ITAT Mumbai Quashes Rs 2.73 Crore Addition on Demonetisation Cash Deposits Backed by Disclosed Sales
The intersection of demonetisation-era cash deposits and the evidentiary value of regular books of accounts has been a heavily litigated domain under the Income Tax Act 1961. A recurring dispute arises when tax authorities attempt to classify cash deposited into bank accounts as unexplained money, even when the assessee has already recorded the corresponding cash sales in their audited books and offered the resultant income to tax.
In a significant judicial summary of the order dated 16/09/2026, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, adjudicated on this precise issue in the case of Sony Mony Electronics Ltd. Vs ITO. The Tribunal dismantled a substantial addition made by the Assessing Officer (AO), reinforcing the principle that without rejecting the books of accounts, revenue authorities cannot arbitrarily treat recorded cash sales as unexplained cash credits.
Factual Matrix of the Dispute
The assessee, engaged in the retail trading of consumer durables such as televisions, refrigerators, and air conditioners across multiple showrooms in Mumbai, filed its return of income for the Assessment Year (AY) 2017-18. The return declared a loss of Rs. 3,09,83,107/- under normal provisions and a book profit of Rs. 29,04,706/- under Section 115JB of the Income Tax Act 1961.
During the scrutiny assessment under Section 143(3), the AO observed that the assessee had deposited cash amounting to Rs. 2,82,29,583/- into its bank accounts during the demonetisation period. Upon reviewing the historical cash-in-hand positions from preceding balance sheets, the AO concluded that the assessee typically did not maintain such high cash balances.
Despite the assessee submitting comprehensive documentation—including cash books, month-wise cash-in-hand details, and date-wise deposit records—the AO remained unconvinced. The AO noted an extraordinary accumulation of cash-in-hand in the months leading up to demonetisation: Rs. 99.76 lakh in August 2016, Rs. 2.01 cr. in September 2016, and Rs. 2.82 cr. in October 2016.
The Assessing Officer's Application of Human Probabilities
Relying on the doctrine of human probabilities, the AO questioned the commercial rationale of holding such massive cash reserves instead of depositing them regularly, especially since the overall business turnover had not significantly expanded. To fortify this stance, the AO cited landmark judgments, including Sumati Dayal Vs CIT, Durga Prasad More, and Hersh Win Chadha Vs DCIT, arguing that circumstantial evidence and the preponderance of probabilities suggested the deposits were non-genuine.
Consequently, the AO utilized the average monthly cash-in-hand figures from F.Y. 2015-16 and F.Y. 2017-18 to compute an unexplained cash deposit quantum of Rs. 2,73,85,824/-. As per the assessment order dated 30.12.2019, this amount was added to the assessee's income as unexplained cash credits under Section 68 and subjected to the stringent tax rates under Section 115BBE.