ITAT Jaipur Clarifies When Cash Deposits Can Be Taxed as Unexplained Money under Section 69A
1. Overview of the Decision
The Income Tax Appellate Tribunal, Jaipur Bench, in the case of ITO Vs Sardar Shahr Kray Vikray Sahakari Samiti Limited (ITA No: 429/JPR/2026, order dated 08/10/2026, AY 2018-19) dismissed the Revenue’s appeal and upheld deletion of an addition of Rs 83,25,325 made under Section 69A of the Income Tax Act 1961.
The Tribunal held that where cash deposits are shown to arise from recorded business transactions and are supported by audited books, bank statements, GST data and other contemporaneous records, they cannot be branded as unexplained money merely on suspicion, without demonstrating that such cash is outside the assessee’s books of account.
A key plank of the ruling is the interpretation of Section 69A as explained by the Hon’ble Supreme Court in D.N. Singh v. CIT [2023] 150 taxmann.com 301 (SC), with particular emphasis on the statutory requirement that the money must not be recorded in the books where such books are maintained.
2. Factual Background
2.1 Nature of the assessee’s activities
The assessee in this case is a co-operative society registered under the Rajasthan Co-operative Societies Act. Its functions include:
- Procuring agricultural commodities from farmers under the minimum support price framework and supplying them to Rajasthan State Co-operative Marketing Federation Ltd.
- Supplying seeds, fertilisers and pesticides to its member-farmers.
The society follows a system of maintaining regular books of account, which were audited for the relevant assessment year.
2.2 Reopening based on cash deposits
For Assessment Year 2018-19, the assessee had not originally furnished a return of income. The case was reopened under Section 147 on the basis of information about cash deposits in its bank accounts, and a notice under Section 148 was issued on 29.03.2022.
In response, the assessee filed a return on 22.04.2022 declaring nil income along with a current-year loss and subsequently produced:
- Audit report
- Balance sheet
- Profit and loss account
- A cash flow statement
It was explained that:
- The society effected significant cash sales, particularly in respect of seeds, fertilisers and pesticides.
- Cash was frequently deposited into the bank out of these sales.
- Part of the deposits represented redeposit of earlier cash withdrawals, which were kept in rotation and later put back into the bank.
The Assessing Officer (AO) noted that the assessee’s recorded turnover stood at Rs 3592.56 lakh and accepted this figure as such.
2.3 Addition made by the AO under Section 69A
Despite the availability of audited accounts and explanations, the AO concluded that the assessee had not satisfactorily demonstrated that the cash deposits were sourced from cash sales or redeposit of withdrawals. According to the AO, the records did not substantiate the stated sources. Further, from the bank statements, the AO noticed cheque payments to third parties and considered this inconsistent with the assessee’s claim that cash withdrawn was later redeposited.
The AO therefore invoked Section 69A and treated the following deposits as unexplained money:
- Axis Bank –
Rs 71,55,300 - The Churu Central Co-operative Bank Ltd. –
Rs 11,70,025
Total addition under Section 69A: Rs 83,25,325
3. Proceedings before the CIT(A)
3.1 Assessee’s submissions
Before the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, the assessee restricted its challenge to the Section 69A addition (other grounds were not pressed). It explained that:
- Cash deposits flowed from cash sales of seeds, fertilisers and pesticides to members.
- Amounts collected in cash from recovery of credit earlier extended to members were also deposited.
- Cash earlier withdrawn from bank and still available on hand formed another part of the deposit source.
To support this explanation, the assessee relied on:
- Letters dated 19.11.2022 and 14.03.2023 filed during assessment
- Bank statements of both accounts
- Audit report and financial statements
- Sample sale invoices
- GST returns showing turnover and tax-disclosed sales
- Cash flow statement correlating receipts and deposits
3.2 Findings of the CIT(A)
After examining the paper book and bank statements for the entire year, the learned CIT(A) recorded, inter alia, that:
- There were frequent deposits in relatively small amounts.
- Deposits were interlaced with withdrawals and business-related payments, indicating a revolving business cash cycle rather than isolated unexplained credits.
- The pattern of deposits was broadly consistent with cash sales reflected in the assessee’s GST returns and books.
- The AO had not invoked
Section 145; audited books were not rejected as unreliable. - The AO had not pinpointed any specific cash deposit that could not be reconciled with available cash balances or recorded business receipts.
On this basis, the CIT(A) concluded that the assessee had sufficiently linked the bank deposits to its recorded business operations and that the basic condition for application of Section 69A – namely that the money is not recorded in the books of account – was not demonstrated by the AO.
The entire addition of Rs 83,25,325 was therefore deleted.