Section 69A Applies in the Year of Ownership, Not Deposit: Closing Cash-in-Hand of a Preceding Year Cannot Be Taxed as Unexplained in the Succeeding Year (Nanakchand Agrawal v. ITO, 2025)

Section 69A Applies in the Year of Ownership, Not Deposit: Closing Cash-in-Hand of a Preceding Year Cannot Be Taxed as Unexplained in the Succeeding Year

Case: Nanakchand Agrawal v. The Income Tax Officer (2025 CGHC 43944-DB)

Court: High Court of Chhattisgarh, Bilaspur

Bench: Sanjay K. Agrawal and Deepak Kumar Tiwari, JJ.

Date: 29 August 2025

Statutes involved: Sections 69A, 115BBE, 139(4), 143(1)(a), 143(2), 147, 148, 149 of the Income Tax Act, 1961

Introduction

This decision addresses a recurring controversy arising from cash deposits made during the 2016 demonetisation window: can cash deposited in Specified Bank Notes (SBN) in a given year be treated as “unexplained money” under Section 69A if the assessee’s books for the immediately preceding year already recorded a matching closing cash-in-hand that was carried forward as opening cash?

The original assessee, late Smt. Kalawati Agrawal, deposited ₹23,00,000 in SBN on 1 December 2016 (AY 2017–18). She explained the deposit by tracing it to a duly recorded closing cash balance of ₹23,45,301 as on 31 March 2016 (AY 2016–17), supported by bank statements, balance sheets and capital accounts. The Assessing Officer (AO) nevertheless invoked Section 69A and Section 115BBE to tax the entire deposit, alleging that the source and usage of cash withdrawals and lending were not satisfactorily explained. The Commissioner (Appeals) agreed. The Income Tax Appellate Tribunal (ITAT) granted only partial relief (₹2,50,000) by reference to a CBDT circular, sustaining the balance ₹20,50,000 as unexplained under Section 69A.

The High Court framed and answered a precise question of law: whether the closing cash-in-hand of a preceding year, brought down as opening balance in the succeeding year, can be assessed as unexplained money in the succeeding year under Section 69A and taxed under Section 115BBE. The Court’s answer is a clear “No”.

Summary of the Judgment

  • The Court held that Section 69A deems income in the financial year in which the assessee is “found to be the owner” of the money. Where the assessee plausibly traces the source of a demonetisation-period cash deposit to the closing cash-in-hand recorded in the immediately preceding year’s balance sheet, the correct year for any Section 69A enquiry is the preceding year—not the succeeding year of deposit.
  • Because the assessee’s return for AY 2016–17 (showing the closing cash balance) was duly filed within time under Section 139(4), processed under Section 143(1)(a), and no scrutiny notice under Section 143(2) was issued within limitation, that return attained finality. If the Revenue wished to challenge the veracity of that cash balance, its remedy lay in reopening under Sections 147/148 within the statutory time limits, not in disallowing the deposit in the subsequent year under Section 69A.
  • The AO’s addition and the ITAT’s partial sustenance were found to be based on conjectures and suspicions rather than cogent material, contrary to settled law (Dhakeswari Cotton Mills; Lalchand Bhagat Ambica Ram). The Court set aside the orders of the AO and the CIT(A), and the ITAT’s order to the extent it sustained ₹20,50,000. The substantial question of law was answered in favour of the assessee and against the Revenue.

