ITAT Rules on Cash Deposits in Real Estate: Demonetization Impact Explained

The Income Tax Appellate Tribunal (ITAT) Surat Bench ruled that a real estate firm's cash deposits during demonetization were mostly explained. The tribunal limited the addition to 25% of the disputed amount, rejecting the Assessing Officer's claim that the entire balance was unexplained.

Real EstateDemonetizationIncome TaxItatCash DepositsReal EstateJun 20, 2025

ITAT Rules on Cash Deposits in Real Estate: Demonetization Impact Explained
Real Estate:The Surat Bench of the Income Tax Appellate Tribunal (ITAT) partly allowed an appeal in a case concerning the addition of cash deposits made during the demonetization period. The ruling stated that cash on hand in the real estate business is not unusual and cannot be entirely taxed as unexplained simply due to its deposit timing.

Shree Balaji Associates, the assessee, is a firm engaged in the real estate business. For the Assessment Year 2017–18, the firm declared an income of Rs. 5,44,520. During the demonetization period, the firm deposited Rs. 29 lakh in its bank account.

The Assessing Officer (AO), during scrutiny, accepted only Rs. 12 lakh as recently withdrawn cash and Rs. 9.46 lakh as received from customers. The balance of Rs. 7.54 lakh was treated as unexplained and added under Section 68 of the Income Tax Act, 1961.

In the assessment proceedings, the assessee’s counsel argued that the cash deposits were fully explainable through earlier withdrawals made during the financial year and cash sales. It submitted that total cash withdrawals from banks amounted to Rs. 29.45 lakh, and that the deposits made during demonetization were part of this amount. The AO accepted only part of the explanation and treated the remaining Rs. 7.54 lakh as unexplained. The AO taxed this amount at the higher rate under Section 115BBE.

Before the tribunal, the assessee’s counsel argued that it was engaged in a cash-intensive business and that holding large cash was a normal business practice. It submitted bank statements, withdrawal details, and explanations to support the claim that the deposits were from available cash. They also suggested, as an alternative, that only a small portion of the amount be disallowed to settle the matter without prolonged litigation.

The revenue counsel argued that withdrawals made several months before demonetization could not reasonably be assumed to have been retained in cash. It stated that only the cash withdrawn immediately before demonetization and amounts clearly received from customers were justifiably accepted, and no further relief should be granted.

The two-member bench comprising Pawan Singh (Judicial Member) and Bijayananda Pruseth (Accountant Member) held that since a substantial part of the cash deposits was already accepted by the department, and the assessee had demonstrated a pattern of regular withdrawals consistent with its business activity, taxing the entire balance amount as unexplained was unjustified.

The tribunal ruled that a reasonable disallowance of 25% of the disputed Rs. 7.54 lakh (i.e., Rs. 1.88 lakh) would be sufficient to meet the ends of justice. It also held that the higher tax rate under Section 115BBE did not apply for the assessment year in question, as per various coordinate bench rulings. The tribunal directed the AO to delete Rs. 5.65 lakh and retain only Rs. 1.88 lakh as disallowed, partly allowing the appeal.

Frequently Asked Questions

What is the role of the Income Tax Appellate Tribunal (ITAT)?

The ITAT is a quasi-judicial body that hears appeals against orders of the Assessing Officer (AO) and other lower authorities in income tax matters. It provides a forum for taxpayers to challenge decisions and seek fair and impartial adjudication.

Why is cash on hand common in the real estate business?

The real estate business is often cash-intensive due to the nature of transactions, which frequently involve large sums of money. Holding cash is a common practice to facilitate quick transactions and manage liquidity.

What is Section 68 of the Income Tax Act, 1961?

Section 68 of the Income Tax Act, 1961 deals with the addition of unexplained cash credits to the taxable income of an assessee. If the source of cash credits is not satisfactorily explained, they can be added to the income and taxed.

How did the ITAT rule on the cash deposits during demonetization?

The ITAT ruled that a reasonable disallowance of 25% of the disputed amount (Rs. 7.54 lakh) was sufficient, rejecting the AO's claim that the entire balance was unexplained. The tribunal also held that the higher tax rate under Section 115BBE did not apply for the assessment year in question.

What is the significance of the ITAT's decision for real estate firms?

The ITAT's decision is significant as it acknowledges the common practice of holding cash in real estate businesses and provides a fair and balanced approach to tax assessment, reducing the burden on firms that can reasonably explain their cash deposits.

Related News Articles

Budget 2024: Home Loan Borrowers Hope for Tax Relief Amid Rising Property Prices
real estate news

Budget 2024: Home Loan Borrowers Hope for Tax Relief Amid Rising Property Prices

As property prices and credit costs surge, home loan borrowers are counting on Finance Minister Nirmala Sitharaman to introduce key changes that could provide much-needed relief and boost the housing market.

July 20, 2024
Read Article
Kalpataru Ltd Set to Enter Nagpur Real Estate Market with Plotted Development Project
Real Estate Maharashtra

Kalpataru Ltd Set to Enter Nagpur Real Estate Market with Plotted Development Project

Mumbai-based Kalpataru Ltd plans to launch a plotted development project in Nagpur, marking its entry into the city's real estate market. The project will be spread across 37 acres and will have 400 plots of sizes 1,200 to 4,000 sq ft range.

September 3, 2024
Read Article
Rethinking Women's Empowerment: President Murmu's Vision at Maharashtra Legislative Council's Centenary Celebrations
Real Estate Maharashtra

Rethinking Women's Empowerment: President Murmu's Vision at Maharashtra Legislative Council's Centenary Celebrations

President Droupadi Murmu emphasizes the need to change societal attitudes towards women at the centenary celebrations of the Maharashtra Legislative Council.

September 3, 2024
Read Article
Pune Property Market Sees Flat Registrations in August 2024 Amid Rising Stamp Duty Collections
Real Estate Pune

Pune Property Market Sees Flat Registrations in August 2024 Amid Rising Stamp Duty Collections

Real estate analysts point to a shift in homebuyers' preferences and increasing prices in major micro-markets as registrations remain flat

September 20, 2024
Read Article
Granite REIT to Raise C$800 Million Through Debenture Offering
real estate news

Granite REIT to Raise C$800 Million Through Debenture Offering

Granite Real Estate Investment Trust (Granite REIT) has announced plans to offer C$800 million in debentures to support its growth strategy.

October 2, 2024
Read Article
Motilal Oswal Alternates Raises Over Rs 1,750 Crore for Sixth Real Estate Fund
Real Estate Pune

Motilal Oswal Alternates Raises Over Rs 1,750 Crore for Sixth Real Estate Fund

The fund, India Realty Excellence Fund VI (IREF VI), is set to invest in eight major Indian cities, including Mumbai, Pune, and Kolkata. It has already committed Rs 1,000 crore towards mid-income housing projects.

January 7, 2025
Read Article