PRERNA VINAY ASRANI,CHENNAI vs. ITO, NCW-3(1), CHENNAI

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ITA 2296/CHNY/2025Status: DisposedITAT Chennai05 June 2026AY 2017-188 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that while the assessee's explanation for the entire cash balance was not fully substantiated, the AO's addition of the entire deposit was not justified. The Tribunal directed that only 50% of the addition be sustained.

What were the facts?

The assessee deposited Rs. 19,69,000/- in Specified Bank Notes (SBNs) during the demonetization period. The Assessing Officer (AO) treated this as unexplained income, and the Commissioner (Appeals) upheld the addition.

What were the issues?

Whether the cash deposits made during demonetization are unexplained income, and if Section 115BBE applies to transactions prior to April 1, 2017.

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, ‘A’ BENCH, CHENNAI

Before: SHRI GEORGE GEORGE K & SHRI S.R. RAGHUNATHA

Hearing: 30.04.2026Pronounced: 05.06.2026

आयकर अपीलीय अधिकरण, ‘ए ’ न्यायपीठ, चेन्नई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI

श्री जॉजज जॉजज के, उपाध्यक्ष एवं श्री एस.आर.रघुनाथा, लेखा सदस्य के समक्ष BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.2296/Chny/2025 ननर्ाजरण वर्ज / Assessment Year: 2017-18 The Income Tax Officer Prerna Vinay Asrani vs. Non-Corporate Ward 3(1) 1 B-4, Niagara Apartments Chennai. Sterling Road, Nungambakkam Chennai – 600 034. (प्रत्यथी/Respondent) [PAN: AAMPD9888K] (अपीलाथी/Appellant)

अपीलाथी की ओर से/Appellant by : Shri. Hitesh, Advocate : Shri. H.Mahendran, JCIT प्रत्यथी की ओर से/Respondent by सुनवाई की तारीख/Date of Hearing : 30.04.2026 घोषणा की तारीख/Date of Pronouncement : 05.06.2026 आदेश /O R D E R PER S. R. RAGHUNATHA, AM : This appeal by the assessee is arising out of the order dated 28.07.2025, passed by the Learned Commissioner of Income Tax (Appeal), Udaipur (in short “ld.CIT(A)”) for the assessment year (A.Y) 2017-18 against the order of u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) passed by the Income Tax Officer, Non-Corporate Ward 3(1), Chennai (AO), dated 23.12.2019.

2.

The brief facts of the case emanating from the records are that the assessee is an individual, deriving income from profession of interior designing,

:-2-: ITA. No:2296/Chny/2025 rental income and interest receipts from banks, filed her return of income for the AY 2017-18 by admitting total income of Rs.5,43,030/-. The case was selected for scrutiny under CASS and issued statutory notices by calling for details specifically in relation to the deposit of SBNs during the demonetization period. The AO found that the assessee had deposited cash to the tune of Rs.19,69,000/- in the form of SBNs in the account maintained at HDFC Bank and called for the explanation of source for the same. The assessee submitted a detailed summary of bank accounts along with copies of bank statements. Further, the assessee also submitted the details of cash balance held as on 01.04.2014, 01.04.2015, 01.04.2016 and 08.11.2016. Further, the assessee also explained that the cash withdrawn from 04.04.2016 to 07.11.2016 was Rs.11,20,000/-, and hence, the cash deposits during the demonetization period to the tune of Rs.12,01,800/- was out of cash withdrawn and cash held as on 08.11.2016. The AO was not convinced with the explanation of the assessee that the cash balance of Rs.14 lakhs to Rs.22 lakhs held by her regularly, though the assessee had operated the bank account frequently, and hence, made an addition of cash deposit of Rs.19,69,000/- as unexplained money u/s.69A r.w.s. 115BBE of the Act by passing an order u/s.143(3) of the Act dated 23.12.2019.

3.

Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee reiterated the submissions along with the reliance on various judicial precedents of the Tribunal’s in support of her grounds of appeal. The assessee further submitted that the ITR-3 filed by her has disclosed income from her interior designing business and shown drawings for her personal use to the tune of Rs.10,69,657/- during the AY 2017-18. Further, the assessee also submitted that she has filed financial statements, bank statements, cash book, balance sheet and a comprehensive summary of cash transactions in the prescribed format by the department. Inspite of it, the AO has proceeded to make an addition u/s.69A of the Act without assigning any cogent and sustainable reasoning by disregarding

:-3-: ITA. No:2296/Chny/2025 the materials placed before him. On going through the submissions made by the assessee before the ld.CIT(A), the ld.CIT(A) found that the assessee has shown a cash balance of Rs.22.36 lakhs as on 01.04.2016. However, the assessee has deposited to bank an amount of Rs.12,01,800- from 08.06.2016 to 26.09.2016. Therefore, the available cash balance with the assessee is purely out of the opening cash balance shown. Further, the ld.CIT(A) has also observed that as noted by the AO, the assessee did not have any business income in the previous assessment years and shown the business income only in the impugned AY 2017-2018 by showing business income of Rs.3,49,550/- along with the cash on hand of Rs.22,36,960/- as on 01.04.2016, which cannot be endorsed. Therefore, considering the facts of the case and the submission of the assessee and the assessment order, the ld.CIT(A) dismissed the appeal of the assessee by confirming the addition and passed an order dated 28.07.2025.

4.

Aggrieved by the order of the ld.CIT(A), the assessee filed an appeal before us by raising the following grounds of appeal:-

“1. The Learned Commissioner of Income Tax (Appeals) and Learned Assessing Officer erred in law by passing an order which is against the facts of the case. 2. The Learned Commissioner of Income Tax (Appeals) erred in upholding the addition made by the Learned Assessing Officer without the right consideration of facts and submissions made. 3. The Learned Commissioner of Income Tax (Appeals) erred in affirming the addition made by the Learned Assessing Officer to the total income of the Appellant on account of cash deposits in the form of specified bank notes (SBN), despite the fact that the Appellant had furnished credible and detailed evidence demonstrating the legitimate source and availability of such specified bank notes. 4. The Learned Commissioner of Income Tax (Appeals) and Learned Assessing Officer failed to properly appreciate and consider the documentary evidence submitted by the appellant, including cash books, bank statements, and financial statements, which clearly substantiated the source and availability of cash in hand. The Appellant's explanation was dismissed without adequate reasoning, leading to a flawed confirmation of the addition. 5. The Learned Commissioner of Income Tax (Appeals) and the Learned Assessing Officer failed to bring on record any justified reasoning or documentary

:-4-: ITA. No:2296/Chny/2025 evidence to substantiate the arbitrary addition, thus such addition is unsustainable in law. 6. The Learned Commissioner of Income Tax (Appeals) and the Learned Assessing Officer failed to realize that the impugned cash deposits reflecting in the Appellants bank statements are duly recorded in the Appellants regularly maintained books of accounts and erred in law by upholding the addition of the alleged variation u/s. 69A of the Act. 7. The Learned Commissioner of Income Tax (Appeals) and Learned Assessing Officer failed to recognize that the filing ITR-3 for AY 2017-18 to disclose business income was a legal obligation and not a strategy to cover unexplained cash deposits. 8. The Learned Commissioner of Income Tax (Appeals) and the Learned Assessing Officer erred in disregarding the Appellant's explanation about substantial withdrawals/drawings made in previous years, which would naturally explain the cash accumulation reflected in the cash balances and deposits. 9. The Learned Commissioner of Income Tax (Appeals) and the Learned Assessing Officer erred in treating cash deposits amounting to Rs. 19,69,000/- as unexplained money u/s. 69A of the Act, despite the fact that the Appellant had demonstrated that cash deposited in her bank account was out of cash on hand and the same was duly reflected in the books of accounts, bank statements and financial statements. 10. The Learned Commissioner of Income Tax (Appeals) and the Learned Assessing Officer failed to appreciate the substantial documentary evidence and submissions presented by the Appellant in support of its claims. [9:48 am, 4/6/2026] G Devadas: 11. The Learned Commissioner of Income Tax (Appeals) and the Learned Assessing Officer completed the Assessment proceedings on the sole basis of suspicion and surmise, despite the fact that the transactions were properly recorded and reflected in the books of accounts. For these and other grounds that may be adduced during the course of hearing it is hereby prayed that the Addition in the Assessment Order may kindly be deleted and thus render justice.”

