Does Section 69D apply to NEFT/RTGS hundi transactions?

Section 69D specifically exempts only transactions done 'through an account payee cheque drawn on a bank.' NEFT and RTGS are not expressly mentioned. Courts have generally applied a purposive interpretation — bank-to-bank electronic transfers create a clear audit trail consistent with the spirit of the exemption. However, the literal statutory language mentions only 'account payee cheque.' This is legally uncertain — the safest approach is to always use account payee cheques for any transaction that could potentially be characterised as a hundi transaction, rather than relying on NEFT/RTGS as a safe harbour without specific legal advice from a qualified tax advocate.

Section 69D — Hundi Transactions Under Income Tax Act (Complete Guide)

📜 Hundi. Angadia. Informal cash-lending. Hawala-linked trade credit. The traditional Indian financial instrument known as the hundi — still widely used in diamond trading, textile markets, agri-commodity trade, and informal moneylending circles — is specifically and uniquely targeted by Section 69D of the Income Tax Act, 1961. Section 69D is the most unforgiving provision in the entire family of Sections 68 to 69D. While every other section in this family provides an escape route — a satisfactory explanation can save you from the addition — Section 69D provides no such escape. The moment you borrow from a hundi or repay a hundi in cash (not by account payee cheque), the law automatically deems the entire amount as your income — regardless of any explanation. And if that were not enough, Section 69D creates a jaw-dropping scenario of double taxation of the same money: the same hundi amount is first deemed as income of the borrower when borrowed, and then deemed as income of the repayer when repaid. Both at 78% effective tax rate under Section 115BBE. This guide explains exactly what Section 69D covers, the critical distinction between borrowing and repaying on hundi, the double taxation trap, how it compares to other Sections in the 68-69D family, and what you must do if Section 69D is invoked against you.

What Is Section 69D?

Section 69D of the Income Tax Act, 1961 states: "Where any amount is borrowed on a hundi from, or any amount due thereon is repaid to, any person, otherwise than through an account payee cheque drawn on a bank, the amount so borrowed or repaid shall be deemed to be the income of the person borrowing or repaying the amount aforesaid for the financial year in which the amount was so borrowed or repaid."

In plain language — Section 69D has two distinct triggers, both equally automatic:

Trigger 1 — Borrowing on hundi in cash: If you borrow money on a hundi and the borrowing is done other than by account payee cheque — the borrowed amount is deemed as your income for that year
Trigger 2 — Repaying on hundi in cash: If you repay a hundi amount and that repayment is done other than by account payee cheque — the repaid amount is deemed as your income for that year

Unlike every other provision in the Section 69 family, Section 69D requires no examination of the assessee's books of account, no assessment of whether the transaction is recorded, and critically — no explanation is invited or considered. The deeming is automatic and absolute the moment the transaction is established. Understand how such deeming provisions operate within the Act in our important income tax concepts guide.

What Is a "Hundi"?

The term "hundi" is not defined in the Income Tax Act itself — but it is a well-recognised financial instrument in Indian commercial and legal history. Understanding what constitutes a hundi is essential before Section 69D can be applied:

📜 Definition and History of Hundi: A hundi is a traditional, informal negotiable instrument used in India — primarily as a bill of exchange or a promissory note — in trade and commerce, particularly in commodity markets (textile, diamond, agri), before the formalisation of banking. The word derives from the Sanskrit "hunda" meaning "to collect." A hundi represents an informal credit arrangement: Party A (the hundi drawer/lender) writes a hundi agreeing to pay a certain sum to Party B (the holder) on demand or after a specified period. The hundi circulates as currency in informal trade networks — much like a cheque does in banking, but entirely outside the formal banking system. Common forms include:

Darshani Hundi — payable on demand (on sight)
Miadi/Muddati Hundi — payable after a specified period
Shah Jog Hundi — payable to any respectable person (shahji = respected trader)
Nam Jog Hundi — payable to a named person or their order
Firman Jog Hundi — payable to order

Courts have held that any instrument operating as an informal credit/loan/bill-of-exchange mechanism outside the formal banking channel — particularly in informal trade credit circles — qualifies as a hundi for Section 69D purposes.

