But when demonetisation hit in November 2016, and Arti deposited Rs 17.50 lakhs in cash across seven bank accounts, she became exactly the kind of person the Income Tax Department was looking for. What followed was nearly a decade of tax notices, hearings, appeals, and mounting anxiety — before the Income Tax Appellate Tribunal (ITAT) in Mumbai finally cleared her completely in an order dated April 15, 2026, pronounced by Judicial Member Shri Pawan Singh.

The story of how she got there is one of the most instructive demonetisation-era tax cases to emerge from Mumbai’s courts — and its ending carries an important message for every taxpayer who ever chose to come clean with the government.

The Deposit That Raised Red Flags

On the night of November 8, 2016, Prime Minister Narendra Modi announced that Rs 500 and Rs 1,000 currency notes would cease to be legal tender. Citizens were given a window to deposit their old notes into bank accounts. The Income Tax Department simultaneously received data feeds on every significant cash deposit made during this window, with instructions to scrutinise deposits that appeared disproportionate to the depositor’s declared income.

Arti deposited Rs 17.50 lakhs in cash across seven bank accounts during this period. Her declared income for Assessment Year 2017-18 was Rs 5.31 lakhs, of which Rs 4.25 lakhs was tuition income and the rest was interest and minor receipts. To a scrutinising officer, the arithmetic looked suspicious — a woman declaring Rs 5 lakh a year had somehow accumulated Rs 17.50 lakhs in cash.

Her case was selected for limited scrutiny. Notices were issued. The questions began.

Her Explanation: Years of Careful Saving

Arti’s answer to the department was simple and consistent across every round of proceedings. The cash had not appeared from nowhere. It came from two entirely legitimate sources:

• From financial year 2014-15 onwards, she had made cash withdrawals from three bank accounts — City Co-op Bank, Mangalore Co-op Bank, and Karnataka Bank. Total withdrawals from these three accounts exceeded Rs 20 lakhs over the period. She had accumulated this cash at home gradually, over years.
• Her tuition fees for 2017-18 amounting to Rs 4.25 lakhs, received in cash as is standard for private home tutors, formed part of what she deposited.

She also pointed out that three of her accounts were jointly held with her husband, who had himself deposited Rs 13.31 lakhs during the same demonetisation window — painting the picture of an older couple that had simply accumulated household savings in cash over many years, not one that was channelling unaccounted wealth through the banking system.

She furnished copies of her bank passbooks, her withdrawal records, and her return of income to support these submissions.

The Tax Officer Applies the Human Probability Test

The Assessing Officer was unconvinced. He invoked what Indian tax law calls the test of “human probabilities” — a doctrine established by the Supreme Court in landmark rulings including Sumati Dayal vs CIT and CIT vs Durga Prasad More — which asks not merely whether an explanation is theoretically possible, but whether it is consistent with how ordinary, prudent people actually behave.

His logic ran as follows:

• No prudent person, he argued, would withdraw Rs 17.50 lakhs in cash across 54 separate transactions over two years and simply store it at home — particularly someone who was simultaneously maintaining fixed deposits of Rs 50,000 to Rs 1.40 lakhs in multiple banks and earning interest on them.
• If Arti genuinely had this cash, why keep it idle at home when she could have earned interest on it in the bank?
• In the previous assessment year 2016-17, her cash deposit was just Rs 25,000. The sudden appearance of Rs 17.50 lakhs in cash during demonetisation — and only during demonetisation — looked less like legitimate savings and more like an attempt to launder old currency notes.
• The 54 withdrawals over two years, he noted, were consistent with routine personal and household expenses — not with deliberately accumulating a large cash reserve.

He issued a final show cause notice asking why the entire Rs 17.50 lakh deposit should not be treated as unexplained cash credit. Arti replied twice, reiterating her position. The officer was unmoved.

He did give her two concessions. He allowed Rs 2.50 lakhs as per a CBDT notification dated November 15, 2016, which permitted everyone a standard cash deposit during demonetisation without question. He also allowed Rs 1 lakh as a reasonable estimate of cash a senior citizen might hold at home. The remaining Rs 14 lakhs was added to her income as unexplained cash credit under Section 68 of the Income Tax Act and taxed at the punitive enhanced rate under Section 115BBE — a provision that imposes tax at approximately 60% on unexplained income. The tax demand on Rs 14 lakhs at this rate was crushing for a woman living on tuition fees.

The First Appeal: No Relief

Arti challenged the addition before the Commissioner of Income Tax (Appeals), or CIT(A), in Chennai. She reiterated her submissions about the bank withdrawals and tuition income.

The CIT(A) sided with the Assessing Officer. It noted that Arti had not furnished a cash flow statement tracking her cash position year by year, had not produced independent evidence of her tuition income in the form of receipts or fee registers, and had not shown how the cash balance had been carried forward year after year. The Rs 14 lakh addition was confirmed in its entirety.

Arti appealed to the ITAT.

The Trump Card Nobody Had Noticed

When the case came before the ITAT, Arti’s advocate Rahul Hakani did something that changed everything. He placed before the Tribunal a document that both the Assessing Officer and the CIT(A) had either overlooked or chosen to ignore — Form No. 4 issued under the Income Declaration Scheme, 2016 (IDS-2016).

