RAJESHKUMAR JAYANTILAL PATEL,SURAT vs. ITO - WARD 2(3) (4), SURAT

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ITA 772/SRT/2025Status: DisposedITAT Surat13 May 2026AY 2017-187 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that while the entire cash deposit could not be treated as unexplained, a portion of it could be explained by past profits and savings. The addition was reduced, and the tax rate under Section 115BBE was also questioned.

What were the facts?

The assessee made cash deposits of Rs. 27,00,000/- during the demonetisation period. The Assessing Officer (AO) treated the entire amount as unexplained and added it to the assessee's income. The CIT(A) dismissed the assessee's appeal.

What were the issues?

Whether the cash deposits made during demonetisation were satisfactorily explained, and whether Section 115BBE was applicable at the rate of 60% or normal tax rates.

Which sections of the Income-tax Act were involved?

Section 68,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 Mehul Shah, 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 09.06.2025 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 03.11.2017 declaring total income of Rs.4,10,010/-. The case was selected for scrutiny under CASS. In the course of assessment, the AO found that the assessee had made cash deposits of Rs. 27,00,000/- in his bank account during demonetisation

ITA No.772/Srt/2025 Rajeshkumar Jayantilal Patel vs ITO, Asst.Year 2017-18 2 period. The AO was not satisfied with the explanation of the assessee regarding the source of cash deposits. Therefore, the entire cash deposit of Rs. 27,00,000/- was treated as unexplained and added to income. The assessment was completed u/s. 143(3) on 19.12.2019 at total income of Rs. 31,10,010/-.

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 as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in making addition of Rs 27.00,000/-on account of alleged unexplained cash credit u/s 68 of the IT Act, 1961. 2. On the facts and circumstances of the case as well as law on the subject, the learned Assessing Officer has erred in taxing the addition by taking the rate @77 25% by attracting Section 115BBE instead of taxing as per normal tax slab. 3. Even otherwise on the facts and circumstances of the case as well as law on the subject, the Assessing Officer has erred in taxing the income u/s 115BBE @77 25% in a retroactive manner by applying the duly substituted Section115BBE inserted retrospectively instead of taxing it at 35.54% as per the old provisions of Section115BBE. 4. It is therefore prayed that the above addition made by the Assessing Officer and confirmed by learned CIT(A) may please be deleted. 5. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.

ITA No.772/Srt/2025 Rajeshkumar Jayantilal Patel vs ITO, Asst.Year 2017-18 3 5. Shri Mehul Shah, the Ld. AR of the assessee submitted that the assessee was engaged in street side restaurant (selling of various types of egg dishes) and was regularly filing his return of income. The assessee had opening cash in hand of Rs. 24,22,590/- as on 01.04.2016. Further the sales made by the assessee were all in cash. The cash deposited in the bank accounts during the demonetisation period represented the available cash balance of the assessee, which was duly supported with the cash book. According to the Ld. AR, the AO was not correct in rejecting the explanation of the assessee without finding any fault with the cash book and other books of accounts. He submitted that the AO had merely given a finding that the cash book was fabricated and at the same time the book result of the assessee was accepted. The Ld. AR submitted that merely because the ITR for 2016-17 was filed on 21.01.2017 i.e. after demonetisation period, the accounts of the assessee cannot be held as incorrect for this reason. He explained that for the earlier years also, the assessee had filed the returns in the months of January and February only.

6.

Per contra, Shri Ajay Uke, the Ld. SR-DR submitted that even though the assessee was making most of the sales in cash there were no regular cash deposits in the bank accounts of the assessee, except during demonetisation period. Further that the assessee has not explained as to why huge amount of cash was kept at the house of the assessee when the assessee already had bank accounts. The Ld. SR-DR submitted that as per the explanation of the assessee, cash of Rs. 20,90,000/- was withdrawn from the bank account in the month of October to December 2015. These withdrawals must have been made for specific purpose and could not have been lying with the assessee for almost a year for

ITA No.772/Srt/2025 Rajeshkumar Jayantilal Patel vs ITO, Asst.Year 2017-18 4 redepositing the same in the bank account during demonetisation period. The Ld. SR-DR submitted that the AO and the Ld. CIT(A) had rightly appreciated the facts of the case and treated the cash deposits made during the demotivation period as unexplained. He, therefore, strongly supported the order of the lower authorities.

7.

