Addition for cash deposits in bank account which were immediately transferred to other accounts deleted in absence any enquiry by AO
In a recent judgment, ITAT deleted the addition towards cash deposits in bank account of the assessee during demonetisation window which were immediately transferred to other accounts in absence any enquiry made by AO about the destination of transfer.
ABCAUS Case Law Citation:
5196 (2026) (08) abacus.in ITAT
The Appellant was a 64 years old lady, earning income from the pension of her deceased husband, a government employee. The case of the assessee was selected for complete scrutiny on the basis of information that the assessee had deposited large amount of cash in her bank account. The AO asked the assessee to explain the source of the cash deposit.
The assessee submitted that during the year the assessee received monthly pension from government, interest on saving bank and generated income from stitching/ alteration of ladies’ blouse etc. from home. She also submitted that she was a pension holder and so the frequences of transactions are only withdrawal. The assessee also submitted that the said cash deposited were the amount earlier transferred from her husband.
The AO noted that out of the total cash deposited in bank, a substantial part was transferred by NEFT. In absence of any further explanation furnished by the assessee, the AO accepted the assessee contention only for a part amount and rest of the cash deposited was added to the total income of the assessee u/s 69 of the Act.
Before the CIT(A), the assessee submitted a year-wise cash flow summary to substantiate the cash deposits and claim that entire accumulated sum of cash was kept at home until the announcement of demonetization, at which point she deposited the same in her bank account.
The CIT(A) opined that no prudent person, much less a pensioner with limited income, would withdraw large sums from bank accounts and hoard them in cash form at home for such an extended period of six to seven years as it defies all logic and common sense.
According to CIT(A), a reasonable person, particularly a senior citizen concerned about safety and financial security, would not keep lakhs of rupees in cash at home for years on end when the same was already in a safe banking channel.
The CIT(A) further held that the cash flow summary presented by the assessee proceeded on the assumption that every single rupee withdrawn from the bank over a seven year period was simply held in cash at home and never spent on any household expenditure, medical expenses, daily necessities, or any other purpose whatsoever. This assumption was patently absurd and wholly unrealistic.
The CIT(A) further observed that the pattern of immediate NEFT transfers after cash deposits suggested that the cash deposits were not from genuine accumulated savings but were part of an arrangement to convert unaccounted cash into the banking system through the assessee’s bank account during the demonetization window. If the assessee was indeed depositing her own long-held savings, there would have been no urgency or need to immediately transfer the same by NEFT to other accounts.
The CIT(A) also disbelieves the claim of stitching/alteration income by a 64-year-old assessee doing work from home particularly in the absence of any corroborative evidence such as receipts, customer details, or any other documentation.
The Tribunal observed that the AO had noted that out of the total cash deposited in her bank account a substantial part was transferred to other bank accounts by NEFT. However, the AO did not make any enquiry regarding the destination of the said NEFT transfers.
The Tribunal opined that in absence any enquiry about the destination of transfer by way of NEFT and in view of the above observation of the CIT (A), the cash deposits to that extent were clearly not the money of the assessee and the said addition could not have been made in her hands.
Therefore, the Tribunal delete the impugned addition and the appeal was allowed.
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