere fact that they represent demonetised currency cannot justify an addition under Section 69A.

Factual Background

Assessee’s Business and Return Filing

  • The assessee, Mysore Diagnostic Center Private Limited, is engaged in running a diagnostic centre and earns income from medical diagnostic services.
  • For Assessment Year 2017-18, the assessee filed its return of income on 28 October 2017, declaring total income of ₹29,66,180.
  • The case was selected for complete scrutiny, and notice under Section 143(2) was issued on 26 September 2018.

Examination of Cash Deposits During Demonetisation

During the course of assessment under Section 143(3), the Assessing Officer (AO) focused on cash transactions during the demonetisation period.

  1. The AO noticed that the assessee had accepted specified bank notes after 8 November 2016.
  2. A notice under Section 133(6) was issued, calling for:
    • Audited financial statements
    • A note on the nature of business
    • Other relevant supporting details

The assessee provided:

  • Audited accounts
  • Cash book
  • Details of receipts from patients/customers

On analysis of bank statements and cash ledger:

  • Total cash deposits identified: ₹48,95,500
  • Out of this, ₹21,67,061 represented deposits in new currency notes.
  • After reconciling cash balances and deposits, the AO concluded that ₹13,36,573 represented excess cash deposits not properly explained and treated the same as unexplained money under Section 69A.

This addition was made in the assessment order dated 21 December 2019.

Proceedings Before CIT(A)

The assessee challenged the assessment before the Commissioner of Income Tax (Appeals) [CIT(A)], Aurangabad, contending that:

  • All cash receipts were duly recorded in the regular books.
  • The cash book, audited financials, and receipt details were produced before the AO.
  • No discrepancy was highlighted by the AO in these records.
  • The cash deposits represented regular business receipts from diagnostic services.

The CIT(A) acknowledged the submissions but upheld the addition on a different footing:

  • The CIT(A) held that, post 8 November 2016, specified bank notes had ceased to be legal tender.
  • Since the assessee was not an entity permitted to accept SBNs during that period, any such receipts were considered irregular.
  • On that reasoning, the CIT(A) confirmed the addition of ₹13,36,573 and dismissed the appeal.

Appeal Before the ITAT Bangalore

Aggrieved, the assessee filed a further appeal before the ITAT, Bangalore bench.

Assessee’s Contentions