SREE HARIHARA PUTHRA CHITS PVT. LTD.,HOSUR vs. ACIT, CIRCLE-1,, HOSUR

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ITA 1998/CHNY/2026Status: DisposedITAT Chennai25 August 2026AY 2017-1810 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal admitted additional evidence for the cash deposit issue and remitted it for fresh assessment. It also directed the Assessing Officer to apply the normal rate of tax instead of Section 115BBE for the cash deposits.

What were the facts?

The assessee, engaged in conducting chits, had cash deposits of Rs. 5,87,000 during demonetization and belatedly remitted employee contributions to PF & ESI. The Assessing Officer made additions for unexplained money and disallowed the PF/ESI contributions.

What were the issues?

Whether cash deposits during demonetization are unexplained money and if the higher tax rate under Section 115BBE is applicable. Whether belated employee contributions to PF/ESI are disallowable.

Which sections of the Income-tax Act were involved?

Section 69A,Section 115BBE,Section 36(1)(va),Section 143(3),Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, CHENNAI BENCHES,

Before: SHRI INTURI RAMA RAO & SHRI SS VISWANETHRA RAVI

Pronounced: 25.08.2026

आयकर अपील�य अ�धकरण, चे�नई पीठ�, चे�नई INCOME TAX APPELLATE TRIBUNAL, CHENNAI BENCHES, CHENNAI BENCH: C BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI SS VISWANETHRA RAVI, JUDICIAL MEMBER ITA No.1998/CHNY/2026 िनधा�रण वष�/Assessment Year: 2017-18 SREE HARIHARA PUTHRA CHITS The Assistant PVT. LTD. Commissioner of Income #5, Vasavi Street, Near Karur Tax, Circle-1, Hosur. Vs. Vysya Bank, Old Bangalore Road, Hosur – 635109. अपीलाथ� Appellant ��थ� Respondent AAPCS9525E Permanent Account Number of Assessee:

अपीलाथ� �ारा/Appellant represented by: Mr.G.Baskar & Mr. Velpandiar – Advocates ��थ� �ारा/Respondent represented by: Ms.Premi – Sr.DR सुनवाई की तारीख / Date of conclusion of hearing: 22.07.2026 घोषणा की तारीख / Date of pronouncement: 25.08.2026 आदेश / ORDER PER INTURI RAMA RAO, ACCOUNTANT MEMBER : This is an appeal filed by the Assessee directed against the order passed by learned Additional/Joint Commissioner of Income Tax(Appeal), Jodhpur dated 23.02.2026 passed u/s.250 of the Income Tax Act, 1961 for the Assessment Year 2017-18.

2.

The Assessee raised the following grounds of appeal : “1. The order of CIT(A) is erroneous, bad in law and liable to be annulled as the same is opposed to the facts of the case and provisions of the law.

2.1 The CIT(A) erred in confirming the addition of Rs.5,87,000/- as unexplained money u/s 69A of the Act. He ought to have seen that the Appellant is having adequate cash balance as on 08.11.2016, deposited in the demonetization period.

2.2 The CIT(A) ought to have seen that the AO has proceeded on suspicions, surmises, and on mere technicalities to treat the cash deposits to the extent of Rs.5,87,000/- as unexplained.

2.3 The Assessee, having explained sources of the deposits, addition u/s 69A of the Act, without any justification, is wholly arbitrary and liable to be deleted in full.

3.

In any event, taxing the addition at the rate of 60% prescribed u/s 115BBE of the Act is wholly illegal.

4.

The CIT(A) ought to have considered the fact that the Assessee having made the contributions towards PF and ESI to the concerned authorities before the due date of filing of the Return of Income, the entire disallowance u/s.36(1)(va) of the Act is untenable.

5.

Any other grounds that may be raised at the time of the hearing.”

3.

Briefly, the facts of the case are that the appellant is a Company. It is engaged in the business of conducting chits. The return of income for the Assessment Year 2017-18 was filed on 01.11.2017 disclosing a total income of Rs.12,96,230/-. Against the said return of income, the assessment was completed by ACIT, Circle-1, Hosur vide order dated 30.12.2019 passed u/s.143(3) of the Income Tax Act at a total income of Rs.19,92,877/-. While doing so, the Assessing Officer made addition of cash deposits in specified bank notes made in the account maintained with bank of Rs.5,87,000/- as unexplained money of the appellant for the failure of the appellant-company to offer any explanation as to the nature and source of the specified bank notes deposited in the bank account. The Assessing Officer also made disallowance of Employees Contribution towards ESI & PF of Rs.1,09,647/- as the same were remitted beyond the due date prescribed under the respective dates following the decision of Hon’ble Jurisdictional High Court in the case of M/s.Unifact Managedment Services vs. The Deputy Commissioner of Income Tax dated 23.10.2018.

4.

Being aggrieved by the assessment order, the appellant filed an appeal before the Learned CIT(A), who vide impugned order confirmed the disallowance of the belated remittances of Employees Contribution towards ESI & PF following the judgment of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. CIT in Civil Appeal No.2833 of 2016 dated 12.10.2022. As regards the addition on account of cash deposits in the specified bank notes during the demonetisation period, the Learned CIT(A) confirmed the addition rejecting the explanation offered by the appellant.

5.

