Cash Deposits and Section 69A: What the Tribunal Requires

Nearly ten years on, the cash deposited between 9 November and 30 December 2016 is still being litigated. Assessment year 2017-18 appeals were being decided by the Tribunal through 2026, and they turn on a narrower question than most assessees expect. It is rarely whether cash went into the bank. It is which section the department reached for, and whether the evidence on record closes the gap that section leaves open.

That question has a sharp edge, because the sections are not interchangeable and the tax rate attached to them is punitive.

The sections are not interchangeable

The deeming provisions divide on a single structural line: whether the item is in the books or outside them.

Section 68 operates on what the books contain. Sections 69 and 69A operate on what the books omit. A bank deposit that is written up in the cash book is, on the face of it, outside section 69A altogether — and that is the point on which a line of recent decisions has turned.

Section 69A reads:

Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.

Three conditions, cumulative: ownership, absence from the books, and no satisfactory explanation.

Ownership carries its own weight. In D. N. Singh v. CIT, Central, Patna [2023] 454 ITR 595, the Supreme Court held it "indispensable that the Officer must find that the other valuable article, inter alia, is owned by the assessee", and that a bailee who is a common carrier is not an owner. On whether unlawful possession can amount to ownership, the Court said it "would be straining the law beyond justification if the Court were to recognise a thief as the owner of the property within the meaning of Section 69A".

The qualification matters as much as the holding, and it cuts towards the department in a cash case:

While possession of a person may in appropriate cases, when there is no explanation forthcoming about the source and quality of his possession, justify an assessing officer finding him to be the owner, when the facts are known that the carrier is not the owner and somebody else is the owner, then to describe him as the owner may produce results which are most illegal apart from being unjust.

So unexplained possession can found a finding of ownership. What it cannot do is make a possessor the owner when someone else is known to be.

What it costs to lose

Section 115BBE(1) charges income referred to in sections 68, 69, 69A, 69B, 69C or 69D at sixty per cent, whether the assessee reflected it in the return or the Assessing Officer determined it. Surcharge runs at twenty-five per cent of that tax, so for assessment year 2017-18 — the year of every case discussed here — the effective rate with cess was 77.25 per cent, against 35.54 per cent under the provision as it stood before the Taxation Laws (Second Amendment) Act, 2016. Sub-section (2) removes the ordinary reliefs:

Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) and clause (b) of sub-section (1).

Section 271AAC adds a penalty of ten per cent of the tax so payable. A business loss for the year does not absorb the addition, and the expenses of earning the receipt are not deductible against it. This is why the characterisation question matters more than the quantum question: the same rupee taxed as business profit and taxed under section 69A are not remotely the same liability.

The case that frames the argument

Ajay Lunawat was decided by the Jodhpur Bench on 4 September 2026 (ITA 1122/JODH/2025, AY 2017-18). The assessee was a wholesale trader in pulses at the Mandore mandi. He deposited Rs 45,00,000 in old currency into an HDFC cash credit account during the demonetisation window. His books showed cash in hand of Rs 48,29,204.23 as on 8 November 2016.

The Assessing Officer rejected the books under section 145(3), accepted Rs 3,00,000 as explained cash "having regard to the nature of the assessee's business", and added the balance Rs 42,00,000 under section 69A. His reasons were that receipts had been split into sums of Rs 19,000 and similar amounts from the same parties, that stock registers and debtor confirmations had not been produced, and that it was commercially improbable for a trader with an interest-bearing cash credit account to sit on that much cash. The Commissioner (Appeals) upheld it, holding expressly that section 69A could be applied even where the cash was entered in the books.

The Tribunal allowed the appeal, and two of its holdings are worth stating precisely.

On the threshold condition:

The CIT(A) held that section 69A could be invoked even where the cash was recorded in the books. We are unable to sustain such a broad proposition. The statutory expression "not recorded in the books of account" cannot be rendered redundant. Mere dissatisfaction with the explanation does not dispense with the anterior statutory requirement that the money should not be recorded in the books.

On what rejection of books does and does not achieve:

Even if the correctness of the books is doubted, a formal rejection under section 145(3) does not automatically convert an amount recorded in those books into money not recorded in the books for the purpose of section 69A. Rejection of books permits determination of business income on a reasonable basis. It does not, without anything further, establish that every recorded receipt represents unexplained money.