⚠️ Key Condition — "Otherwise Than Through an Account Payee Cheque": Section 69D only applies if the borrowing or repayment is made other than through an account payee cheque drawn on a bank. This is the single most important condition — and the single escape route. If you borrow on a hundi by account payee cheque — Section 69D does NOT apply. The provision specifically targets the cash-based, off-banking hundi transactions that are the hallmark of the informal credit economy. A crossed cheque, a bearer cheque, a demand draft, RTGS/NEFT, and other banking instruments are not account payee cheques — their treatment under Section 69D may differ from cash but courts have generally held that only "account payee cheque drawn on a bank" is the statutory exemption.

The Two Triggers of Section 69D — Borrowing and Repaying

📥

BORROWING on Hundi

Assessee receives cash
from hundi lender
(other than a/c payee cheque)

78% Tax on Borrower

Deemed income in the year
of borrowing

⇄

📤

REPAYING on Hundi

Assessee pays cash
back to hundi holder
(other than a/c payee cheque)

78% Tax on Repayer

Deemed income in the year
of repayment

Both legs of the transaction — the borrowing and the repayment — independently trigger Section 69D. Each is deemed as income in the hands of the respective party for the financial year in which the transaction occurred. The two legs can trigger in different financial years — if borrowed in FY 2023-24 and repaid in FY 2024-25 — the borrower is taxed in AY 2024-25 and the repayer (who may be the same person or a different person if the hundi changed hands) is taxed in AY 2025-26.

The Most Shocking Feature — Section 69D Has NO "Satisfactory Explanation" Escape

🚫 No Escape Route — Section 69D Is Absolutely Automatic

Section 69 says: "if the assessee offers no explanation... or the explanation is not satisfactory" → explanation can save you
Section 69A says: "if the assessee offers no explanation... or the explanation is not satisfactory" → explanation can save you
Section 69B says: "if the assessee offers no explanation... or the explanation is not satisfactory" → explanation can save you
Section 69C says: "if he offers no explanation about the source... or the explanation is not satisfactory" → explanation can save you
Section 69D says: NOTHING about explanations. It simply says — "the amount so borrowed or repaid SHALL BE DEEMED to be the income." No explanation clause. No "satisfactory explanation" escape. The deeming is absolute and automatic.

This makes Section 69D structurally unlike every other provision in the 68-69D family. The moment the AO establishes: (a) a hundi transaction existed, and (b) it was not done by account payee cheque — the addition must be made. There is no discretion left with the AO to accept any explanation. The only way to challenge a Section 69D addition is to challenge the facts — i.e., prove that the transaction was not a "hundi" transaction, or that it was done by account payee cheque.

The Double Taxation Trap — Same Money Taxed Twice

Section 69D contains one of the most extraordinarily punitive features in Indian tax law — the same money can be taxed as income in the hands of two different persons (or even the same person in two different years):

Step 1 — Year of Borrowing

Trader A borrows ₹50L on hundi from Lender B in cash

₹50L

Deemed income of Trader A
Tax: 78% = ₹39L

Step 2 — Year of Repayment

Trader A repays ₹50L to Lender B (or hundi holder C) in cash

₹50L

Deemed income of Trader A again
Tax: 78% = ₹39L

🚨 Total Tax Exposure — Up to 156% of the Hundi Amount: In the above example — Trader A borrowed ₹50 lakh on hundi and repaid ₹50 lakh — both in cash. Section 69D deems:

Year 1 (Borrowing): ₹50 lakh deemed income of Trader A → Tax at 78% = ₹39,00,000
Year 2 (Repayment): ₹50 lakh deemed income of Trader A → Tax at 78% = ₹39,00,000
Total tax on ₹50 lakh hundi = ₹78,00,000 — which is 156% of the hundi principal itself
Add Section 271AAC penalty (10% of tax each year) → Total outgo = ₹78L + ₹7.8L = ₹85.8 lakh on a ₹50 lakh borrowing

This is by design — the legislature intended Section 69D to be so punitive that participation in hundi-based informal credit becomes economically irrational regardless of any tax planning. The double taxation is not an oversight — it is the law.

