Income Tax Dept flags ₹2.33 crore cash deposit; why taxpayers need a clear trail for large cash withdrawals

Withdrawing a large amount of cash from a bank account and depositing it again months later can raise questions from the Income Tax Department. But a gap between the withdrawal and redeposit does not, by itself, establish that the later deposit is unexplained income.

In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Amritsar Bench, deleted a ₹2.33 crore addition made in the case of Bhupendra Flour Mills Pvt. Ltd. The tribunal found that the company had accounted for the earlier cash withdrawals and that the Revenue had not established that the withdrawn money had been used elsewhere.

The case relates to Assessment Year 2017-18 and involves cash deposited during the 2016 demonetisation period.

Why the ₹2.33 crore cash deposit came under scrutiny

According to the ITAT order in ITA No. 54/ASR/2025, Bhupendra Flour Mills had withdrawn about ₹2.325 crore in cash from its SBOP bank account in Bathinda between July and October 2016.

The company withdrew around ₹1.66 crore up to 31 August 2016. Another ₹41 lakh was withdrawn between 15 and 19 September, while ₹22.50 lakh was withdrawn on 17 October.

A few weeks later, during the demonetisation period in November 2016, the company deposited ₹2.33 crore in cash into a newly opened UCO Bank account at Parliament Street, New Delhi.

The company told the tax authorities that the cash deposited in Delhi had come from the earlier withdrawals from its Bathinda bank account.

The Assessing Officer questioned the company’s explanation that the cash had been physically transported from Bathinda to Delhi. The department noted that the company had bank accounts at both locations and could have transferred the money through banking channels.

The AO therefore treated the ₹2.33 crore cash deposit as unexplained money under Section 69A of the Income-tax Act. The Commissioner (Appeals) subsequently upheld the addition.

What the ITAT found in the cash trail

Bhupendra Flour Mills challenged the addition before the ITAT.

The tribunal examined the company’s bank statements and financial records. It noted that both the bank account from which the cash had been withdrawn and the account into which the cash was deposited were reflected in the company’s financial statements.

The SBOP bank statement showed cash withdrawals of approximately ₹2.325 crore before demonetisation. The subsequent deposit of ₹2.33 crore was also recorded in the company’s accounts.

The key issue before the tribunal was whether the Revenue had been able to establish that the cash withdrawn from the Bathinda bank account had actually been used elsewhere.

The ITAT found that it had not.

The tribunal referred to the Punjab and Haryana High Court’s decision in Shiv Charan Dass vs CIT. The ruling supported the principle that where the Revenue cannot establish that cash withdrawn earlier was utilised elsewhere, it cannot reject the explanation for a subsequent deposit merely on the basis of assumptions.

The ITAT consequently deleted the ₹2.33 crore addition.

Why the time gap did not settle the issue

The Revenue’s case was substantially based on the circumstances surrounding the cash. The withdrawals took place between July and October, while the deposit happened during demonetisation in November.

The department questioned why such a substantial amount would remain in cash for several months and why it was eventually deposited into a newly opened account in Delhi.

However, the ITAT did not treat the time gap as conclusive evidence that the money had come from an undisclosed source.

The tribunal’s reasoning focused on the actual evidence available on record. The earlier withdrawals were reflected in the bank statement and accounts, while the Revenue had not produced concrete evidence showing that the withdrawn money had been spent or diverted elsewhere.

The absence of evidence of an alternative utilisation became important to the tribunal’s decision.

In effect, the ITAT held that the department could not convert doubts about the manner in which the cash was held or moved into a finding that the subsequent deposit represented unexplained money.

The case shows why taxpayers making substantial cash withdrawals should maintain proper records. Bank statements, books of account and cash records can become important when the source of a later cash deposit is questioned.