Detailed Analysis

1) Precedents and Their Influence

  • D.N. Singh v. CIT, Central, Patna (2024) 3 SCC 378
    The Supreme Court parsed Section 69A into its core elements, emphasizing that deemed income arises only in the financial year in which the assessee is found to be the owner of money or valuable articles and where the explanation of nature and source is unsatisfactory. The Chhattisgarh High Court anchored its analysis on this “year-of-ownership” requirement and the necessity of a satisfactory explanation. By establishing that the assessee’s ownership of the cash arose in the preceding year (where it stood as closing balance), the Court concluded Section 69A could not be triggered in AY 2017–18.
  • Vivek Narayan Sharma v. Union of India (Demonetisation Case, 2023) 3 SCC 1
    Cited to contextualize demonetisation’s objectives, this case provided background but did not directly determine the tax issue. It underscores the systemic concerns that drove heightened scrutiny of SBN deposits, against which tax adjudication still must adhere to statutory requirements and evidentiary standards.
  • Chintels India Ltd. v. DCIT (2017) 397 ITR 416 (Del.)
    The Delhi High Court held that if no notice under Section 143(2) is issued within statutory time, the return attains finality and should not be taken up for scrutiny. The Chhattisgarh High Court relied on this to stress the finality of the assessee’s AY 2016–17 return, where the closing cash balance was duly disclosed.
  • PCIT v. Abhisar Buildwell Pvt. Ltd. (2024) 2 SCC 433
    The Supreme Court recognized that completed/unabated assessments (such as those processed under Section 143(1) without timely 143(2) notice) may be reopened, if at all, only under Sections 147/148 subject to their conditions and limits. The Chhattisgarh High Court invoked this to highlight that the Revenue had an available route to challenge AY 2016–17 but could not sidestep it by making a Section 69A addition in AY 2017–18.
  • Dhakeswari Cotton Mills Ltd. v. CIT (1954) 2 SCC 602 and Lalchand Bhagat Ambica Ram v. CIT (1959) 37 ITR 288
    These seminal authorities reiterate that assessments cannot rest on suspicion, conjectures, or surmises; the Revenue must rely on evidence. The Court applied these to reject the AO/ITAT’s suspicion-based reasoning about the “incomprehensibility” of cash usage and the timing of return filing.
  • Harlal Mannulal v. CIT (1984) 147 ITR 11 (MP)
    Cited for the proposition that income must be assessed in the relevant year to which it pertains. While not centrally discussed, the principle aligns with the Court’s year-of-ownership reading of Section 69A.

2) The Court’s Legal Reasoning

  1. Statutory anchor: Section 69A’s timing rule.
    Section 69A is a deeming provision. It applies only when (a) the assessee is found to be the owner of money/bullion/jewellery/valuable article in a particular financial year; (b) such asset is not recorded in the books (if any); and (c) the assessee’s explanation for nature and source is absent or unsatisfactory. Critically, the deemed income is attributed to “such financial year”—the year when ownership is “found.”

    Applying D.N. Singh, the High Court held that if the assessee’s books for FY 2015–16 (AY 2016–17) record a closing cash-in-hand of ₹23,45,301, and that figure is carried forward as opening cash for FY 2016–17, then any challenge to the legitimacy of that cash must be mounted in AY 2016–17. Treating a deposit in the succeeding year as “unexplained” subverts the statutory timing rule.
  2. Factual nexus: A continuous, documented cash trail.
    The assessee explained the cash flow: encashment of fixed deposits and large cash withdrawals (FY 2014–15), lending as short-term advances and earning interest (FY 2015–16), and return/refund of those advances culminating in a closing cash balance of ₹23,45,301 as on 31 March 2016. The deposit on 1 December 2016 thus had an “immediate inextricable nexus” with the earlier closing cash-in-hand, not with unaccounted income in AY 2017–18.
  3. Finality of AY 2016–17 and proper remedial route.
    The AY 2016–17 return, filed within the Section 139(4) time window (outer limit 31 March 2017), was processed under Section 143(1)(a) on 21 January 2017. No Section 143(2) notice issued by 30 September 2017; therefore, that assessment attained finality (Chintels). If the AO doubted the closing cash figure, the proper remedy was to reopen under Sections 147/148, which remained open (Section 149 limitation) until 31 March 2023 (Abhisar Buildwell explains that such powers are saved for completed/unabated assessments). The AO could not bypass this by invoking Section 69A in AY 2017–18.
  4. Evidence versus suspicion.
    The AO’s reasons—questioning the purpose of holding cash for 32 months, the classification of interest under different heads, non-furnishing of some lending details, and the filing date of the earlier return—were deemed inadequate to displace a documented cash trail. The Court reiterated that additions cannot be made on “pure guess” or suspicion (Dhakeswari; Lalchand Bhagat).
  5. CBDT “₹2.5 lakh” approach cannot override statute.
    The ITAT’s partial relief of ₹2,50,000 by reference to a CBDT position during demonetisation was implicitly rejected as a basis to sustain the remainder. Where the statutory test under Section 69A is met (or, as here, not met in the relevant year), the quantum cannot be determined by a circular-based “safe harbour” approach that is alien to the Act’s language and to the timing rule in Section 69A.
  6. Consequentially, Section 115BBE falls.
    Since Section 69A was inapplicable to AY 2017–18 on these facts, the super-tax under Section 115BBE—applicable only to incomes deemed under Section 68 to 69D in that year—had no occasion to apply.

