Synopsis
Employee deposits Rs 25 lakh cash in bank; tax officer sends notice for unexplained cash u/s 69; Employee wins case in ITAT Bangalore; Know how. This judgement was given by Keshav Dubey, a judicial member and Waseem Ahmed, an accountant member of ITAT Bangalore
ITAT Bangalore, recently ruled that if the source of a cash deposit can be traced back to identifiable withdrawals from disclosed bank accounts, the explanation cannot be rejected just because there was a time gap between the withdrawals and the subsequent deposit. On this ground, ITAT Bangalore provided relief to Mrs Nagarathna from Vijayanagar, Bangalore, who got a tax notice for depositing Rs 25 lakh in cash in her bank account.
Mrs Nagarathna, who lives in Bangalore and works with BESCOM, made the cash deposit of Rs 25 lakh at the Corporation Bank, Nrupathunga Road branch, on June 29, 2016. The Income Tax Assessing Officer (AO) from Koramangala got suspicious and decided to reopen her file. The AO found out that Nagarathna had sold a property a few weeks before this cash deposit. So, the tax officer concluded that Nagarathna must have sold this property for cash and deposited the proceeds into her bank account.
As a result, the AO treated this Rs 25 lakh as unexplained money under Section 69 and added it to her total income.
During the assessment process, she clarified that the source of the deposit came from savings accumulated from earlier withdrawals made by her and her husband's bank account. However, the AO was not convinced by her explanation. The Commissioner of Appeals upheld the addition of the unexplained money. Feeling aggrieved, she appealed to ITAT Bangalore.
Advocate Dr Sheetal Borkar represented Nagarathna before ITAT Bangalore and argued that according to the bank and bank loan statements, both Nagarathna and her husband had withdrawn Rs 13.17 lakh and Rs 11.95 lakh, respectively, during the last two years. Borkar also explained that Nagarathna and her husband were saving money from their respective incomes to invest in a house property. The cash they accumulated by withdrawing from the bank, was used to make a deposit on June 29, 2016.
Borkar also cited a judgment of the HonтАЩble jurisdictional High Court of Karnataka in the case of Smt. P Padmavathi vs ITO (ITA No. 414 of 2009), where cash deposited out of earlier withdrawal from the bank was accepted as genuine.
Ganesh R Ghale, the Standing Counsel for the Income Tax Department, argued that the claim that the cash was from long-term accumulated withdrawals was not backed by any solid evidence to prove that the cash was actually kept and available when it was deposited.
According to Ghale, the timing of the cash deposit immediately after the sale of a property suggested a reasonable assumption that the cash was undisclosed income received over and above the value disclosed in the sale deed.
On August 17, 2026, Nagarathna won the case in ITAT Bangalore.
Also read: Rs 41 lakh cash deposit but no ITR: Bengaluru man claimed his wife and father paid his expenses; ITAT Bangalore refuses relief on this ground
Why did Nagarathna win the case in ITAT Bangalore?
Chartered Accountant Suresh Surana explained to ET Wealth Online that Nagarathna had produced bank statements relating to herself and her husband, a bank-loan statement and a detailed cash-flow working before ITAT Bangalore. These documents reflected aggregate cash withdrawals of approximately Rs. 13.17 lakh by the taxpayer and Rs. 11.95 lakh by her husband, together amounting to more than the cash deposited.
The Income Tax Department could not give any proof that the withdrawn amounts had been spent elsewhere or were otherwise unavailable on the date of deposit.
Also read: Rs 16 lakh cash seized in income tax raid, tax officer calls it unexplained cash; Taxpayer claims it to be family money, he fights and wins the case in ITAT Mumbai
So, ITAT Bangalore decided that the addition was mainly based on the suspicion linked to when the property was sold. There was no statement from the buyer, and no document or evidence of any under-the-table money transaction to prove that the taxpayer had received more than what was mentioned in the sale deed.
Surana says: тАЬThe mere proximity between the property sale and the cash deposit could not, by itself, establish the existence of undisclosed consideration.тАЭ
According to Surana, Nagarathna won the case in ITAT Bangalore as she was able to identify a plausible and documented source for the deposit, whereas the Income Tax Department couldnтАЩt disprove that source through positive evidence.
Surana says the ITAT Bangalore tax tribunal also relied on the Karnataka High CourtтАЩs decision in Smt. P. Padmavathi v. ITO, and observed that an explanation based on withdrawals from disclosed bank accounts cannot be rejected merely because some time had elapsed before the money was redeposited.
Also read: Rs 1.33 crore cash deposit, no ITR filing, yet senior citizen wins income tax case; ITAT Bangalore explains why
In the absence of any evidence showing that the cash had been used elsewhere, mere suspicion could not substitute proof.
Accordingly, the ITAT Bangalore held that the source of the Rs 25 lakh deposit had been satisfactorily explained, deleted the addition and allowed NagarathnaтАЩs appeal.