📌 Does the Lender Also Get Taxed? Section 69D deems the amount as income of the borrower (when borrowed) and of the repayer (when repaid). The repayer is typically the borrower paying back — so in a simple two-party hundi transaction, the borrower is taxed twice (once at borrowing, once at repayment). However, if the hundi changes hands — e.g., the original lender endorses the hundi to a third party who then presents it for repayment — it is the person to whom repayment is made who is in the picture, not the repayer, under the "repayment" trigger. Courts have generally held that the repayer (not the lender) is the person whose income is deemed under the repayment leg of Section 69D.

Tax on Hundi Transactions — Section 115BBE

Amounts deemed as income under Section 69D are taxed under Section 115BBE — the same punitive special provision that applies to all unexplained income under Sections 68 to 69D:

Amount Borrowed / Repaid on Hundi (Deemed Income u/s 69D)₹X

Base Tax Rate (Section 115BBE)60.00%

Mandatory Surcharge @ 25% of Tax (irrespective of income level)15.00% (25% × 60%)

Tax + Surcharge Sub-total75.00%

Health & Education Cess @ 4% on (Tax + Surcharge)3.00% (4% × 75%)

Effective Tax Rate on Hundi Amount78.00%

Complete Numerical Example — Hundi Borrowing and Repayment

Event	Financial Year	Amount	Tax @ 78%	271AAC Penalty (10% of tax)	Total Outgo
Hundi borrowed in cash (₹30L) Deemed income of borrower	FY 2024-25 (AY 2025-26)	₹30,00,000	₹23,40,000	₹2,34,000	₹25,74,000
Hundi repaid in cash (₹30L) Deemed income of repayer	FY 2025-26 (AY 2026-27)	₹30,00,000	₹23,40,000	₹2,34,000	₹25,74,000
TOTAL TAX + PENALTY on ₹30L Hundi	Both Years	₹30,00,000	₹46,80,000	₹4,68,000	₹51,48,000 (171.6% of hundi!)

⚠️ Zero Deductions — Same Rule as All 115BBE Income: Income taxed under Section 69D / Section 115BBE benefits from absolutely zero deductions:

No deductions under Chapter VI-A (80C, 80D, 80G, 80TTA, etc.)
No business expense deductions under Sections 30–37
No carry-forward or set-off of any losses
No benefit of basic exemption limit — even if regular income is below threshold
No Section 87A rebate
Surcharge at mandatory 25% — normal income-based surcharge thresholds do not apply
No relief under DTAA (Double Taxation Avoidance Agreement) since hundi transactions are inherently domestic informal credit instruments

Essential Conditions for Invoking Section 69D

Unlike other sections in the family, Section 69D has a simpler (but absolutely rigid) set of conditions:

#	Condition	What the AO Must Establish	Can Assessee Escape?
1	A hundi transaction took place	The AO must establish with material evidence — seized documents, hundi itself, market records, third-party statements — that a genuine hundi transaction was entered into involving the assessee	Yes — challenge whether the instrument was a "hundi"
2	Money was borrowed from, or repaid to, a person on that hundi	The assessee either received money as a borrower on the hundi — or paid money as repayment on the hundi. Both legs are independently taxable when they occur in different financial years	Yes — challenge whether the assessee was the borrower/repayer
3	Transaction was NOT done by account payee cheque drawn on a bank	The AO must show — or the assessee must concede — that the transaction was in cash or by a non-account-payee instrument. This is the only factual condition that can completely negate Section 69D	Yes — prove payment was by account payee cheque
✗	No requirement for "unsatisfactory explanation"	Section 69D does not contain any clause about explanation — satisfactory or otherwise. Once conditions 1–3 are met, the addition is mandatory	No — no explanation clause exists in Section 69D

Section 69D — Who Is Typically Affected?

