₹25L bank deposit lands Bengaluru woman in tax trouble; officer links it to property sale — here’s how she won

A large cash deposit of ₹25 lakh made by a Bengaluru resident sparked an income tax dispute after authorities questioned the source of the money in her bank account. It all began when Madegonda Nagarathna, who lives in the city and works with BESCOM, deposited the sum at Corporation Bank’s Nrupathunga Road branch on June 29, 2016, nearly a decade ago.

The income tax assessing officer (AO) from Koramangala became suspicious of the deposit and decided to reopen Nagarathna’s file. During the review, the AO found that she had sold a property just a few weeks before making the ₹25 lakh cash deposit. Based on the timing, the tax officer concluded that Nagarathna must have sold the property in cash and subsequently deposited the money.

What was the assessee’s explanation

During the assessment proceedings, Nagarathna explained that the source of the deposit came from savings accumulated through earlier withdrawals made from her and her husband’s bank accounts.

However, the AO was not convinced by her explanation and treated the amount as unexplained money under Section 69 of the Income-tax Act. The officer also added the amount back to her total income for tax purposes.

The Commissioner of Appeals also upheld the addition of the unexplained money. Aggrieved by the order, Nagarathna challenged the decision before the ITAT Bangalore, where the case remained pending for several years.

ITAT Bangalore rules in assessee’s favour

During a hearing before the ITAT Bangalore, Nagarathna’s legal representative Sheetal Borkar, argued that her bank and bank loan statements showed that she and her husband had withdrawn ₹13.17 lakh and ₹11.95 lakh, respectively, over the preceding two years. The legal representative also explained that the assessee 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 cited a judgment of the Hon’ble 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 Nagarathna’s claim that the cash came from long-term accumulated withdrawals was not supported by sufficient evidence. He said there was no clear proof that the withdrawn cash had actually been kept aside and was still available when the ₹25 lakh deposit was made.

Ghale further argued that the timing of the deposit, which came shortly after the property sale, supported the income tax department’s contention that the money could have been undisclosed income received over and above the amount stated in the property sale deed.

After listening to both sides, ITAT Bangalore ruled in Nagarathna’s favour on August 17, 2026. In its judgement, the tribunal noted 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.

Accordingly, the ITAT directed that the ₹25 lakh addition made under Section 69 of the Income-tax Act be deleted and allowed Nagarathna’s appeal.