High Value Cash Deposit Notice - IT Professional, KPHB

The Problem

A software engineer employed at a mid-sized IT company in KPHB, Hyderabad received a Section 142(1) notice for AY 2021-22. The Annual Information Statement (AIS) showed cash deposits of ₹14.2 lakhs across two savings bank accounts — amounts that did not match his declared salary income.

The client had received this money from his elder brother as repayment of a personal loan that had been given several years earlier. The deposits were made in multiple tranches over six months. With no documentation at hand and a compliance deadline of 15 days, he reached out to SMACAS for urgent assistance.

Why This Happens

Banks report cash deposits above ₹10 lakh in a savings account in a financial year to the Income Tax Department under the Statement of Financial Transactions (SFT). This information flows directly into the AIS of the account holder. If the declared income in the ITR is significantly lower than the cash deposits, the system flags it for scrutiny. The department is not concerned with the source per se — it wants the taxpayer to explain and document it.

What We Did

Tracing the Paper Trail We worked with the client to reconstruct the entire transaction history. The original loan had been given in cash to the brother in 2016 — before the demonetisation-era documentation norms. The repayment had been structured in tranches via NEFT, IMPS, and some cash.

Documentation Assembled

• Informal loan agreement between the client and his brother (drafted contemporaneously and signed again for the record)
• Bank statements of both parties showing the repayments
• NEFT/IMPS transaction receipts for the traceable portions
• Affidavit from the brother confirming the loan and repayment

Characterisation Cash repayment of a loan is NOT income — it is a capital receipt. We prepared a legal note explaining that loan repayments, even in cash, do not attract tax in the hands of the recipient if the original lending was genuine and out of disclosed income.

Response Filing We filed a detailed 142(1) response with all supporting documents within the deadline, clearly explaining that the deposits were loan repayments from a family member and not unexplained income.

The Result

The Assessing Officer accepted the explanation and closed the notice without making any addition to income. No tax demand was raised. The matter was resolved at the compliance portal stage without requiring a personal hearing.

Key Takeaway: Any large cash deposit — even from genuine sources like family loans — should be documented immediately. Keep a written record (even a simple WhatsApp message or note) of the purpose. The explanation is straightforward, but without documentation it becomes difficult to defend.