Facts of the Case

The assessee deposited ₹4,00,000 in cash in January 2021 in two bank accounts:

  • ₹2,00,000 deposited in ICICI Bank on 11.01.2021
  • ₹2,00,000 deposited in IndusInd Bank on 04.01.2021

During the assessment proceedings, the Assessing Officer (AO) treated the entire cash deposits as unexplained money under Section 69A.

The assessee contended that the deposits were made out of earlier cash withdrawals from bank accounts, and bank statements were submitted to substantiate the explanation. However, the AO rejected the explanation and added the entire amount of ₹4,00,000.

The order of the AO was upheld by the Commissioner of Income Tax (Appeals), against which the assessee filed an appeal before the ITAT.

Issues Involved

  1. Whether cash deposits of ₹4,00,000 made in bank accounts could be treated as unexplained money under Section 69A.
  2. Whether earlier cash withdrawals from bank accounts could reasonably explain subsequent cash deposits.

Petitioner’s Arguments (Assessee)

  • Cash deposits were made out of earlier withdrawals from bank accounts.
  • The assessee had regularly withdrawn cash aggregating to ₹3,32,000.
  • Due to the COVID-19 pandemic and lockdown after March 2020, many transactions were carried out online and the withdrawn cash remained unused.
  • The cash available from earlier withdrawals was subsequently deposited in January 2021.
  • The AO failed to properly appreciate the bank statements and withdrawal details submitted during assessment.

Respondent’s Arguments (Income Tax Department)

The Department strongly relied on the assessment order and the order of the CIT(A) and argued that:

  • The cash withdrawals relied upon by the assessee did not pertain to the relevant financial year.
  • Therefore, the explanation given by the assessee could not satisfactorily explain the cash deposits made in January 2021.

The Department requested dismissal of the appeal.

Court Findings / Tribunal Decision

  • The cash deposits of ₹4,00,000 were made in two tranches in January 2021.
  • The assessee claimed that these deposits were sourced from earlier cash withdrawals from bank accounts.
  • The withdrawal statement showed transactions from 28.07.2019 to 28.03.2020.
  • The Tribunal noted that COVID-19 lockdown began in March 2020, after which online transactions increased.

However, the Tribunal held that it would be unreasonable to accept that withdrawals made in 2019 were still available in cash in 2021.

At the same time, the Tribunal accepted that withdrawals made closer to January 2021 could reasonably explain part of the deposits.

The Tribunal therefore allowed benefit of ₹1,75,000 being withdrawals available with the assessee, and sustained the balance addition.

Thus, the appeal of the assessee was partly allowed.

Court Order

  • Addition partly sustained
  • Benefit allowed for ₹1,75,000 cash withdrawals
  • Remaining addition upheld
  • Appeal partly allowed

Important Clarification by ITAT

  • Earlier cash withdrawals may explain subsequent deposits, but
  • A long time gap between withdrawal and deposit reduces credibility of the explanation.
  • The explanation must be reasonable and supported by surrounding circumstances.


    Link to download the order -  https://itat.gov.in/public/files/upload/1735707510-kETZKD-1-TO.pdf

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