The Tribunal also made the internal-contradiction point that often decides these appeals. The officer invoked section 145(3) but then did not estimate the business income at all: turnover of Rs 20,49,34,509 and gross profit of Rs 38,13,930 were left undisturbed, and no suppressed sale or inflated purchase was identified. A rejection that changes nothing in the trading account is not a rejection on which a section 69A addition can be built. Of the Rs 3,00,000 allowed as explained, it observed that the officer "neither reconciled this balance nor demonstrated how" that figure alone "represented genuine cash".

Three further observations are usable in any similar matter. Suspicion from the denomination or frequency of receipts "could justify further inquiry. It could not, by itself, establish that the recorded receipts were fictitious", and no notice under section 133(6) had gone to any of the identified parties. A categorical finding that the cash book was manipulated "required supporting evidence". And on the prudence argument: "commercial imprudence is not equivalent to undisclosed income."

The Tribunal's conclusion ran to ten findings, which together read as a checklist: the cash was recorded; the deposit did not exceed the book balance; a source was identified; turnover and profits were undisturbed; no suppressed sale was established; no inquiry was made of the named parties; no material showed an undisclosed source; the computerised books were offered for physical verification and never called for; the Rs 3,00,000 figure was without basis; and the statutory condition of non-recording was not satisfied.

The other side, stated squarely

It would be misleading to present that as settled. Four days earlier, on 31 August 2026, the Nagpur Bench decided Shree Trading Company (ITA 437/NAG/2025, AY 2017-18) the other way and upheld an addition of Rs 76,78,441 under section 69A on demonetisation deposits.

The assessee ran the same argument: the deposits were opening cash and recorded cash sales, the books were audited under section 44AB, and no adverse inference could follow merely from the timing. The Tribunal was not persuaded:

Mere recording of cash sales in the books of account is not conclusive proof of their genuineness. The burden squarely lies upon the assessee to substantiate that the cash deposited in the bank account emanated from genuine business transactions.

And, directly against the reasoning in Ajay Lunawat:

it is not a universal rule that the books of account must first be rejected before invoking the deeming provisions of the Act.

What decided it was evidence, and one document in particular. The assessee produced a 367-page paper book, but no stock register and no day-to-day quantitative records. The Tribunal then turned to the assessee's own tax audit report:

We observe from page No. 363, particularly Column No. 35 thereof, that the tax auditor has himself reported 'NIL' against the particulars relating to quantitative details of items traded, raw materials, finished products and by-products.

With no quantitative records, no correlation between the claimed cash sales and any movement of inventory could be shown, and no VAT assessment accepting those sales was produced. The double-taxation argument failed on the facts, the Tribunal holding that the addition was made not because cash was deposited but because the nature and source were not established. It distinguished the Delhi Bench decision in S. Balaji Mech-Tech Pvt. Ltd. on the footing that stock records had been produced there.

A second decision on the same side is worth noting because it turns on conduct rather than records. In Surendra Madanlal Mehta (Mumbai, 7 September 2026, ITA 130/MUM/2024) a senior citizen with no income other than bank interest of Rs 1,83,778 explained Rs 17,06,500 of deposits as cash kept at home. The Tribunal found the claim untenable and fastened on the filing history: the return for AY 2016-17, relied on to show the accumulated cash, had been filed on 24 March 2017 — after demonetisation — and was therefore "an afterthought, apparently to justify the source of the cash deposits".

Where the line actually falls

The two lines are reconcilable, and the reconciliation is evidentiary rather than doctrinal. On the same facts of a trader depositing recorded cash sales, what separated the outcomes was whether the sales could be tied to stock, and whether the officer had identified a specific defect or merely disbelieved the story.

Two further decisions fill in the picture. In P. Maneklal Soni and Co. (Ahmedabad, 14 September 2026, ITA 2375/AHD/2025) the department had added Rs 1,23,56,000 as unexplained money under section 69A, and its grounds of appeal put the facts about as high as the Revenue can: cash sales in the three days before demonetisation amounted to 53.34 per cent of the entire year's sales, and no sale bill had been produced for verification. The Tribunal still dismissed the Revenue's appeal, and the reason was structural rather than evidentiary:

A perusal of the assessment order shows that the Assessing Officer had not rejected the books of accounts of the Assessee. Further, it is also clear that the transaction of cash sales and cash deposits made in the bank accounts were disclosed by the Assessee in the books of accounts ... Since, in the present case the transactions under consideration are duly recorded in the books of accounts maintained by the Assessee, we are not inclined to interfere with the order passed by the Learned CIT(A).

