The Mumbai Bench of the Income Tax Appellate Tribunal in the case of Jamshed Naval Karanjia vs Commissioner of Income Tax Appeal 57 ITA No 3508 Mum 2025 has delivered an important ruling concerning demonetisation cash deposits and additions made under Section 69A of the Income Tax Act.
The Tribunal granted substantial relief to an NRI taxpayer by deleting an addition of Rs. 6.70 lakh made by the department during demonetisation proceedings. The ITAT accepted the taxpayer’s explanation regarding the source of cash deposits and held that the explanation supported by surrounding circumstances and affidavit could not be rejected merely on suspicion.
The ruling is important for taxpayers facing additions relating to demonetisation cash deposits, especially where the deposits are backed by reasonable explanation, family circumstances, affidavits, and supporting evidence. The judgment also highlights the need for tax authorities to conduct proper inquiry before invoking Section 69A and taxing cash deposits as unexplained money under Section 115BBE.
Background of the Case
The assessee, Jamshed Naval Karanjia, was a non-resident Indian residing in Canada. During the demonetisation period between 9 November 2016 and 30 December 2016, cash deposits were made in certain bank accounts maintained with Dena Bank, now merged with Bank of Baroda.
Based on data analytics conducted under “Operation Clean Money,” the Income Tax Department identified substantial cash deposits made during the demonetisation period. According to the department, cash deposits totaling Rs. 14 lakh were made in two bank accounts.
The department initiated proceedings because the assessee had not filed his return of income for Assessment Year 2017-18.
Subsequently, assessment proceedings were completed under Section 144 of the Income Tax Act and additions were made under Section 69A treating the cash deposits as unexplained money.
Addition Made by the Department
The department alleged that:
- Cash deposits of Rs. 7.30 lakh were made in one bank account.
- Cash deposits of Rs. 6.70 lakh were made in another bank account.
The Assessing Officer further alleged that there were additional credits exceeding Rs. 60 lakh in the bank accounts.
As the assessee did not respond to notices during assessment proceedings, the department completed the assessment ex parte under Section 144 and treated the cash deposits as unexplained income under Section 69A read with Section 115BBE.
The matter thereafter reached the CIT(A), who partly sustained the addition relating to Rs. 6.70 lakh.
Aggrieved by the appellate order, the assessee approached the ITAT Mumbai Bench.
Delay in Filing Appeal Before ITAT
An interesting aspect of the case was that the appeal before the Tribunal was delayed by 50 days.
The assessee filed a detailed affidavit explaining the reasons for delay. It was submitted that:
- The assessee was an NRI residing in Canada.
- He visited India only occasionally.
- He was not fully aware of Indian tax laws.
- He wanted to obtain professional opinions regarding the appellate order.
- Due to travel commitments and practical difficulties, the appeal could not be filed within the prescribed time.
The Tribunal considered the explanation reasonable and condoned the delay subject to payment of Rs. 5,000 to the Prime Minister’s Relief Fund.
This part of the ruling reflects the liberal approach generally adopted by courts where reasonable cause for delay is demonstrated.
Assessee’s Explanation for Cash Deposits
The primary dispute before the Tribunal related to cash deposits of Rs. 6.70 lakh.
The assessee explained that he had travelled to India during the second half of 2016 for his daughter’s wedding held in November 2016. According to the assessee:
- Canadian dollars were converted into Indian rupees for meeting wedding expenses.
- After incurring wedding expenses, the remaining balance amount was deposited into the bank account.
- Certain cash gifts received during the wedding were also deposited into the account.
In addition to this explanation, another important submission was made during appellate proceedings.
The assessee stated that the amount actually represented savings belonging to his late mother. According to the explanation:
- The assessee’s mother had created a small corpus during her lifetime for her two granddaughters.
- The mother passed away in 2014.
- The cash amount remained with the assessee’s brother after her death.
- When the assessee visited India, his brother handed over the cash amount.
The assessee further supported this explanation through an affidavit and surrounding circumstances.
Wrong Addition in Wife’s Bank Account
The assessee also pointed out that one of the bank accounts considered by the Assessing Officer did not belong to him but belonged to his wife, Mrs. Rebecca Karanjia.
It was submitted that:
- The department had wrongly treated the wife’s bank account as belonging to the assessee.
- Separate proceedings had already been initiated in the wife’s case.
- The same cash deposits had already been considered in her hands.
The assessee produced supporting documents including:
- Copy of the bank passbook
- Communication from the department regarding release of bank account
- Documents showing that the account belonged to the wife
This argument significantly weakened the department’s case regarding duplication of additions.
Challenge to Best Judgment Assessment
The assessee also challenged the validity of the assessment order passed under Section 144.
It was argued that:
- Notices issued by the department were not properly communicated to the assessee.
- The email registered on the portal belonged to the assessee’s Chartered Accountant.
- The Chartered Accountant had expired and therefore notices were never communicated to the assessee.
The assessee further argued that being an NRI, he was entitled to draft assessment proceedings under Section 144C before passing of final order.
According to the assessee, failure to issue draft assessment order itself vitiated the assessment proceedings.
Findings of the ITAT Mumbai Bench
After examining the material placed on record and hearing both sides, the Tribunal ruled in favour of the assessee.
The ITAT observed that the explanation offered by the assessee regarding source of cash deposits could not be rejected outright, particularly when supported by affidavit and surrounding circumstances.
The Tribunal specifically noted that:
- The assessee was an NRI residing in Canada.
- He had visited India for his daughter’s wedding.
- The explanation regarding wedding expenses and cash gifts was reasonable.
- The affidavit filed by the assessee remained unrebutted by the department.
The Tribunal also accepted the explanation relating to the late mother’s savings and observed that considering the family circumstances and overall facts, the explanation deserved acceptance.
Importantly, the ITAT held that the Assessing Officer failed to rebut the specific contentions raised by the assessee.
Accordingly, the Tribunal deleted the addition of Rs. 6.70 lakh made under Section 69A.
Relief for NRIs and Senior Family Transactions
The judgment is particularly relevant for NRIs and family-related transactions involving:
- Wedding expenses
- Cash gifts
- Family savings
- Amounts belonging to parents or relatives
- Deposits made during temporary visits to India
The ruling demonstrates that genuine family explanations supported by evidence may be accepted even in demonetisation-related scrutiny cases.
Final Words
The Mumbai ITAT ruling in Jamshed Naval Karanjia vs CIT(A) is an important judgment concerning demonetisation cash deposit additions under Section 69A of the Income Tax Act.
The Tribunal rightly deleted the addition after considering the family background, NRI status of the assessee, wedding-related circumstances, affidavit evidence, and inability of the department to rebut the explanation offered by the taxpayer.
The judgment reinforces the settled principle that additions under Section 69A cannot be sustained merely on assumptions or mechanical application of demonetisation scrutiny procedures.
Taxpayers facing similar additions relating to cash deposits should carefully evaluate whether proper inquiry has been conducted by the department and whether reasonable explanations supported by evidence have been adequately considered.
