₹32 lakh cash deposit under tax scrutiny: ITAT ruling highlights why maintaining proof of money source is crucial

A taxpayer’s explanation for a ₹32 lakh cash deposit made during the 2016 demonetisation period has received partial relief from the Income Tax Appellate Tribunal (ITAT), after it accepted ₹2.84 lakh linked to the sale of gold by her mother-in-law.

The Panaji bench of the ITAT, in Salama Mahmadsalim Dafedar v. Income Tax Officer, for assessment year 2017-18, held that the taxpayer was entitled to credit for the amount because the gold sale by her mother-in-law was supported by confirmations. The order was pronounced on 3 September 2026.

The ruling also highlights the importance of identifying the source of cash. The tribunal rejected another part of the taxpayer’s explanation because the cash-sale memos produced did not contain customer names and were not backed by purchaser confirmations.

Why Income Tax questioned the ₹32 lakh deposit

The taxpayer was engaged in the business of jewellery making and gold sales. She had deposited ₹32 lakh in cash on 10 November 2016 into her Syndicate Bank account, shortly after the government announced the demonetisation of high-value currency notes.

During assessment proceedings, she explained that the cash came from multiple sources, including her opening cash balance, gold-sale proceeds and maturity proceeds from a Pigmy deposit.

The Assessing Officer accepted ₹12.84 lakh as explained. This comprised ₹4.66 lakh of opening cash balance, ₹6.51 lakh from gold sales and ₹1.67 lakh from the maturity of the Pigmy deposit.

The remaining ₹19.15 lakh was treated as unexplained money under Section 69A of the Income-tax Act. The assessment consequently determined the taxpayer’s total income at ₹24.09 lakh against the ₹4.94 lakh income declared in her return.

The taxpayer challenged the addition before the first appellate authority. The Commissioner of Income Tax (Appeals) granted relief of ₹7.95 lakh but sustained an addition of ₹11.21 lakh.

The taxpayer then approached the ITAT.

Why ITAT accepted the mother-in-law’s gold sale

Before the tribunal, the taxpayer argued that gold worth about ₹9.51 lakh had been sold by her mother-in-law, Dilshad Dafedar, and that the corresponding proceeds should also be considered while explaining the cash deposit.

The taxpayer produced confirmations in support of the transaction. The ITAT found merit in the argument, noting that the mother-in-law’s gold sale was an admitted fact and that confirmations had been filed.

The tribunal therefore held that the denial of credit for ₹2.84 lakh was not justified and directed the Revenue to delete that addition. This was additional relief over and above the ₹7.95 lakh already granted by the CIT(A).

However, the taxpayer did not succeed in explaining the remaining ₹8.37 lakh.

She had relied on cash memos relating to gold sales, but those documents did not contain the names or identifying details of the customers. No confirmations from the alleged purchasers were produced before the Assessing Officer, the CIT(A) or the ITAT.

The tribunal therefore rejected that part of the claim and upheld the remaining addition. The appeal was consequently partly allowed.

What the ITAT ruling means for taxpayers

The ruling highlights an important principle for taxpayers trying to explain large cash deposits. The source of money needs to be supported by a credible documentary trail.

In this case, the tribunal accepted the family-member transaction because the seller was identifiable and confirmations were available. But anonymous cash memos were not considered sufficient when there was no independent evidence identifying the purchasers.

For taxpayers, the practical lesson is to maintain records that establish who generated the money, how the transaction took place and how the proceeds reached the bank account.

The case also shows that a cash deposit made during the demonetisation period is not automatically treated as unexplained income. But where a taxpayer relies on cash transactions to explain the deposit, the supporting evidence can determine how much of the explanation survives tax scrutiny.

In this case, the ITAT ultimately granted the taxpayer ₹10.78 lakh of total relief against the original ₹19.15 lakh addition, while the balance ₹8.37 lakh remained unexplained.