HITENDRA PARBHUBHAI PATEL,SURAT vs. ITO WARD 1(2)(6), SURAT

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ITA 1227/SRT/2024Status: DisposedITAT Surat13 May 2026AY 2017-187 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that while the assessee's cash book was manipulated, a portion of the cash deposits (Rs. 16,00,000/-) could be considered explained, considering prior cash withdrawals and CBDT guidelines. The addition was restricted to Rs. 11,49,000/-. Furthermore, the addition was to be taxed under normal provisions and not under Section 115BBE.

What were the facts?

The assessee deposited Rs. 27,49,000/- in cash during the demonetisation period. The Assessing Officer (AO) treated these deposits as unexplained income, disbelieving the assessee's explanation that they represented earlier cash withdrawals. The CIT(A) upheld the AO's order.

What were the issues?

Whether cash deposits during demonetisation are unexplained income, and whether Section 115BBE is applicable to such deposits.

Which sections of the Income-tax Act were involved?

Section 69A,Section 115BBE

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH, SURAT

Before: SHRI TR SENTHIL KUMAR & SHRI NARENDRA PRASAD SINHA

For Appellant: Shri Unmesh Dalal, CA
For Respondent: Shri Ajay Uke, SR-DR
Hearing: 20.04.2026Pronounced: 13.05.2026

PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:

This appeal is filed by the assessee against the order of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘CIT(A)’] dated 10.10.2024 for the Assessment Year (A.Y.) 2017-18 in the proceeding u/s 143(3) of the Income Tax Act.

2.

The brief facts of the case are that the assessee had filed his return of income for A.Y. 2017-18 on 26.10.2017 declaring total income of Rs.8,64,200/-. The case was selected for complete scrutiny under CASS. In the course of assessment, the AO noticed that the assessee had made cash deposit of Rs.27,49,000/- in the bank accounts during the

ITA No.1227/Srt/2024 Hitendra Parbhubhai Patel Vs ITO, Asst.Year 2017-18 2 demonetisation period. The AO was not satisfied with the explanation of the assessee regarding the source of cash deposits. Therefore, the entire cash deposits of Rs. 27,49,000/- was treated as unexplained and added to income u/s. 69A of the Act. The assessment was completed u/s. 143(3) on 21.12.2019 at total income of Rs. 36,13,200/-.

3.

Aggrieved with the order of the AO, the assessee had filed an appeal before the first appellate authority, which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed. Th

4.

Now the assessee is in second appeal before us. The following grounds have been taken in this appeal:

1.

On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) has erred in confirming addition of Rs. 27,49,000/-. 2. On the facts and circumstances of the case, the learned Commissioner of Income tax (Appeals) has erred in confirming addition u/s. 69A to the tune of Rs. 27,49,000/- as unexplained cash deposits. 3. On the facts and circumstances of the case, the learned Commissioner of Income tax (Appeals) has erred in confirming the invocation of section 115BBE by charging tax at Maximum Marginal Rate when Appellant derives income from business only. 4. The appellant reserves right to add, alter, vary any or all grounds of appeal.

5.

Shri Unmesh Dalal, CA and Ld. AR of the assessee submitted that the cash deposits made in the bank account during the demonetisation period represented the withdrawals made from bank accounts during

ITA No.1227/Srt/2024 Hitendra Parbhubhai Patel Vs ITO, Asst.Year 2017-18 3 earlier period. He submitted that the assessee had furnished cash book of the assessee as per which there was available cash balance and the cash deposits were duly explained. According to the Ld. AR, the AO was not correct in disbelieving the cash deposits merely on account of time gap between cash withdrawals and the cash deposits. As regarding piece- meal deposits of the available cash on different dates, the Ld. AR submitted that there was steep shortage of denomination of valid notes and due to manpower constraints, the bank did not accept the entire cash available with the assessee on a single day.

6.

Per Contra Shri Ajay Uke, the Ld. SR-DR, submitted that the cash balance available with the assessee as on 31.03.2016 was Rs. 38,445/- only. Considering this fact, the AO had rightly held that the assessee had artificially manipulated its transactions to disclose high cash balance prior to demonetisation period. He explained that during the current year, the cash expenditure incurred by the assessee was Rs. 3,60,280/- as against cash expense of Rs. 26,000,31/- during corresponding period of last year, which clearly indicated that the cash book of the assessee was manipulated and the cash balance was artificially inflated. He, therefore, strongly relied on the order of the lower authorities.

7.

We have considered the rival submissions. The first two grounds pertain to addition of Rs.27,49,000/- in respect of unexplained cash deposits in the bank account. According to assessee the cash deposits represented previous withdrawals from bank accounts and were duly supported with cash book entries. On the other hand, the AO held that the cash book of the assessee was manipulated, as entries for all expenses were not recorded therein. It is true that the assessee had shown cash

ITA No.1227/Srt/2024 Hitendra Parbhubhai Patel Vs ITO, Asst.Year 2017-18 4 expense of Rs. 26,00,31/- during the period from 01.04.2015 to 08.11.2015 whereas cash expense of Rs. 3,60,280/- only was reflected in the cash book during the period from 01.04.2016 to 08.11.2016. The contention of the assessee is that electricity payment of Rs. 9,10,778/- and fuel expense of Rs. 3,21,032/- was made through cheque in the current year. Even after accounting for these expenses, the total expenditure incurred by the assessee in the current year is found to be much less vis-à-vis the expenditures during corresponding period of preceding year. In view of this fact, the AO had rightly held that the cash balance as per the cash book was manipulated. At the same time, the fact that there were substantial cash withdrawals from the bank accounts during the period prior to demonetisation, has not been disputed. According to the assessee, the following withdrawals were made from the bank accounts prior to the demonetisation period, which were subsequently deposited in the bank accounts.