Being aggrieved by the order of the Learned CIT(A), appellant preferred an appeal before the Tribunal. The appellant filed a petition seeking admission of additional evidence under Rule 29 of Income Tax Rules, 1963. The Learned Counsel submits that the Learned CIT(A) had confirmed the addition on account deposits in specified bank notes during the demonetization period only on the ground that the appellant had failed to substantiate the explanation offered, it is submitted that in support of explanation that cash collected by the agents from the subscribers of the chits was handed over to the appellant company only on 01.04.2016. this was inadvertently added to the opening balance on 01.04.2016 and in support of this explanation, the appellant now submitting the bank statements, agent’s money, Collection register account of chit fund subscribers as an additional evidence. He submits that it was under Bonafide belief that the documents submitted before the Assessing Officer would be sufficient to substantiate the submissions made before the Learned CIT(A). In these circumstances, he submits that the matter may be remitted back to the file of Assessing Officer for verification of additional evidence to judge the genuineness of the explanation offered. We are convinced with the explanation given for admission of additional evidence, therefore, we admit the additional evidence remit the issue of addition of cash deposits during the demonetization period for fresh assessment in accordance with law.

6.

Accordingly, Ground No.2.1 and 203 stands partly allowed statistical purpose.

7.

Ground No.3 challenges the addition of cash deposits at 60% of prescribed under the provisions of section 115BBE of the Income Tax Act. The issue in the present appeal stands covered by the decision of the Hon’ble Madras High Court in the case S.M.I.L.E Micro Finance Limited Vs. ACIT [2025] 479 ITR 172 (Madras) wherein, it is held as under : “16. The next contention raised by the Learned Senior Counsel is that the under section 115BBE the rate of tax imposed is increased from 30% to 60% and the same is applicable with effect from 01.04.2017 onwards as per the amendment. Therefore, the same is applicable to any transaction from 01.04.2017 onwards and nor prior to any transactions prior to 01.04.2017. Since in the present case all alleged transactions are for the period from 08.11.2016 to 30.12.2016, hence the erstwhile rate of tax 30% only is applicable. But the contention of the revenue is that the amendment was with effect from 01.04.2017 and hence the same is applicable for the financial year 2016-2017 and the assessment year 2017-2018. Further the amendment to section 115BBE is directly related to demonetization which would be evident from objects and reasons for such amendment. In order to consider the same, the objects and reasons of Taxation Laws (Second Amendment) Bill 2016 is extracted hereunder: Press Information Bureau Government of India

Ministry of Finance 28-November-2016 15:56 IST Taxation Laws (Second Amendment) Bill, 2016 introduced in Lok Sabha; A scheme namely, 'Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016' (PMGKY) proposed in the Bill. Evasion of taxes deprives the nation of critical resources which could enable the Government to undertake anti-poverty and development programmes. It also puts a disproportionate burden on the honest taxpayers who have to bear the brunt of higher taxes to make up for the revenue leakage. As a step forward to curb black money, bank notes of existing series of denomination of the value of Rs.500 and Rs.1000 [Specified Bank Notes(SBN)] have been recently withdrawn the Reserve Bank of India. Concerns have been raised that some of the existing provisions of the Income tax Act, 1961 (the Act) can possibly be used for concealing black money. The Taxation Laws (Second Amendment) Bill, 2016 ('the Bill') has been introduced in the Parliament to amend the provisions of the Act to ensure that defaulting assessees are subjected to tax at a higher rate and stringent penalty provision.

Further, in the wake of declaring specified bank notes "as not legal tender", there have been suggestions from experts that instead of allowing people to find illegal ways of converting their black money into black again, the Government should give them an opportunity to pay taxes with heavy penalty and allow them to come clean so that not only the Government gets additional revenue for undertaking activities for the welfare of the poor but also the remaining part of the declared income legitimately comes into the formal economy. In this backdrop, an alternative Scheme namely, 'Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016' (PMGKY) has been proposed in the Bill. The declarant under this regime shall be required to pay tax @ 30% of the undisclosed income, and penalty @10% of the undisclosed income. Further, a surcharge to be called 'Pradhan Mantri Garib Kalyan Cess' @33% of tax is also proposed to be levied. In addition to tax, surcharge and penalty (totaling to approximately 50%), the declarant shall have to deposit 25% of undisclosed income in a Deposit Scheme to be notified by the RBI under the 'Pradhan Mantri Garib Kalyan Deposit Scheme, 2016'. This amount is proposed to be utilized for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc., so that there is justice and equality. ………………………. 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 i.e. 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.” 8. In the light of above Jurisdictional High Court’s decision, we are of the considered opinion that the addition made by the Assessing Officer invoking provisions of section 69, 69A cannot be subjected to tax at the rates prescribed u/s.115BBE of the Act for the Assessment Year 2017-18. Accordingly, we direct the Assessing Officer to apply the normal rate of tax in respect of income assessed u/s.69, 69A of the Act.

9.

The issue is now stands covered by the above decision, accordingly, Ground No.3 raised by the Assessee stands allowed.

10.

Ground No.4 challenges the addition of belated contribution of Employee’s Contribution towards PF and ESI. The issue now squarely covered against the appellant by the decision of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs.

CIT in Civil Appeal No.2833 of 2016. Accordingly, this ground no.4 is dismissed.

11.

Ground Nos.1 and 5 are general in nature, do not need any adjudication, accordingly, Ground No.1 and 5 are dismissed.

12.

To sum up, appeal raised by the assessee stands partly allowed for statistical purpose. Order pronounced in the open Court on 25th August, 2026.

Sd/- Sd/- (SS VISWANETHRA RAVI) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Chennai; िदनांक / Dated : 25th Aug, 2026 SGR, Sr.PS आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT Chennai/Madurai/Coimbatore/Salem. 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “सी” ब�च, चे�नई / DR, ITAT Chennai. गाड� फ़ाइल / Guard File. 5. GANGADHARA Digitally signed by GANGADHARA RAO SALEELA RAO SALEELA Date: 2026.09.01 17:38:49 +05'30'

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