The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has deleted an addition of ₹18,88,600 made under Section 69A of the Income Tax Act, 1961, holding that the Assessing Officer exceeded the scope of limited scrutiny by examining cash deposits made before demonetisation when the scrutiny was restricted to deposits during the demonetisation period.
The bench of Vikas Awasthy (Judicial Member) rejected the addition relating to post-demonetisation deposits, observing that the Assessing Officer had relied on human probabilities instead of examining the documents furnished by the taxpayer. It reiterated that suspicion, however strong, cannot take the place of evidence.
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The taxpayer challenged an appellate order dated November 18, 2025, which had sustained an addition arising from cash deposits in her bank accounts.
She had carried on an iron and steel trading business through her proprietorship, Xclusive Marketers, which closed with effect from June 30, 2015. Her counsel submitted that outstanding sundry debtors amounted to ₹1,65,98,512 as on March 31, 2014, and that this figure appeared in both the balance sheet and the income tax return for assessment year 2014–15.
According to the taxpayer, the cash deposits came from collections against outstanding debtors, rental receipts and other income, including the sale of scrap. She submitted that rental income had been disclosed in her return and that tenants paid rent in cash.
A central objection was that the Assessing Officer had treated the entire year’s cash deposits as deposits made during demonetisation.
The taxpayer furnished a date-wise statement distinguishing deposits made before and after demonetisation. It showed that ₹13,27,500 had been deposited up to August 2016, while ₹5,61,600 was deposited on November 21, 2016.
The tribunal noted that the pre-demonetisation deposits were supported by Axis Bank statements, while the November deposit was supported by a statement from the State Bank of Hyderabad.
The Revenue defended the addition, arguing that the taxpayer had failed to substantiate collections from sundry debtors. It pointed to the absence of particulars such as the debtors’ names, amounts and PAN details.
However, the tribunal found that the Assessing Officer had failed to appreciate the deposit dates despite documentary evidence being available.
The case had been selected for scrutiny on grounds relating to large cash deposits during demonetisation, including their size compared with the returned income. Consequently, the tribunal held that adding deposits made before demonetisation exceeded the scope of limited scrutiny. The addition relating to deposits made up to August 2016 was therefore unsustainable.
For the post-demonetisation deposit of ₹5,61,600, the taxpayer explained that the amount represented rental income of ₹2,04,000 from properties at Swarn Park and Rajouri Garden, other income of ₹1,89,460, and cash in hand.
The tribunal observed that the Assessing Officer rejected this explanation by applying the test of human probabilities rather than examining the documents furnished.
Finding no plausible reason to sustain the addition of the facts before it, the tribunal directed deletion of the addition under Section 69A.
The tribunal left another legal ground open because no submissions had been made on it.
It dismissed the challenge concerning penalty under Section 271AAC, explaining that penalty proceedings are independent and cannot be challenged in a quantum appeal. It also dismissed the ground against interest under Sections 234B, 234C and 234D, holding that the levy was consequential and mandatory.
The appeal was accordingly partly allowed.
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