Section 69D is primarily invoked against participants in India's traditional informal trade credit networks. The following categories face the highest risk:

1. Textile and Diamond Traders

Surat's diamond market, Mumbai's textile trade at Bhiwandi and Dharavi, and Delhi's Chandni Chowk wholesale markets have historically operated extensively on hundi-based credit. Traders in these markets receive merchandise on hundi credit and repay through the hundi system — entirely in cash, outside banking channels. When income tax searches are conducted on these traders, the hundi books seized become primary evidence for Section 69D additions. With the advent of the Goods and Services Tax (GST) and demonetisation-era bank account requirements, hundi use in formal trade has reduced — but informal pockets remain.

2. Agricultural Commodity Traders and Mandis

Agricultural commodity traders — particularly in grain mandis, spice markets, and oilseed markets — have traditionally used hundi instruments to finance seasonal purchases from farmers and repayments to processors. If such transactions are discovered during surveys under Section 133A or searches under Section 132, Section 69D proceedings are initiated.

3. Real Estate Developers and Builders

In some cases, real estate developers use hundi-like informal instruments to raise short-term construction finance from informal lenders or "angadias" — particularly when bank credit is unavailable or insufficient. Such arrangements, if discovered during search assessments, attract Section 69D.

4. Angadia Network Participants

The "angadia" system — an informal money transfer and hundi network prevalent in western India (Gujarat, Maharashtra, Rajasthan) — facilitates inter-city transfer of funds and informal credit through hundi instruments. Participants who borrow from or repay through angadias using cash instruments are directly in Section 69D territory if discovered during searches or reassessments under Section 148.

5. Persons Identified Through Hawala Network Investigations

When the Income Tax Department conducts investigations into hawala networks — often triggered by Directorate of Revenue Intelligence (DRI), Enforcement Directorate (ED), or internal intelligence — hundi transactions discovered as part of hawala money routing are taxed under Section 69D. The hawala operator's seized records become primary evidence for multiple assessees who borrowed or repaid through the network.

The Only Defences Available Under Section 69D

Since Section 69D provides no "satisfactory explanation" escape route, the only defences available are factual challenges to the three conditions:

Defence 1 — Challenge That the Instrument Was Not a "Hundi"

Argue that the instrument in question was not a hundi — it was a promissory note, a simple loan agreement, an IOU, a formal bill of exchange under the Negotiable Instruments Act, or a trade credit arrangement — none of which are "hundi" in the traditional sense targeted by Section 69D. Courts have held that the instrument must have the specific characteristics of a traditional hundi to attract Section 69D. If the AO is characterising a modern loan or credit arrangement as a "hundi" — this characterisation can be challenged in appeal before CIT(A).

Defence 2 — Prove the Transaction Was by Account Payee Cheque

This is the cleanest and most complete defence. If you can produce a cancelled account payee cheque bearing the payee's name, or a bank statement showing the account payee cheque was drawn and cleared — Section 69D is entirely inapplicable. This defence requires documentary proof — bank records, cancelled cheque copies, bank-certified statements — showing that the specific borrowing or repayment was made by account payee cheque. Maintain all such records permanently.

Defence 3 — Challenge the Assessee's Identity as Borrower/Repayer

Argue that the hundi transaction did not involve you — the seized hundi records or statements relate to a different person or entity, the name in the hundi records has been misidentified, or the AO is treating you as the borrower/repayer when in fact you were not a party to the specific transaction. This factual challenge is stronger when the AO's evidence is based solely on third-party statements during search proceedings without direct documentary evidence linking you to the specific hundi.

Defence 4 — Challenge the AO's Evidence Quality

Even though Section 69D has no explanation clause, the AO still bears the initial burden of proving that the hundi transaction occurred and involved the assessee. If the AO's evidence is:

A single, later-retracted oral statement from a third party
Loose papers not authenticated as formal hundi instruments
Hearsay or unverified third-party information without corroboration
Records not definitively linking the specific amount to the specific assessee

— the factual foundation for Section 69D can be challenged. Courts have consistently held that the AO must have reliable, corroborated evidence before Section 69D is applied — the provision being automatic does not mean it can be triggered without proper primary evidence.