We have carefully considered the rival submissions. There is no dispute to the fact that the entire cash deposit of Rs. 27,00,000/- in the bank was made during demonetisation period. From the finding given in the assessment order, the total cash deposits in the bank accounts of the assessee during the financial year 2016-17 was Rs. 35,16,750/-. Thus, the assessee had made cash deposits of Rs. 8,16,750/- only during the rest of the year (other than demonetisation period). The assessee had filed return of income for A.Y.2016-17 after demonetization period and cash balance of Rs. 24,22,590/- was disclosed in the balance sheet as on 31.03.2016. Apparently this cash balance included cash withdrawals of Rs. 20,90,000/- from the bank accounts during the months of October 2015 to December 2015. The assessee has not given any cogent explanation as to why this amount of Rs. 20,90,000/- was withdrawn from the bank account and kept as cash at his house. No prudent businessman will withdraw the cash from the bank account and keep the amount at home continuously for one year. Therefore, the cash balance of Rs.24,22,590/- as disclosed by the assessee in the balance sheet as on 31.03.2016 was rightly held by the AO as suspicious. In fact, the AO had given a finding that the assessee had received an amount of Rs. 21,67,500/- on 13.10.2015 in Union Bank which was mentioned as “loan chalu” and thereafter the cash withdrawals were made from the bank account. The assessee had explained that this amount of Rs. 21,67,500/-

ITA No.772/Srt/2025 Rajeshkumar Jayantilal Patel vs ITO, Asst.Year 2017-18 5 represented secured loan taken from Fullerton India Credit Co. Ltd. for repayment of existing loan taken from ING Vysya Bank. Thus, the cash withdrawals in the bank account being for the purpose of repayment of existing loan of ING Vysya Bank could not have been ruled out. In view of these facts, the explanation given by the assessee before the AO is found to be self-contradictory. While it was stated that the loan taken from Fullerton India Credit Co. Ltd. was for repayment of existing loan of ING Vysya Bank, no such nexus was established by the assessee. Rather the cash withdrawals from the bank account were explained to be for purchase of property. However, no evidence regarding the alleged purchase of property was brought on record. Further, it was also not explained as to why cash was withdrawn and kept in house if the deal for property didn’t materialise.

8.

In view of the above facts, we concur with the findings of the lower authorities that the assessee had not satisfactorily explained the source of cash deposit of Rs. 27,90,000/- made in the bank accounts during the demonetisation period. At the same time, entire cash deposit in the bank account could not have been held as unexplained. There is no dispute to the fact that the sales made by the assessee were all in cash. Further, the net profit of the earlier year was also available with the assessee as cash to be deposited in the bank account during the demonetisation period. Considering the fact the assesse had disclosed profit of Rs. 5,26,459/- in the A.Y. 2016-17, at least this much cash was available with the assessee. Further the profit derived during the year till the date of demonetisation as well as certain past savings also would have been available with the assessee. As per the guidelines issued by the CBDT cash deposit of Rs.2,50,000/- during demonetization period was not required to be

ITA No.772/Srt/2025 Rajeshkumar Jayantilal Patel vs ITO, Asst.Year 2017-18 6 enquired into and was deemed to be explained. Considering the totality of the facts and taking a holistic view, it will be reasonable to treat the cash deposit of Rs.12,00,000/- as explained on account of past profit and savings. Accordingly, the assessee gets relief to the extent of Rs.12,00,000/-. The balance addition of Rs.15,00,000/- on account of unexplained cash deposits, is upheld. The ground taken by the assessee is partly allowed.

9.

The next two grounds pertain to taxing the addition on account of unexplained cash deposits u/s. 115BBE of the Act. This issue is no longer res integra. The Hon’ble Madras High Court in the case of S.M.I.L.E Microfinance Limited [W.P(MD) No. 2078 of 2020] dated 19.11.2024 has held as under:

“17. In the aforesaid objects and reasons nowhere it is stated that due to "demonetization" the unaccounted money ought to be charged 60% rate of tax. It only states that step had been taken to curb black money by withdrawing Specified Bank Notes of denomination of Rs.500 and Rs 1000. And also states the people may find illegal ways of converting their black money into black again, hence as per experts advice heavy penalty ought to be levied. From the language of the object "that instead of allowing people to find illegal ways of converting their black money into black again", it is evident that the government is intended to impose the same for future transactions. Especially the use of word "again" in the object would clearly indicate it is for future transactions ie from 01.04.2017. Therefore this Court is of the considered opinion that the revenue is empowered to impose 60% rate of tax for the transactions from 01.04.2017 onwards and not prior to the said cut-off date. And for prior transaction the revenue is empowered to impose only 30% rate of tax.

10.

Respectfully following the decision of Hon’ble Madras High Court, it is held that the addition on account of unexplained cash deposits was required to be taxed under the normal provisions of the Act and not under

ITA No.772/Srt/2025 Rajeshkumar Jayantilal Patel vs ITO, Asst.Year 2017-18 7

u/s. 115BBE of the Act. Accordingly, the ground taken by the assessee is allowed.

11.

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 आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : 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 उप/सहायक उप उप सहायक सहायक पंजीकार 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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