3) Likely Impact on Future Cases

  • Clear year-of-taxation rule for Section 69A. Revenue authorities must examine “unexplained money” in the financial year in which ownership is discovered and in which the books (if any) reflect or fail to reflect such money. Opening cash balances carried from a preceding year, if duly recorded, cannot be taxed as unexplained in the succeeding year merely because they are deposited then.
  • Procedural discipline: Use the right year and the right tool. If the Department doubts the genuineness of a closing cash-in-hand in an earlier year that has attained finality under Section 143(1)(a) (no 143(2) within time), it must consider reopening under Sections 147/148, subject to limitation and statutory thresholds. Resorting to Section 69A in a later year to avoid reopening is impermissible.
  • Demonetisation deposit litigation. Many pending cases involve deposits of SBNs said to be out of earlier cash-in-hand. This judgment will be persuasive (and binding within Chhattisgarh) that, where contemporaneous books and cash flow substantiate the earlier balance, the AO cannot treat the demonetisation-year deposit as unexplained under Section 69A.
  • Limit on 115BBE’s reach. Revenue cannot deploy Section 115BBE’s stiff rate as leverage where the core deeming provision (Section 69A) does not validly apply in the relevant year.
  • Documentation matters. Taxpayers asserting that a deposit is out of opening cash must demonstrate a credible paper trail: cash book continuity, bank statements, ledger corroboration, and consistency of returns across years. This case shows courts will evaluate the totality of records and not uphold additions based on mere suspicion.

Complex Concepts Simplified

  • Section 69A (Unexplained money, etc.): If you are found to own cash or valuables in a year and the item is not in your books (if you maintain them), and your explanation for its nature and source is missing or unsatisfactory, the law can treat that amount as your income for that year. The key is: which year are you “found to be the owner,” and what do your books say?
  • “Found to be the owner” (timing): The deemed income is pinned to the financial year in which ownership is discovered. If your books show closing cash at the end of Year 1, you are the “owner” in Year 1. A later deposit in Year 2 does not shift the relevant year for Section 69A.
  • Section 115BBE: A special (high) tax rate for certain incomes deemed under Sections 68 to 69D. It applies only if, and in the year in which, those deeming provisions validly apply.
  • Section 139(4): Permits filing a belated return within a statutory outer limit. The Court noted the assessee filed AY 2016–17 within this time.
  • Sections 143(1)(a) and 143(2): Section 143(1)(a) is an intimation after a preliminary check of the return. If the Department wants a deeper scrutiny, it must issue a Section 143(2) notice within a prescribed time. If it fails, the return generally attains finality for that year.
  • Sections 147/148 (Reassessment) and Section 149 (Limitation): If an earlier year’s completed assessment requires revisiting, the AO may reopen (subject to conditions and time limits). This is the correct route to challenge earlier-year figures like closing cash-in-hand.
  • “Unabated assessment”: An assessment that has attained finality (e.g., processed under 143(1) with no timely 143(2) notice). Such years cannot be re-examined in later proceedings except by invoking the reassessment mechanism.
  • Specified Bank Notes (SBN): The high denomination currency invalidated by the Government of India on 8 November 2016; deposits during the window attracted enhanced scrutiny but still must be tested under the Act’s provisions.

Practice Pointers

  • For taxpayers: If a deposit is claimed to be from opening cash, maintain:
    • Cash book continuity showing the closing balance in Year 1 and opening in Year 2;
    • Bank statements evidencing earlier withdrawals and return of short-term advances;
    • Consistent treatment across returns and statements;
    • Supporting ledgers for any lending activities and interest income.
  • For the Revenue: Challenge the proper year. If the closing cash appears inflated or fictitious, consider reopening AY 2016–17 (or the relevant year), subject to Sections 147–149, rather than attempting a Section 69A addition in a later year.
  • For both sides: CBDT instructions during demonetisation do not displace the statutory tests. The outcome turns on the Act’s language and evidence.

Conclusion

The Chhattisgarh High Court has crystallized an important doctrinal rule for Section 69A: the provision operates in the year in which the assessee is found to be the owner of the money, and where the books and explanation for that year stand unrebutted (or are not procedurally challenged), the same money cannot be treated as unexplained in the succeeding year merely because it was deposited then—demonetisation or otherwise. The Court’s insistence on the correct year of assessment, proper procedural route (reopening when appropriate), and evidence-based adjudication reaffirms foundational tax law principles and limits the overbroad application of Section 69A and Section 115BBE.

In practical terms, where a taxpayer can credibly show that a demonetisation-period cash deposit mapped onto an earlier year’s closing cash-in-hand recorded in the books, any Revenue challenge must be mounted in that earlier year, within the framework of reassessment provisions. Suspicion cannot substitute for proof; a CBDT “benchmark” cannot override statutory text; and Section 115BBE cannot apply where the core deeming provision is inapplicable in the year of deposit. The judgment thus provides a clear pathway for courts and tax authorities in adjudicating similar disputes across the country.

Case Details

Year: 2025
Court: Chhattisgarh High Court

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