✅ One Time Remedy That Can Work — Challenge Both the Hundi Nature AND the Cash Payment Together: The most effective defence strategy combines Defence 1 and Defence 2 — simultaneously challenging (a) that the instrument was a hundi in the legal sense, AND (b) that even if it were a hundi, the payment was by account payee cheque. This layered approach maximises the chances of relief before the ITAT and higher courts. Engage a qualified CA and tax advocate with specific experience in search assessments and hundi-related proceedings — not just a general tax advisor — given the extreme consequences.

How to Respond If Section 69D Is Sought to Be Invoked

Identify the Exact Evidence the AO Is Relying On: Is the AO relying on seized hundi documents, a third-party statement, angadia network records, or market intelligence? Get complete copies of all evidence the AO is using through your CA — you have the right to examine the materials on which the addition is proposed. Read the notice type carefully using our income tax notices guide — is this a scrutiny notice, search assessment, or Section 148 reassessment?
Check if Account Payee Cheque Documentation Exists: Search your records — bank statements, cancelled cheques, bank account books — for any evidence that the transaction was made by account payee cheque. If any part of the transaction was by cheque, document this thoroughly. Even partial cheque payments may reduce the exposure to only the cash component of the transaction.
Challenge the Hundi Classification: If the instrument involved is not a traditional hundi — prepare a detailed legal argument on why the instrument does not qualify as a "hundi" for Section 69D purposes. Cite court decisions that have defined hundi in the income tax context and show that your instrument fails to meet those definitional requirements.
Challenge the AO's Primary Evidence: Challenge each piece of evidence presented by the AO — authenticity of seized documents, reliability of statements (especially if later retracted), identity of the parties in the documents as referring to you, and the completeness and accuracy of the records being relied upon.
Submit Written Reply Through a CA/Advocate: Given the absolute nature of Section 69D, the stakes are extremely high. Do not respond to the notice without professional guidance. See how to reply to income tax notices. Your reply should raise every available factual challenge — in clear, document-backed arguments — before the AO passes the assessment order.
Appeal Immediately If Addition Is Confirmed: File an appeal (Form 35) before CIT(A) within 30 days of the assessment order. Section 69D additions — particularly where the AO's evidence is from third-party seized records — have significant success rates on appeal when the factual challenges are well-prepared. Simultaneously apply for a stay of demand — given that Section 69D can generate tax demands exceeding 156% of the principal amount, paying the full demand pending appeal would be financially devastating. Follow the full income tax appeals hierarchy.

Section 69D vs All Other Deeming Provisions — The Complete Picture

Parameter	Sections 69, 69A, 69B, 69C	Section 69D ← This Page
Explanation escape route?	Yes — satisfactory explanation saves from addition	No — zero explanation escape; addition is automatic
What is deemed income?	Unexplained investment / asset / excess / expenditure	Amount borrowed on hundi (borrower's income) + amount repaid on hundi (repayer's income)
Double taxation risk?	Generally not — addition is once, in one person's hands	Yes — same amount can be deemed income twice (at borrowing + repayment)
Books of account condition?	Most sections require asset/investment to be unrecorded in books	No books condition — applies regardless of whether hundi is recorded in books
AO's evidentiary burden	Must prove investment / asset / excess / expenditure exists — then burden shifts to assessee	Must prove hundi transaction exists + was in cash — no burden shifts after this
Specific instrument targeted?	No — applies to any investment, asset, or expenditure	Yes — specifically targets the "hundi" instrument
Tax rate	Identical — 78% effective rate under Section 115BBE (60% + 25% surcharge + 4% cess)
Penalty (Section 271AAC)	10% of tax (≈6% of deemed income) if not voluntarily declared in ITR

