ITAT deletes additions for cash deposits during Demonetization

Demonetization in India

Five years ago on November 8, 2016, Government of India has announced to withdraw Rs 500 & Rs 1,000 high value currency notes from the circulation . The purpose of this announcement, known as demonetization was aimed at flushing out black money from the economy , which led to nearly 86 percent of the currency out of circulation overnight.

Income Tax notices for cash deposits

A 52 days window from 9th November 2016 to 31st December 2016 were given to exchange old notes with new currency. Govt. had issued circulars that cash deposited below Rs.2.50 lacs cash shall not attract any income tax inquiries. Relying on this , many people including housewives have also deposited their old currency notes into the banks. Later on a lots of them (non tax payers in particular) have served income tax notices and taxed with heavy income tax penalties.

Landmark ruling by Income Tax Appellate Tribunal (ITAT) granting relief to all housewives who deposited below Rs. 2.50 lacs

In a significant ruling in the case of Smt. Uma Agrawal Vs ITO (ITAT Agra), Hon’ble ITAT Agra in ITA No.35/Agr/2021 held that Hon’ble ITAT held that the addition made by the lower authority cannot be sustained on account of the statement given by the Prime Minister, nd the standard operating procedure issued by the board, as instructions under section 119 to the Assessing Officer, are statutory and binding on the revenue. As per Instruction No. 03/2017, dated 21-2-2017, the Income Tax Officer has no mandate to tax cash deposit in the bank account during Demonetization Scheme, 2016 if it is less than 2.50 lacs.

The relevant Excerpts of Press Release dated 18th Nov 2016

“It was announced by the Government earlier that small deposits made in the banks by artisans, workers, housewives, etc. would not be questioned by the Income Tax Department in view of the fact that present exemption limit for Income Tax is Rs.2.50 lacs”.

The last word

This is a significant ruling , where a non tax payer (a housewife in particular) may deposit upto Rs. 2.50 lacs out of her earlier savings . In future , this judgement may help them in getting relief from heavy penalties slapped by Income Tax department for the cash deposited even after demonetization period.

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