ITAT Bangalore Quashes Separate Addition of Demonetisation Cash Deposits and 8% Profit Estimate for Petrol Pump Dealer
The Income Tax Appellate Tribunal (ITAT), Bangalore Bench, recently delivered a significant ruling concerning the taxation of cash deposits made during the demonetisation period by retail fuel dealers. In the case of Ramesh Bhajantri Vs ITO (ITAT Bangalore), the Tribunal addressed the validity of treating recorded business cash receipts as unexplained income while simultaneously estimating business profit on the same turnover.
The judicial order, passed on 27/08/2026, provides critical clarity on the assessment of cash-intensive businesses, the evidentiary value of statutory returns (like VAT), and the improper mechanical application of flat profit rates under the Income Tax Act 1961.
Factual Matrix of the Dispute
The assessee, Mr. Ramesh Bhajantri, operated as the proprietor of Durga Laxmi Petroleum, functioning as an authorized retail dealer for Bharat Petroleum Corporation Limited (BPCL) in Hubli. For the Assessment Year (AY) 2017-18, the assessee failed to file his regular income tax return within the statutory time limit prescribed under Section 139(1) of the Income Tax Act 1961.
Consequently, the Income Tax Department's internal information-monitoring systems flagged the assessee as a non-filer. The database revealed that the assessee had made substantial cash deposits into his Indian Overseas Bank account. Specifically, the total cash deposited during the Financial Year (FY) 2016-17 amounted to ₹40,49,175. Out of this aggregate sum, ₹19,97,040 was deposited exclusively during the demonetisation phase.
The Initial Assessment Proceedings
Due to the absence of a filed return, the Assessing Officer (AO) initiated proceedings by issuing a notice under Section 142(1) on 16 February 2018. When the assessee did not provide a satisfactory initial response, the AO proposed to frame a best judgment assessment.
In a subsequent communication dated 23 September 2019, the assessee explained the circumstances surrounding his non-compliance. He articulated that his business operations were severely disrupted due to his father's prolonged illness and eventual demise, which ultimately led to the temporary closure of the petrol pump due to financial constraints (operations were later resumed in July 2019). The assessee categorically stated that the cash deposits, including the ₹19,97,040 deposited during demonetisation, strictly represented the legitimate sale proceeds of petrol and diesel.
Despite these submissions, the AO finalized an ex parte assessment order under Section 144 on 26 September 2019. The AO applied the presumptive taxation principles of Section 44AD, estimating a flat 8% profit on a calculated turnover of ₹52,67,731 for the non-demonetisation period. Furthermore, the AO made a separate, distinct addition of the ₹19,97,040 demonetisation cash deposits, treating them as unexplained. This culminated in a total assessed income of ₹23,64,050.