OM PRAKASH AGARWAL,DATIA vs. INCOME TAX OFFICER, WARD 1(3), GWALIOR, GWALIOR

The appeal in ITA No. 263/AGR/2026 for AY 2017-18, arises out of the order of the ADDL/JCIT(A), Madurai [hereinafter referred to as ‘ld. JCIT(A)’, in short] dated 30.10.2025 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 29.11.2019 by the Assessing Officer, ITO, Ward-1(3), Gwalior (hereinafter referred to as ‘ld. AO’).

At the outset, I find there is delay in filing of appeal by the assessee before this Tribunal by 85 days. Considering the reasons adduced in the condonation petition, I hold that assessee was prevented from sufficient cause in not filing the appeal in time. In the interest of substantial justice, I am inclined to condone the delay and admit the appeal of the assessee for adjudication.

The only issue to be decided in this appeal is as whether the ld CIT(A) was justified in confirming the addition of Rs. 6 lakhs on account of alleged unexplained cash deposits in the fact and circumstances of the instant case.

I have heard the rival submissions and perused the material available on record. The assessee filed his return of income for AY 2017-18 on 04.12.2017 declaring total income of Rs. 8,38,940/-. The information available with the Income Tax Department suggested that assessee had made cash deposits in bank account to the extent of Rs. 6 lakhs during the demonetization period. The source of cash deposits was sought to be examined by the ld AO. Since there was no response from the side of the assessee, the ld AO issued notice u/s 133(6) of the Act to the State Bank of India and collected the bank statement based on PAN of the assessee. The Bank furnished that in assessee’s PAN, the following are the bank accounts and the cash deposits in the bank accounts are as under:-

The ld AO completed the assessment u/s 143(3) of the Act dated 29.11.2019 adding the sum of Rs. 22,74,850/- as unexplained money u/s 69A r.w.s. 115BBE of the Act. The assessee submitted that the bank A/c No. 10769786028 was in his individual name and bank A/c No. 10769750239 was in the name of his partnership firm M/s. Naveen Products. It was also clarified that assessee never deposited Rs. 10 lakhs and had actually deposited only Rs. 6 lakhs on 18.11.2016 in the bank. The assessee submitted the entire bank statements for the relevant period. On verification of the same, the ld CIT(A) was convinced that only a sum of Rs. 6 lakhs was deposited in cash during demonetization period. Regarding the source of Rs. 6 lakhs, the assessee submitted that he is carrying on the business of money lending and had duly offered interest income thereon in the sum of Rs. 4,45,200 in the return. The assessee also submitted the details of interest income earned and returned in the following table:-:-

Aggrieved by the said order of ld CIT(A), only the assessee is in appeal before me. On verification of the bank statement, I find that assessee had deposited only a sum of Rs. 6 lakhs on 18.11.2016, i.e. during demonetization period. The fact of assessee carrying on business of money lending is not doubted by the revenue in view of the fact that the ld AO had started the computation of income with the returned income and thereafter had merely made independent addition on account of cash deposits in the bank account. The same principle was followed by the ld CIT(A) also, but with certain reduction in the addition of unexplained cash deposits. The assessee had pleaded that the source of cash deposit had emanated out of the interest income, past savings and monies realised from debtors in the course of money lending business. Once Page | 3 the factum of assessee carrying on money lending business is not doubted, the realisation of debtors in cash and the interest income earned in cash also cannot be doubted as on perusal of the bank statement, I find that there are no cheque transactions relatable to money lending business. Hence, it could be safely concluded that money lending business in the instant case have been carried out in cash and recovery from debtors are made in cash and interest income is earned in cash. This certainly acts a cash source for the assessee to explain the cash deposit of Rs. 6 lakhs during demonetization period. Hence, there is no question of treating any part of such cash deposit as unexplained.

Further, with regard to applicability of enhanced rate of tax @ 60% provided in section 115BBE of the Act, I find that in view of the decision of the Hon’ble Madras High Court in the case of SMILE Microfinance Limited vs ACIT in WP (MD) No. 2078 of 2020 and WMP (MD) No. 1742 of 2020 dated 19-11-2024 wherein it had been held that the provisions of section 115BBE of the Act which enhanced the rate of tax could be made applicable only from 01.04.2017, relevant to assessment year 2018-19 onwards and not earlier, I hold that addition in any event could not be made at an enhanced rate of 60%. Respectfully following the same, the grounds raised by the assessee are allowed.

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