Answer

ITR

Explain large cash deposits in scrutiny

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  1. Facts

    The officer will want to know where the cash came from. If the source is not explained, the deposit can be added to income and taxed at a high special rate.

  2. Provisions and law

    • Sec 68, Income-tax Act 1961 (now Sec 102, Income-tax Act 2025)Credits not explained can be treated as income.
    • Sec 69A, Income-tax Act 1961Money found and not explained can be treated as income.
    • Sec 115BBE, Income-tax Act 1961Unexplained income is taxed at a high flat rate.

  3. Analysis

    Show the source with records: cash sales recorded in books, withdrawals from your own bank earlier, agricultural income, or gifts with proof. A cash flow statement month by month is very persuasive. Say you deposited ₹15 lakh after withdrawing ₹9 lakh earlier and selling gold for ₹6 lakh; show both with documents. Vague answers like savings over years without proof usually fail.

  4. Conclusion

    1. Make a month-wise cash flow statement.
    2. Attach withdrawal entries, sale bills or books of account.
    3. Explain any gap honestly.
    4. Submit with the reply.

Unexplained cash can be taxed at a very high rate with penalty; check the latest rate.

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Scrutiny assessment, Sec 143(2) (now 270(8))

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