Demonetisation-Era Cash Deposits from Property Sale: ITAT Amritsar Clarifies When Additions Are Unjustified

Background of the Dispute

The decision in Jyoti Chaudhary Vs ITO (ITAT Amritsar) addresses a recurring controversy arising from demonetisation-related cash deposits. During Assessment Year (AY) 2017-18, the assessee had deposited significant cash into her bank account during the demonetisation window. The Revenue authorities questioned the source and treated part of these deposits as unexplained, despite the assessee’s claim that they were fully supported by a registered property sale and regular rental income.

The ITAT Amritsar Bench examined whether a mere time gap between the execution of a registered sale deed and subsequent cash deposits could, by itself, justify an addition under the Income-tax assessment proceedings when:

  • the sale consideration was clearly recorded as paid in cash in a registered document, and
  • capital gains arising from that very sale had already been offered to tax.

The Tribunal ultimately ruled in favour of the assessee and deleted the entire addition.

Facts of the Case

Assessment and Appeal Framework

  • Assessment Year: 2017-18
  • Assessment completed under Section 144 / Section 147 on 19-12-2019
  • First appeal order by Commissioner of Income Tax (Appeals), NFAC dated 21-02-2025
  • Second appeal filed before ITAT Amritsar Bench by the assessee

Cash Deposits During Demonetisation

The assessee was found to have deposited cash aggregating to Rs.13,46,550/- in her bank account during the demonetisation period. These deposits triggered scrutiny by the Assessing Officer (AO).

The assessee’s explanation was:

  • Part of the deposits came from sale consideration of an immovable property, sold via registered sale deed dated 11-04-2016, and
  • The balance was sourced from rental income and earlier cash withdrawals.

The sale deed itself mentioned that the sale consideration had already been received in cash by the assessee.

AO’s Concerns and Addition

The AO examined the bank statements and noticed the following:

  1. A cash deposit of Rs.8.10 lakh on 05-03-2016; and
  2. A significant time gap between:
    • the date of execution of the registered sale deed (11-04-2016), and
    • the dates of cash deposits during the demonetisation period.

On this basis, the AO formed two presumptions:

  • The earlier cash deposit of Rs.8.10 lakh might represent part of the sale consideration allegedly received before the execution of the sale deed; and
  • The remaining cash deposits were not satisfactorily explained, given the “idle” period between receipt of sale consideration and actual deposit.

After giving credit of Rs.2 lakh as explained, the AO treated Rs.11,46,500/- as unexplained cash and added the same to the assessee’s income.

CIT(A)’s Decision

The CIT(A), NFAC upheld the AO’s view. The key reasoning was:

  • There was a “large time gap” between the date of execution of the sale deed and the impugned cash deposits; and
  • The assessee had not demonstrated why the alleged cash consideration was kept idle in hand for an extended period rather than being promptly deposited.

Accordingly, the addition of Rs.11,46,500/- was confirmed.

The assessee then approached the ITAT Amritsar.

Assessee’s Financial Position and Cash Sources

From the records, the Tribunal noted that the assessee was a regular recipient of rental income.

Rental Income

  • For the year under consideration, the assessee had declared gross rental income of Rs.4.80 lakh.