That is the reasoning in Ajay Lunawat, reached by a different bench on section 69A, in the teeth of a very sharp sales spike — and reached without any need to decide whether the spike was genuine, because the officer had never rejected the books in the first place.

The order draws support from Ankit Gold Limited (Ahmedabad, 23 June 2025, ITA 429/AHD/2024), a section 68 case in which the deletion of Rs 3,02,51,598 of cash sales of gold jewellery was upheld on the footing that once the sales realisation has been taxed, adding the same amount again "would result in double taxation, which is impermissible under law". The evidence recorded there is effectively the specification for a defensible file: audited financial statements, VAT returns, month-wise stock details, stock and purchase registers, purchase bills, the sales register, the cash book, bank statements and a break-up of cash sales, and the finding that "[n]o specific defect was pointed out by the AO in the stock records or purchases corresponding to the sales".

The discretion that is usually forgotten

Both section 68 and section 69A say the amount "may" be charged or deemed, not "shall". The Supreme Court in CIT v. Smt. P. K. Noorjahan [1999] 237 ITR 570 held, on section 69, that the legal fiction employs "may" and not "shall", so an unsatisfactory explanation does not automatically result in the amount being deemed income. CIT v. Orissa Corporation (P) Ltd. (1986) 159 ITR 78 held that the onus is discharged once the identity of the creditor is established and receipt of the money is proved; if the officer doubts the creditor's own source, the proper course is to assess the creditor. The Gujarat High Court applied that in DCIT v. Rohini Builders (2002) 256 ITR 360, holding that failure of summonses to be served on creditors is not by itself a ground to treat loans as non-genuine.

On the older learning specific to currency deposits, Lakshmi Rice Mills v. CIT (1974) 97 ITR 258 (Patna) is cited for the proposition that once the books are accepted as genuine and the cash balance in them is sufficient to explain the high-denomination notes held, the assessee is under no further obligation to prove the source of each note. It was argued in Shree Trading Company and did not save the assessee there — the condition it depends on, acceptance of the books, was the very thing missing.

What to do with a live matter

1. Check which section was invoked. If the deposit is recorded in the cash book and the department has used section 69A, the threshold condition is in issue on the plain words of the section. Ajay Lunawat is the authority; expect Shree Trading Company in reply.
2. Reconcile the deposit to the book cash balance, date by date. The single most powerful finding in Ajay Lunawat was that the Rs 45,00,000 deposited was within the Rs 48,29,204.23 shown on 8 November 2016.
3. Produce the stock record. This is what separates the two lines. If the tax audit report reports NIL against Column 35, know that before the hearing, because the department will find it.
4. Put up the comparative pattern. Month-wise cash sales and deposits for the current and preceding year, showing the demonetisation period against the same months a year earlier.
5. Pin down what the officer did not do. No notice under section 133(6), no statement from a debtor, no sale found fictitious, no defect identified in the stock records — each is a finding the Tribunal can record.
6. Watch the internal contradiction. If the books were rejected under section 145(3) but the returned turnover and gross profit were accepted unchanged, say so. A rejection that produced no estimate is a weak foundation for a deeming addition.
7. Do not create the afterthought. A return for the earlier year filed after November 2016, relied on to prove accumulated cash, will be read as Surendra Madanlal Mehta read it.
8. Argue section 115BBE separately. In Shree Trading Company the Tribunal recorded that counsel "did not avert on the grounds of application of section 115BBE". The rate and the section 271AAC penalty are a distinct ground and should be taken as one.

A closing caution on weight. These are Tribunal decisions, and they bind no one beyond the parties. Four of the five discussed here were handed down between 31 August and 14 September 2026 by four different benches, and they do not speak with one voice on whether the books must be rejected before a deeming provision can be invoked: Nagpur says it is "not a universal rule", while Jodhpur and Ahmedabad both treat the absence of a valid rejection as decisive. Until a High Court settles that question, the outcome in any given matter will turn on the quality of the record rather than on the citation.