Withdrawals from Bank Cash book

Date Amount Sr. Page Name of the bank Cash No No for withdrawal available on earlier day

05/08/2016 1,00,000 1 1 Dena Bank 543330

12/08/2016 1,00,000 2 1 Dena Bank 629480

20/08/2016 1,00,000 3 1 Dena Bank 725580

ITA No.1227/Srt/2024 Hitendra Parbhubhai Patel Vs ITO, Asst.Year 2017-18 5 30/08/2016 4,00,000 4 1 Dena Bank 825580

07/10/2016 2,00,000 5 2 Dena Bank 1222250

14/10/2016 9,00,000 6 4 HDFC Bank 1438750

17/10/2016 2,00,000 7 2 Dena Bank 2338750

05/11/2016 2,00,000 8 2 Dena Bank 2576565

07/11/2016 40,000 9 2 Dena Bank 2776565

Total 22,40,000/-

8.

A copy of the bank statement has also been brought on record in the paper-book. The bank withdrawals from the bank account as detailed above is found to be correct, except the withdrawal of Rs. 9,00,000/- on 14.10.2016. From the copy of bank statement of HDFC bank, it is found that the sum of Rs. 9,00,000/- debited on 14.10.2016 represented “CHQ PAID - ADAJAN”. Thus there was no cash withdrawal of Rs. 9,00,000/- on 14.10.2016, rather it represented cheque payment to Adajan. The assessee had total cash withdrawals of Rs.13,40,000/- only prior to demonetisation period which was available with him. As explained by the assessee he was engaged in the business of aqua-farming and the cash withdrawals were made for purchase/lease of land, which did not materialise. As a result, the cash withdrawals made by the assessee

ITA No.1227/Srt/2024 Hitendra Parbhubhai Patel Vs ITO, Asst.Year 2017-18 6 earlier, were required to be re-deposited during the demonetisation period. Considering the proximity of the cash withdrawals and the demonetization period, the AO was not correct in rejecting the explanation of the assessee. The AO was, therefore, not correct in treating the entire cash deposits of Rs. 27,49,000/- as unexplained. Apart from the cash withdrawals of Rs.13,40,000/- made prior to demonetisation period, certain other cash balance out of savings from household expenses couldn’t have been ruled out. As per the guidelines issued by the CBDT cash deposit of Rs.2,50,000/- during demonetization period was not required to be enquired into and was deemed to be explained. Taking a holistic view of this matter, it will be reasonable to treat the cash deposits in the present case as explained to the extent of Rs.16,00,000/-. Accordingly, the assessee gets a relief of Rs.16,00,000/-. The addition on account of unexplained cash deposits is, therefore, restricted to the balance amount Rs. 11,49,000/- only. The ground taken by the assessee is partly allowed.

9.

Ground No. 3 pertains to charging of tax under provision of section 115BBE of the Act. The amendment in section 115BE of the Act came into force from 15.12.2016 whereas the cash deposits in the present case were made prior to that date. Therefore, the amended provisions couldn’t have been applied to the transaction already made earlier. Further, the unaccounted cash deposits were out of business receipts of the assessee only. In view of these facts, the addition in respect of unexplained cash deposits was required to be taxed under the head business income as per normal provisions and not u/s. 115BBE of the Act. The Co-ordinate bench of Surat tribunal in the case of Jignesh Rajkumar Mehta [ITA No. 105/Srt/2023 dated 31.07.2023] has held that if the unaccounted cash

ITA No.1227/Srt/2024 Hitendra Parbhubhai Patel Vs ITO, Asst.Year 2017-18 7

deposits represented business receipts, it was required to be taxed under the head business income and not u/s. 115BBE of the Act. Respectfully following the decision of Co-ordinate bench and the facts as discussed above, we direct that the addition in respect of unaccounted cash deposits should be taxed under the normal provisions of the Act and not u/s. 115BBE of the Act. Accordingly, the ground taken by the assessee is allowed.

10.

In the result, the appeal of the assessee is partly allowed.

Order pronounced in the Court on 13/05/2026 at Ahmedabad.

Sd/- Sd/- (TR SENTHIL KUMAR) (NARENDRA PRASAD SINHA) Judicial Member Accountant Member Dated – 13th May, 2026 (True Copy) Neelesh, Sr. PS आदेश क� आदेश क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A) 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण / DR, ITAT, 6. गाड� फाईल /Guard file. आदेशानुसार/BY ORDER, आदेशानुसार आदेशानुसार आदेशानुसार पंजीकार (Dy./Asstt.Registrar) उप/सहायक उप सहायक पंजीकार उप उप सहायक सहायक पंजीकार पंजीकार आयकर आयकर अपीलीय आयकर आयकर अपीलीय अपीलीय अिधकरण अपीलीय अिधकरण अिधकरण, अहमदाबाद अिधकरण अहमदाबाद अहमदाबाद / ITAT, Ahmedabad अहमदाबाद

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