Section 69D — Complete Family of Deeming Provisions

Section	Subject	Deemed Income	Explanation Escape?	Tax Rate
Section 68	Unexplained Cash Credits in Books	Full unexplained credit amount	Yes	78% u/s 115BBE
Section 69	Unexplained Investments (not recorded)	Entire value of investment	Yes
Section 69A	Unexplained Money / Bullion / Jewellery	Entire value of asset	Yes
Section 69B	Investment Recorded but Understated	Only the excess (actual minus recorded)	Yes
Section 69C	Unexplained Expenditure	Unexplained expenditure or part thereof	Yes
Section 69D ← This Page	Hundi Borrowals / Repayments in Cash	Amount borrowed + amount repaid (separate deemed incomes)	NO — Automatic

Section 69D — Quick Reference

Particulars	Details
Governing Section	Section 69D, Income Tax Act, 1961 — Chapter VI: Aggregation of Income
Subject	Hundi transactions — borrowing from hundi or repaying hundi, other than by account payee cheque
Two Triggers	(1) Borrowing on hundi in cash → deemed income of borrower in year of borrowing (2) Repaying on hundi in cash → deemed income of repayer in year of repayment
Unique Feature	NO "satisfactory explanation" escape — unlike all other sections in the 68-69D family; addition is automatic once facts are established
Double Tax Trap	Same hundi amount can be deemed income twice — once at borrowing (in borrower's hands), once at repayment (in repayer's hands). Total tax can exceed 156% of principal
Only Escape Route	Prove the instrument was not a hundi — OR — prove the transaction was by account payee cheque drawn on a bank
Tax Rate	60% flat u/s 115BBE + 25% mandatory surcharge + 4% cess = 78% effective
Penalty	Section 271AAC — 10% of tax (~6% of income) if not voluntarily declared in ITR
Max Outgo per Transaction	~84% per leg — up to ~168% total (both legs combined) with penalty
Deductions?	None — no Chapter VI-A, no business deductions, no loss set-off, no basic exemption, no rebate
Commonly Affects	Textile traders, diamond merchants, agri-commodity traders, angadia network participants, real estate developers using informal credit
Assessment Routes	Scrutiny u/s 143(3), Reassessment u/s 148, Search Assessment u/s 153A/153C. See: types of assessment
Remedy	Appeal (Form 35) before CIT(A) → ITAT → High Court. Apply for stay of demand immediately

Frequently Asked Questions (FAQs)

Q1. What is Section 69D of the Income Tax Act?

Section 69D of the Income Tax Act, 1961 provides that where any amount is borrowed on a hundi from any person — other than through an account payee cheque drawn on a bank — that amount is deemed to be the income of the borrower for the financial year in which the borrowing occurred. Additionally, where any amount due on a hundi is repaid to any person — other than through an account payee cheque — that repaid amount is deemed to be the income of the repayer for the year of repayment. Both deemed incomes are taxed at 78% effective rate under Section 115BBE. Critically, Section 69D is the only provision in the Sections 68-69D family that contains no "satisfactory explanation" escape route — the deeming is automatic and absolute once the transaction is established.

Q2. What is a "hundi" for the purpose of Section 69D?

A hundi is a traditional Indian informal credit/negotiable instrument — functioning as a bill of exchange or promissory note — used primarily in informal trade credit networks (textile, diamond, agri-commodity markets, angadia networks). The Income Tax Act does not define "hundi" — courts have held that any instrument operating as an informal credit mechanism outside formal banking channels, with the characteristics of a traditional hundi (drawn in a specific form, traded between market participants as a credit instrument), qualifies as a "hundi" for Section 69D. A standard promissory note, formal bank borrowing, or modern loan agreement is generally not a "hundi." The classification as hundi versus another instrument is often the central dispute in Section 69D proceedings.

Q3. Can the same hundi amount be taxed twice — once when borrowed and again when repaid?