Here is why this mattered enormously.

In 2016, ahead of demonetisation, the Government of India had launched a one-time amnesty scheme called the Income Declaration Scheme. It offered people with unaccounted income a chance to come clean — declare the income, pay tax, surcharge, and penalty on it, and receive immunity from further prosecution or scrutiny in respect of that declared income.

Arti had participated in this scheme. On September 30, 2016 — six weeks before demonetisation was announced — she had declared undisclosed cash income of Rs 10,57,163 covering Assessment Years 2010-11 to 2014-15. The income tax department had accepted her declaration, issued Form No. 4 with receipt number 418939980010318, and collected from her:

• Tax of Rs 3,17,149
• Surcharge of Rs 79,287
• Penalty of Rs 79,287
• Total paid to the government: Rs 4,75,723

This was not a trivial sum for a tuition teacher. She had voluntarily approached the government, disclosed her unaccounted savings, and paid nearly Rs 4.75 lakhs in tax and penalties to regularise her position. The government had accepted her declaration and her money.

And crucially — the declaration established that as of July 1, 2016, Arti legitimately had Rs 10.57 lakhs in cash in her possession. Not black money. Not unaccounted wealth. Disclosed, taxed, and acknowledged cash.

The timing was equally important. The IDS declaration was made on September 30, 2016 — before demonetisation. She could not have known demonetisation was coming when she made the disclosure. This was not a retrospective attempt to cover her tracks.

The Math That Made It All Add Up

With the IDS declaration on the table, Arti’s advocate walked the Tribunal through a clean calculation that left nothing unexplained:

• Total cash deposited during demonetisation: Rs 17,50,000
• Less standard CBDT allowance: Rs 2,50,000
• Balance requiring explanation: Rs 15,00,000
• Less cash available as of July 1, 2016 per IDS Form No. 4: Rs 10,57,163
• Balance remaining to explain: Rs 4,42,837
• Less tuition income savings for AY 2017-18 and minor savings: Rs 4,42,837
• Amount left unexplained: Nil

Every rupee was accounted for. The IDS-declared cash covered the bulk of it, and her tuition earnings took care of the rest. There was nothing left for the department to tax.

The Department’s Last Argument — and Why It Failed

The Revenue’s representative, Senior Departmental Representative Shri Rajesh Sakhardande, tried one last argument. He suggested that the IDS declaration “may have been created to show cash in hand” — implying it could have been filed with the ulterior motive of justifying future demonetisation deposits.

The ITAT rejected this reasoning. The IDS declaration had been filed on September 30, 2016 — before demonetisation was announced on November 8, 2016. Arti could not have anticipated demonetisation when she filed her declaration. Moreover, the government had accepted her declaration, issued a formal receipt, and collected nearly Rs 4.75 lakhs from her. It was not open to the department to now question a disclosure it had itself accepted and benefited from.

As the ITAT put it plainly: once the IDS declared by the assessee is accepted and taxed, the cash in hand cannot be doubted.

Two Additional Legal Points

Arti’s advocate also raised two important technical arguments before the ITAT, though the tribunal decided the case primarily on the IDS point:

• Section 68 may not apply to individuals without books of account. Section 68, which deals with unexplained cash credits, technically applies to entries in a taxpayer’s books of account. Arti, as an individual without formal books, may not have been liable under this provision at all — a point supported by a 1983 Bombay High Court ruling in CIT vs Bhaichand N. Gandhi.
• The enhanced tax rate under Section 115BBE cannot apply retrospectively. This provision, which imposes tax at approximately 60% on unexplained income, came into force only from December 15, 2016. Applying it to cash that pre-dated that provision would amount to retrospective taxation — which is impermissible in law. An ITAT Rajkot Bench ruling in ITO vs Mahendrakumar Bhagvandas (2025) was cited in support.

The Verdict: Complete Victory

The ITAT allowed Arti’s appeal in full. The entire Rs 14 lakh addition was deleted. The grounds of appeal were allowed.

The journey from the original tax addition to final vindication covered:

• An assessment order by the ITO, Lalbaug
• A first appeal before the CIT(A) in Chennai — dismissed
• A second appeal before the ITAT Mumbai — won completely

For a 62-year-old tuition teacher from Matunga, it was a hard, expensive, and exhausting road. But at the end of it, every rupee was accounted for, every penny was proven, and the government’s own paperwork had saved her.

The Lesson for Every Taxpayer

This case carries a message that goes far beyond Arti’s individual victory. It demonstrates that participating in government amnesty schemes is not merely an act of compliance — it can, years later, become the most important piece of evidence a taxpayer has in their favour.

It also stands as a warning about how demonetisation-era scrutiny affected ordinary, honest savers disproportionately. A retired tutor who had spent years accumulating modest cash savings found herself fighting a Rs 14 lakh tax addition at a punitive 60% rate — not because she had done anything wrong, but because the sheer size of her deposit relative to her declared income looked suspicious on paper.

The ITAT’s ruling restores the balance: the government cannot invite citizens to disclose their cash, collect tax on it, issue formal receipts acknowledging it — and then turn around and treat that same cash as black money when it surfaces during demonetisation.

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