5.

The ld.AR for the assessee assailing the action of ld.CIT(A), submitted that though the assessee has explained the entire source for cash deposits made during the AY 2017-18, the ld.CIT(A) has erred in confirming the additions u/s.69A of the Act made by the AO. Further, the ld.AR submitted that they have filed details of deposits made during the demonetization period and also the source for the cash deposits made both before the AO as well as the ld.CIT(A). Further, the ld.AR also submitted that the details of return of income filed for the AYs 2015-16, 2016-17 and also 2017-18 along with the financial statements of the assessee explaining the source of income and the source of cash deposits.

:-5-: ITA. No:2296/Chny/2025 The ld.AR took us through the paper book containing of 21 pages and pointed out that the cash balance as on 01.04.2016 was Rs.22,36,960/- (page No.13 o the paper book). Further, the ld.AR stated that the gross income of the assessee as per the ITR filed for the AYs 2015-16, 2016-17 and 2017-18 was Rs.12.64 lakhs, Rs.13.00 lakhs and Rs.7.68 lakhs, respectively. Therefore, the ld.AR submitted that the cash deposits is made out of the income declared by the assessee in the regular course of filing of her return of income for the previous years as shown in the paper book filed, and hence, prayed for deleting the additions made by the AO by setting aside the order of the ld.CIT(A). Alternatively, the ld.AR also prayed for reducing the rate of tax @ 30% on the additions made u/s.69A of the Act relying on the decision of Hon'ble Jurisdictional High Court in the case of SMILE Microfinance Ltd. v. ACIT in W.P.(MD) Nos. 2078 & 1742 of 2020 dated 19.11.2024, which has held that the enhanced provisions of section 115BBE are prospective in nature and would apply only to transactions occurring on or after 01.04.2017.

6.

Per contra, the ld.DR for the Revenue supported the orders of the authorities and reiterated that the source of cash deposited has not been explained except stating that the assessee had cash balance as on 01.04.2016, and hence he prayed for confirming the order of the authorities by dismissing the appeal of the assessee.

7.

We have heard the rival submissions, perused the orders of the lower authorities and carefully considered the material available on record. The sole issue arising for our consideration is whether the addition of Rs.19,69,000/- made by the AO u/s.69A of the Act in respect of cash deposits made during the demonetization period is justified on the facts and circumstances of the case. It is an undisputed fact that the assessee deposited a sum of Rs.19,69,000/- in specified bank notes during the demonetization period. It is equally undisputed that the assessee maintained books of account and had disclosed cash balance in the balance sheet. The assessee explained that the impugned deposits were

:-6-: ITA. No:2296/Chny/2025 sourced from opening cash balance, past savings, withdrawals from bank accounts and income earned over the years. In support of the explanation, copies of returns of income, financial statements, bank statements and cash summaries were furnished before the AO as well as before the ld.CIT(A).

8.

From the records placed before us, it is seen that the assessee had disclosed gross income of approximately Rs.12.64 lakhs in A.Y. 2015-16, Rs.13.00 lakhs in A.Y. 2016-17 and Rs.7.68 lakhs in A.Y. 2017-18. These returns were filed prior to or contemporaneously with the impugned assessment proceedings and have not been shown to be false or non-genuine by the Revenue. The existence of income declared over the years cannot be completely ignored while examining the availability of cash with the assessee. At the same time, we find merit in the observations of the AO and the ld.CIT(A) that the assessee's explanation regarding the availability of substantial cash balance running into more than Rs.22 lakhs as on 01.04.2016 has not been fully substantiated through cogent evidence demonstrating the actual retention of such large cash over a prolonged period. The pattern of frequent banking transactions and the absence of convincing evidence regarding the necessity of holding such substantial cash in hand create doubts about the entire claim of cash availability.

9.