Yes — this is Section 69D's most extraordinary feature. The same hundi amount is deemed as income in the borrower's hands in the year of borrowing, and again as income in the repayer's hands in the year of repayment. If the borrower and repayer are the same person (as in a typical two-party hundi), the same person is taxed twice on the same amount — in two different financial years. This can result in total tax and penalty outgo exceeding 156–168% of the original hundi principal. This double taxation is not a drafting error — it is intentional legislative design to make informal hundi-based credit economically devastating from a tax perspective.

Q4. Is there any way to avoid Section 69D being applied?

There are only two factual defences against Section 69D — unlike other sections where a "satisfactory explanation" can save you: (1) Prove the instrument was not a hundi — argue that it was a formal promissory note, loan agreement, or other instrument that does not qualify as a traditional hundi; (2) Prove the transaction was by account payee cheque drawn on a bank — if you borrowed or repaid by account payee cheque, Section 69D explicitly does not apply. Beyond these factual defences, you can also challenge the quality of the AO's evidence (retracted statements, unauthenticated documents) — but once the facts are established, Section 69D provides no "satisfactory explanation" escape route.

Q5. What is the tax rate under Section 69D?

Income deemed under Section 69D is taxed under Section 115BBE at 60% flat rate + mandatory surcharge of 25% of tax + Health & Education Cess of 4% = 78% effective rate. If not declared in the ITR, Section 271AAC penalty of 10% of tax (≈6% of income) applies — taking total outgo to ~84% per leg of the hundi transaction. Since both borrowing and repayment are each taxed at 78%, the combined tax for a completed hundi transaction (borrow + repay) can reach 156%+ of the hundi amount. No deductions under Chapter VI-A, no business deductions, no loss set-off, no basic exemption, and no rebate under Section 87A are available.

Q6. If I borrowed on hundi by NEFT/RTGS instead of account payee cheque, does Section 69D apply?

Section 69D specifically exempts only transactions done "through an account payee cheque drawn on a bank." The statute mentions only account payee cheques — it does not expressly mention NEFT, RTGS, demand drafts, or other banking instruments. Courts have generally taken a purposive interpretation — if the transaction is through the banking system in a way that creates a clear audit trail (bank account to bank account transfer), the spirit of Section 69D (targeting informal off-banking credit) may not be violated. However, the literal statutory language says only "account payee cheque" — technically, NEFT and RTGS are not account payee cheques. This is an area of legal uncertainty and should not be relied upon as a safe harbour without specific legal advice. The safest approach is always to use account payee cheques for any instrument that could potentially be characterised as a hundi transaction.

Q7. Can I appeal a Section 69D addition?

Yes — Section 69D additions can be challenged through the full income tax appeals hierarchy. File an appeal (Form 35) before CIT(A) within 30 days of the assessment order, then ITAT, then High Court. Since Section 69D has no explanation clause, the appeal must focus on factual grounds — challenging whether the instrument was a hundi, whether the payment was actually in cash versus account payee cheque, and whether the AO's evidentiary basis is reliable and corroborated. Simultaneously apply for a stay of demand immediately — given that Section 69D can generate tax demands exceeding the original transaction amount, paying without exhausting appeal remedies would be financially catastrophic. Engage a CA and tax advocate with specific experience in Section 69D / search assessment matters.

📋 Disclaimer: The information provided in this article is intended solely for educational and general informational purposes. It does not constitute legal, financial, or tax advice. Section 69D proceedings are highly fact-specific — whether an instrument qualifies as a "hundi," whether the transaction was by account payee cheque, the quality of the AO's evidentiary basis, and all related tax and penalty consequences depend entirely on the specific facts, documents, and applicable judicial precedents in each case. The double taxation feature of Section 69D and the absence of any "satisfactory explanation" escape route make it the most consequential provision in the 68-69D family. Persons facing a Section 69D notice, show-cause, or assessment addition are strongly advised to immediately engage a qualified Chartered Accountant (CA) and tax advocate with search assessment experience. Do not respond to Section 69D proceedings without professional guidance. DisyTax shall not be held liable for any loss or damage arising from reliance on the information provided herein.