In this legal analysis, we delve into the case of Meenu Rani versus the Income Tax Officer, Ward-1(1)(4) in Meerut, concerning the addition of Rs. 11.48 lakhs to her income purportedly as undisclosed sources during the demonetization period, for the assessment year 2017-18.
Meenu Rani, a resident of Meerut, Uttar Pradesh, faced scrutiny over her financial transactions following the demonetization initiative announced in India. This legal proceeding revolves around the substantial cash deposits made into her bank account during this period, amounting to Rs. 11.48 lakhs, which were flagged during a limited scrutiny under the Centralized Assessment Scheme (CASS).
The Income Tax Department questioned the origin of the cash deposits, and upon dissatisfaction with the explanations provided—attributing the deposits to accumulated savings from earlier withdrawals—the Assessing Officer (AO) added this amount as income from undisclosed sources under section 69A of the Income Tax Act.
The subsequent appeal to the CIT(A) did not yield any relief for Meenu Rani, leading her to escalate the matter to the Income Tax Appellate Tribunal (ITAT) in Delhi.
At the tribunal, Meenu Rani reiterated her previous explanations, which were critically examined against her financial records, including bank withdrawals and deposits. The tribunal noted inconsistencies in her claim of maintaining a large cash reserve at home while making regular bank withdrawals.
After reviewing the cash flow statements and the timing of the transactions, the tribunal upheld the addition made by the lower authorities, dismissing Meenu Rani’s appeal on the basis that the explanation provided did not credibly account for the source of the funds.
This case highlights the challenges taxpayers face when explaining large cash deposits during periods of heightened scrutiny such as demonetization. It underscores the importance of maintaining clear and consistent financial records to substantiate claims regarding cash transactions.
The decision also serves as a critical reminder of the rigorous standards applied by tax authorities in assessing the legitimacy of cash deposits and the necessity for taxpayers to provide plausible and substantiated explanations for such deposits.
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