However, the addition made by the AO represents the entire amount of cash deposits without granting any credit whatsoever for the income disclosed by the assessee in earlier years. In our considered view, such an approach is not entirely justified. The Revenue has not brought any material on record to establish that the income declared by the assessee in A.Ys. 2015-16, 2016-17 and 2017-18 was unavailable in cash form or had been utilized elsewhere. It is a settled principle that while examining cash deposits, reasonable credit has to be allowed for past disclosed income and accumulated savings where the surrounding circumstances support such availability.

:-7-: ITA. No:2296/Chny/2025 10. Considering the totality of facts and circumstances, the income returned by the assessee in the preceding assessment years, the absence of complete corroboration regarding the entire cash balance claimed, and at the same time the absence of any evidence brought by the Revenue to negate the existence of accumulated savings, we are of the view that the ends of justice would be met by sustaining only 50% of the addition made by the AO. Accordingly, out of the addition of Rs.19,69,000/- made under section 69A of the Act, we direct the AO to restrict the addition to 50% thereof, i.e., Rs.9,84,500/-, and delete the balance addition of Rs.9,84,500/-. This relief is granted considering the income disclosed by the assessee in A.Ys. 2015-16, 2016-17 and 2017-18 and the possibility of accumulation of savings therefrom, while also accounting for the deficiencies in fully substantiating the entire cash balance claimed.

11.

The assessee has alternatively contended that even if any part of the addition is sustained u/s.69A of the Act, the same cannot be subjected to tax at the enhanced rate prescribed u/s.115BBE of the Act as amended by the Taxation Laws (Second Amendment) Act, 2016.

12.

We have carefully considered the rival submissions on this issue. We find that the Hon'ble Jurisdictional High Court in the case of SMILE Microfinance Ltd. v. ACIT in W.P.(MD) Nos. 2078 & 1742 of 2020 dated 19.11.2024 has held that the enhanced provisions of section 115BBE are prospective in nature and would apply only to transactions occurring on or after 01.04.2017. The Hon'ble High Court has thus held that the amended rate of tax introduced u/s.115BBE of the Act cannot be applied retrospectively to transactions pertaining to the period prior to 01.04.2017. This view has subsequently been followed by various coordinate benches of the Tribunal while dealing with additions arising out of demonetization deposits relating to A.Y. 2017-18.

13.

In the present case, the cash deposits under dispute were made during the demonetization period falling in the previous year relevant to A.Y. 2017-18,

:-8-: ITA. No:2296/Chny/2025 i.e., prior to 01.04.2017. Therefore, respectfully following the judgment of the Hon'ble Madras High Court in SMILE Microfinance Ltd., we hold that the enhanced rate contemplated under the amended provisions of section 115BBE of the Act is not applicable to the impugned addition. Any addition that survives pursuant to this order shall be subjected only to the rate of tax as applicable under the unamended provisions prevailing for the relevant assessment year and not at the enhanced rate of 60% introduced subsequently.

14.

Accordingly, while sustaining the addition to the extent of Rs.9,84,500/-, we direct the AO to recompute the tax liability in accordance with the law laid down by the Hon'ble Madras High Court in SMILE Microfinance Ltd. v. ACIT and not to apply the enhanced rate of tax under the amended provisions of section 115BBE of the Act.

11.

Thus, the grounds raised by the assessee are partly allowed.

Order pronounced in the court on 05th June, 2026 at Chennai.

Sd/- Sd/- (जॉजज जॉजज के) (एस. आर. रघुनाथा) (S. R. RAGHUNATHA) (GEORGE GEORGE K) लेखा सदस्य/ACCOUNTANT MEMBER उपाध्यक्ष /VICE PRESIDENT

चेन्नई/Chennai, ददनांक/Dated, the 05th June, 2026. Devadas आदेश की प्रतितलतप अग्रेतिि/Copy to: 1. अपीलाथी/Appellant 2. प्रत्यथी/Respondent 3.आयकर आयुक्त/CIT– NFAC 4. तिभागीय प्रतितनति/DR 5. गार्ज फाईल/GF DEVADAS Digitally signed by DEVADAS GOPALANACHARY GOPALANACHARY Date: 2026.06.10 15:27:35 +05'30'

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