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Facts
The assessee, a private limited company, deposited Rs. 86.95 lakhs in cash during the demonetization period, claiming the source was from cash sales. The Assessing Officer added this entire amount to the assessee's income under Section 68 for unexplained cash credits, a decision upheld by the Ld. CIT(A) due to insufficient documentary evidence from the assessee.
Held
The Tribunal acknowledged some failure in the assessee's explanation but also noted the Revenue's complete disbelief was not fully justified. It deemed a lump-sum addition of Rs. 5 lakhs appropriate in the interest of justice. Furthermore, the Tribunal directed the AO to tax this addition under normal provisions, not Section 115BBE, citing a Madras High Court judgment.
Key Issues
1. Whether the cash deposits made during demonetization could be fully added as unexplained cash credit under Section 68. 2. The applicability of Section 115BBE for taxing such additions.
Sections Cited
68, 115BBE
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Income Tax Appellate Tribunal, DELHI ‘E’ BENCH,
Before: SHRI SATBEER SINGH GODARA, & SHRI NAVEEN CHANDRA
This appeal by the assessee is directed against the order of the NFAC, Delhi dated 27.12.2023 pertaining to A.Y 2017-18.
The solitary grievance arising out of the two grounds raised by the assessee is the confirmation of addition of Rs. 86.95 lakhs made by the Assessing Officer on account of cash deposited in Bank during
Page 1 of 6 demonetization period u/s 68 of the Income-tax Act, 1961 [the Act, for short].
There is a delay of 211 days in filing the appeal. The assessee has filed a petition for condonation of appeal. Finding the reasons for delay as sufficient, the delay is condoned. None appeared for and on behalf of the assessee. So we heard the ld. DR and perused the relevant material on record.
Briefly stated, the facts of the case are that the assessee is a private limited company engaged in the business of slack wax and residue wax. The assessee filed its return of Income on 21.10.2017 declaring total income of Rs. 1,53,680/- Return was selected for scrutiny assessment through CASS and accordingly, statutory notices were issued and served upon the assessee.
4. During the course of assessment proceedings, the Assessing Officer noticed that during the demonetization period there was abnormal increase in the cash deposits as compared to pre-demonetization period.
In response to notice issued requiring the assessee to explain the details and source of cash, the assessee filed requisite details and stated that Page 2 of 6 the source of cash deposit was collection from customers on account of trading goods and VAT.
Finding all the three ingredients of section 68 of the Act, namely identity, genuineness of transactions and credit worthiness not to be satisfactory, the Assessing Officer came to the conclusion that the assessee has not been unable to explain with supporting documentary evidences that the source of cash deposit during the demonetization period was from cash sales of wax.
Applying the provisions of section 68 of the Act, the Assessing Officer held that the sum of Rs. 86,95,500/- represented unexplained cash credit income and added the same to the income of the assessee.
When the aggrieved assessee went in appeal before the ld. CIT(A), the ld. CIT(A) upheld the addition of Rs. 86,95,500/- as the assessee has unexplained income and made unexplained cash credits in the absence of the assessee having failed to discharge its burden of proof to dispel the conclusion based on preponderance of probabilities.
Aggrieved further, the assessee is in appeal before us. Page 3 of 6
We have heard ld DR submissions and with his assistance, have perused the relevant material on record. In the instant case, we find that the assessee has attempted to prove the entire source of cash deposit during demonetization as cash sales, collection from customers and VAT sales. Although the assessee, prima facie, appears to have discharged its onus of explaining source of cash deposit, it’s contentions to prove the source, hardly deserves to be accepted in entirety especially when the AO found that the parties to whom sale was made did not respond to summons; no Balance sheet and profit & Loss statement of parties were filed. Further the AO found that the assessee had conducted its business for a month before depositing the cash in bank and was subsequently closed the very next year. On the other hand, the Revenue’s endeavour to disbelieve the assessee’s contention that cash deposit has been made out of sales, cannot be fully justified. In this factual matrix, there is some element of failure to explain some of the cash deposit, cannot be ruled out. Be that as it may, it is deemed appropriate, in larger interest of justice, that a lump-sum addition of ₹ 5 lakh only would be just and proper with a rider that the same shall not be treated as a precedent, so as to cover all loopholes. The ground of appeal no 1 to 3 is partly allowed.
10. In so far as assessee's levy of tax at a higher rate under section 115BBE of the Act is concerned, we find that the Madras High Court in the Writ petition in the case of S.M.I.L.E. Microfinance Ltd. Vs. ACIT, W.P. (MD) No.2078 of 2020 & 1742 of 2020, dated 19.11.2024 (Madras) has held that the impugned statutory provision would come into effect on the transaction done on or after 01.04.2017 only. Accordingly, we direct the AO to tax the addition under normal provisions of tax and not under the provisions of 115BBE. The additional ground raised by the assessee is allowed. partly allowed.
Order pronounced in open court on 30.07.2025.