Cash deposits made during the 2016 demonetisation period are not liable for additional tax if they were already recorded in a taxpayer’s financial records and income tax returns, according to a recent ruling by the Income Tax Appellate Tribunal (ITAT), as reports.
Nand Kumar Taneja Vs ITAT Delhi case
The Delhi bench of the ITAT ruled in favour of senior citizens Nand Kumar Taneja and Nita Taneja, setting aside tax additions of ₹24.72 lakh and ₹17.45 lakh, respectively, for the assessment year 2015–16. Tax authorities had invoked Section 69A of the Income Tax Act, which permits the taxation of unexplained income, alleging that the deposits made by the assessees were not properly accounted for.
However, the tribunal found that the cash had already been disclosed in the assessees’ books of accounts and earlier tax filings. It concluded that the source of funds was substantiated and the additions were unjustified.
Implications for taxpayers
Deposits of demonetised ₹500 and ₹1,000 currency notes made during the specified window are not subject to additional tax if:
- The cash was part of declared income;
- It was recorded in the books of accounts; and
- It was disclosed in prior income tax returns.
While the income tax department retains the authority to question high-value deposits, the ruling reiterates that documented income cannot be treated as unexplained solely due to the timing of its deposit.
Is post-demonisation cash deposit safe from taxation?
On November 8, 2016, India withdrew ₹500 and ₹1,000 notes from circulation in a bid to curb black money, counterfeit currency, and unaccounted wealth. During the exchange period, taxpayers were required to deposit old notes into bank accounts, prompting close scrutiny by tax officials.
Section 69A allows authorities to tax cash or assets when the source is not adequately explained. However, the recent tribunal ruling has confirmed that money already accounted for in audited records and tax returns cannot be classified as unexplained solely because it was deposited during demonetisation.
