ITAT Chennai Rules: Cash Deposits During Demonetisation Cannot Be Treated as Unexplained Money Under Section 69A When Business Activity and Bank Account Credits Are Already Accepted as Turnover
Background and Case Overview
In a significant ruling pronounced on 01st September, 2026, the Chennai bench of the Income Tax Appellate Tribunal, in the case of Veerakumar Traders Vs ITO (ITAT Chennai), ITA No.1551/Chny/2026, examined a critical question that arose frequently in the aftermath of demonetisation: whether cash deposits made during the demonetisation window can be independently classified as unexplained money under Section 69A of the Income-tax Act, 1961, when the assessee already has an acknowledged and ongoing business, and when other credits in the identical bank accounts have been accepted by the Revenue as legitimate business turnover.
The Tribunal answered this question decisively in favour of the assessee, setting aside the addition of Rs.14,83,500/- made under Section 69A and directing the Assessing Officer to delete it entirely. The business income of Rs.4,19,870/- determined by the CIT(A) was, however, left undisturbed.
Factual Matrix
The Assessee and Its Business
Veerakumar Traders is a partnership firm engaged in the trading of puffed rice. For Assessment Year 2017-18, the assessee did not file its return of income within the time prescribed under Section 139(1) of the Income-tax Act, 1961.
Bank Account Credits and Assessment Proceedings
The Assessing Officer, on the basis of available information, identified aggregate credits of Rs.52,39,458/- across two bank accounts maintained by the assessee at Canara Bank, Sangapalli Branch, Tirupur. Of this total, Rs.14,83,500/- represented cash deposits made specifically during the demonetisation period, while the remaining Rs.37,55,958/- constituted other credits.
Several statutory notices were issued under Section 142(1) calling upon the assessee to furnish details and explain the transactions. The assessee did not comply with these notices within the prescribed timeframe.
Subsequently, on 06.12.2019, the assessee filed a return of income declaring total income of Rs.4,19,870/- by offering business income under the presumptive taxation scheme prescribed under Section 44AD of the Act. The Assessing Officer, however, did not treat this as a valid return, noting that it was filed beyond both the time limit stipulated in the Section 142(1) notice and the period for filing a belated return under Section 139(4).
Assessment Completed Under Section 144
Given the non-compliance with statutory notices, the Assessing Officer proceeded to complete a best-judgment assessment under Section 144 of the Act vide order dated 18.12.2019. In doing so:
- The credits of Rs.37,55,958/- (after excluding demonetisation-period cash deposits) were accepted as business turnover.
- Income was estimated at 8% of this turnover, yielding a business income addition of Rs.3,00,476/-.
- The cash deposits of Rs.14,83,500/- deposited during the demonetisation period were treated as unexplained money under
Section 69Aof the Act, as the assessee had failed to satisfactorily explain their source. - Total income was accordingly assessed at Rs.17,83,976/-.
First Appellate Stage: CIT(A)'s Order
The assessee challenged the assessment before the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi. The CIT(A), vide order dated 02.02.2026:
- Sustained the addition of Rs.14,83,500/- under
Section 69Ain respect of demonetisation-period cash deposits. - Enhanced the business income from Rs.3,00,476/- (as assessed by the Assessing Officer) to Rs.4,19,870/- (as disclosed by the assessee in its belated return), taking note of the income voluntarily declared by the assessee itself.
Aggrieved by the confirmation of the Section 69A addition, the assessee appealed further to the Tribunal.