Addition 69A deleted for cash deposit in bank during demonetisation period as the AO did not follow source specific general verification guidelines of CBDT.
In a recent judgment, Hon’ble High Court of Chhattisgarh has deleted addition 69A for unexplained cash deposit in bank during demonetisation period as the Assessing Officer (AO) did not follow source specific general verification guidelines of CBDT.
ABCAUS Case Law Citation:
4700 (2025) (08) abcaus.in HC
In the instant case, the assessee had filed a Petition before the Hon’ble High Court challenging the order passed by the Income Tax Appellate Tribunal (ITAT/Tribunal) being perverse in upholding and sustaining the addition under Section 69A of the Income Tax Act, 1961 (the Act) on account of unexplained money.
The appellant/assessee had e-filed her return of income for the relevant Assessment Year. The case was selected for scrutiny assessment under Section 143(2) of the Act for the reason that a large amount of cash was deposited by her in her bank account during the demonetization period.
During the course of the assessment proceedings, the Assessing Officer observed that the appellant/assessee had made large amount of cash deposits in her bank account and called upon the appellant/assessee to put forth an explanation as regards the source of the aforesaid cash deposits.
The Assessing Officer did not accept the explanation offered by the assessee and made an addition of the entire amount by treating it as unexplained money under Section 69A of the Act and passed and order under Section 143(3) of the Act holding that appellant/assessee had failed to explain the “nature” and “source” of the cash deposits.
The CIT(A) dismissed the appeal of the assessee. Pursuant thereof, the assessee filed an appeal before the ITAT against the order passed by the CIT(A) which was only partly allowed and remaining addition was sustained vide impugned order relying upon the CBDT Instruction.
Before the Hon’ble High Court, the assessee submitted that CBDT Circular had not been complied with in its letter and spirit by ITAT, particularly, Clauses 1.1 and 1.3 which relates to Source Specific General Verification Guidelines and the appellant’s Bank account statement for three financial years and return of income for six financial years had not been considered.
It was contended that therefore, the impugned order passed by learned ITAT affirming the order of the CIT(A) as well as the order passed by the Assessing Officer is liable to be set aside as the Standard Operating Procedure (SOP) for verification of the source of money had not been adhered to as per the CBDT Circular and matter be remitted to the Assessment Officer for verification as per the said Circular.
The Hon’ble High Court observed that the ITAT partly allowed the appeal holding that as per the CBDT Instruction, the appellant/assessee would have been in possession of some cash in hand at the relevant point of time and after deducting the said amount, sustained the remaining addition, however, the Standard Operating Procedure (SOP) ought to have been followed by the Assessing Officer and verification ought to have been made in terms of the aforesaid CBDT Circular.
The Hon’ble High Court further observed that the said CBDT Circular provides that during verification of the availability of cash, the AO needs to consider the information provided by the person concerned, income earned during past years, source of such income, filing of ROI and income shown therein, cash withdrawals made from accounts etc. before quantifying the undisclosed amount, if any. In case the person under verification has filed return of income, a reasonable quantum can be considered as explained while quantifying the undisclosed amount.
The Hon’ble High Court noted that in the instant case, since the appellant/assessee had submitted her Bank account statement of the last three financial years and return of her income for the last six financial years, it ought to have been verified in terms of CBDT Circular provided under the Source Specific General Verification Guidelines for cash out of earlier income or savings, which had not been carried out by either of the Authorities and straightway addition had been made on account of unexplained money under Section 69A of the Act, which is unsustainable and bad in law.
Accordingly, the order passed by the Assessing Officer was set aside and the matter is remitted to the Assessing Officer to conduct verification and pass an order afresh in terms of CBDT Circular.
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