Operation clean money (OCM) was initiated by our Hon’ble Prime Minister to ascertain whether the cash deposited in bank account during demonetization is genuine or not. Around 3 Lakh notices were sent and 87 thousand highly suspicious deposits are identified. Demonetization is over but not its impact. Lot many taxpayers are facing scrutiny assessment whereby they are required to explain the source of deposits in the bank accounts. Sources like deposits out of opening balances, cash sales, gift, recovery from debtors, inheritances, loan, out of withdrawals from bank account on earlier occasions, past savings, agricultural income etc. are subjected to deep scrutiny. If the amount is treated as unexplained cash credit or unexplained money, it may be taxed u/s 115BBE at a higher rate of even 60% plus surcharge+ education cess. Let us know few interesting ruling as far as cash deposits are concerned.

1. Gur Prasad Hari Das vs. CIT [1963] 47 ITR 634 (All):

If high denomination notes were found in assessee’s possession, it must prima-facie be presumed to be forming the part of cash balance of assessee and the burden is on the Department to prove that it constituted assessee’s undisclosed income on the basis of material in the possession of Department. Without any material & evidence, it could not be presumed that it represents the income from some undisclosed source.

2. ITO v. Madhuri  Mishra [ITA No.337/LKW/2012, AY 2009-10]

No addition u/s 68 is sustainable where the source of cash deposits were explained and proved as (a) opening balance (b) cash withdrawal from bank and (c) advance against purchase of land in respect of which agreement was produced.

3. Chunilal Rastogi vs. CIT [1955] 28 ITR 341 (Pat)

Initial onus is on assessee to establish the source and nature of an amount & if he fails to discharge it, authorities are entitled to draw an inference that amount received was of an income nature. [Similar ratio in M. L. Tewary vs. CIT [1955] 27 ITR 630 (Pat)]

4. ITO v. Baburao K. Pisal  [ITA No. 6091/Mum/2012]

Addition on account of unexplained cash credit was not justifiable if the assessee had maintained regular cash book, its accounts were audited & deposit made is explained by assessee. Addition not sustainable if no contrary evidence was brought on record by revenue.

5. Mehta Parikh & Co. v. CIT [1956] 30 ITR 181 (SC)

When assessee submitted books of account showing relevant entries & payment being made to them which resulted in cash in its books and also submitted affidavits of payers, Revenue authorities cannot hold that it was not possible that all payments after a particular date were being made in multiples of Rs. 1,000/-. No addition can be sustained based on pure surmise.

6. Kanpur Steel Co. Ltd. v. CIT [1957] 32 ITR 56 (All)

If the cash balance of the was steadily increasing it would not be at all unreasonable to accept the explanation that the cash balance was being kept in high denomination currency notes. Burden of proof that the high denomination notes encashed on their demonetization has resulted in suppressed income is on the Department.

7. Narendra G. Goradia vs. CIT [1998] 234 ITR 571 (Bombay)

Where there was sufficient balance on date of deposit, Assessing Officer cannot make additions of part of amount for want of details of receipts in some of high denomination notes. [Also, in Lakshmi Rice Mills vs. CIT [1974] 97 ITR 258 (Pat)]

8. Narayan Meena v. ITO (2017) 59 ITR (Trib) 403 (Jp-Trib)

Where having regard to human probabilities and normal course of human conduct, explanation furnished by assessee as regards cash deposits in his bank account was not wholesome and verifiable, AO was justified in making addition under section 68.

9. Karan Bhalla v. ITO 2017 TaxPub(DT) 1667 (Del-Trib)

Since the conduct of the assessee in the present case was wholly non-cooperative & despite statutorily notice for explaining source of the cash deposit in the bank account, assessee failed to do so. The conduct of the assessee speaks against the assessee. Therefore, no interference was called in the matter and the appeal of the assessee stood dismissed.

10. Sri Sri Nilkantha Narayan Singh vs. CIT [1951] 20 ITR 8 (Pat)

Where the assessee did not maintain and hence did not produce any Home Chest Account though it was his case that the high denomination notes were savings from his personal allowance, there was no warrant for drawing an adverse inference. Assessee produced details of withdrawals for past 7 years and claimed the amount encashed on demonetization as his past saving; such an explanation cannot be rejected by AO.