ITAT Bangalore recently ruled that once rental receipts are reported and the landlord asserts that the rent was actually received in cash, the fact that the rental income has already been taxed doesn’t mean the cash from those receipts can’t be deposited into the bank later. The ITAT Bangalore clarified that if the rental income has already been disclosed, it serves as an identifiable source that should be taken into account when looking at cash-flow.
This judgement came about in a case involving Mr Chenaram from Bengaluru, who owned some properties that he rented out for cash. Chenaram also earned a good amount from rental advances which were also in cash. During the demonitisation phase, when Rs 500 and Rs 1,000 currency notes were no longer legal tender, Chenaram deposited Rs 14.96 lakh cash in his bank account.
Subsequently, the Income Tax Assessing Officer (AO) from Koramangala issued a tax notice asking him to explain the source of this cash. However, the explanation offered by Chenaram was rejected by the tax officer, prompting him to appeal to the Income Tax Appellate Tribunal (ITAT) Bangalore.
In August 2026, Chenaram won the case in ITAT Bangalore.
How did Chenaram win this case in ITAT Bangalore?
Chartered Accountant Suresh Surana explained to ET Wealth Online, that in this case, Chenaram was sent an ‘unexplained cash’ Section 69A tax notice as his explanation for cash deposit during demonitisation period was rejected by the AO.
Chenaram earned income from salary, house property and other sources. Between November 9th and 30 December 30, 2016, he deposited Rs 14.96 lakh in his bank account, which resulted in his return being selected for scrutiny to verify the source of the cash.
During assessment proceedings, Chenaram explained that the cash deposits in his bank account were made from cash accumulated over time from disclosed sources. He had an opening cash balance of Rs. 10,05,793 as on April 1, 2016, apart from rental receipts, rental advances, bank withdrawals and other receipts during the year.
To substantiate the explanation, Chenaram produced cash books, bank records, cash-flow statements, financial statements and details of the movement of cash. The AO however, was not satisfied with the explanation and treated the entire deposit of Rs 14,96,500 as ‘unexplained money’ under Section 69A. The CIT(A) subsequently upheld the addition, principally doubting the large cash balance, the relatively low household drawings and certain receipts appearing shortly before demonetisation.
The ITAT Bangalore, however, found that Chenaram had demonstrated a continuous trail of cash availability. The cash-flow showed an opening cash balance of Rs 4.72 lakh as on April 1, 2015, subsequent cash inflows from rent, bank withdrawals and other disclosed receipts, and a resulting balance of Rs 10.05 lakh as on April 1, 2016. Further cash inflows were also recorded between April and October 2016.
Surana says: “Thus, the explanation was not based on a sudden cash entry immediately before demonetisation but on a running cash-flow extending from the preceding financial year.”
According to Surana, an important factor in Chenaram's favour was that the AO had proceeded on an incorrect factual assumption that the cash represented business receipts or “cash sales”. Chenaram had never claimed to be carrying on any such business. His consistent explanation was that the money represented accumulated cash, rental receipts, rental advances, bank withdrawals and other disclosed sources.
So ITAT Bangalore held that rejecting Chenaram’s explanation for failure to establish cash sales or produce business books did not address the actual explanation furnished by him.
Surana says that ITAT Bangalore also rejected the view that rental income, because it had already been offered to tax under “Income from House Property”, could not explain the cash deposit.
ITAT Bangalore clarified that taxability of a receipt and availability of that receipt as a source of cash are separate matters. If disclosed rental income was actually received in cash, it could legitimately form part of the cash subsequently deposited into the bank.
Surana says: “Similarly, there was no statutory requirement requiring an individual to immediately deposit cash receipts into a bank merely because the Income Tax Department considered the amount retained in cash to be high.”
So, just suspicions about cash accumulation is not enough; you need a solid investigation. Surana says that once a taxpayer provides an identifiable source, cash-flow statement and supporting records, the Income Tax Department must objectively examine those materials and bring some positive evidence to show that the explanation is incorrect.
In Chenaram’s case, there was no proof that the cash-flow was fake, the disclosed rental receipts were not actually received, the rental advances were fictitious or that the available cash had already been spent elsewhere.
Surana says therefore ITAT Bangalore held that Chenaram's explanation could not be rejected merely because the authorities considered the accumulated cash balance unusually high.
According to Surana, Chenaram won because he was able to establish a reasonable and continuous explanation for the source and availability of the cash, whereas the Income Tax Department's rejection was largely based on assumptions and suspicion rather than contrary evidence.
The ITAT Bangalore directed deletion of the entire Rs 14,96,500 addition under Section 69A. Consequently, the question of applying Section 115BBE to that addition no longer survived, and Chenaram's appeal was allowed.