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Facts
The assessee made cash deposits totalling Rs. 20,43,000/- in Canara Bank during the demonetization period (Assessment Year 2017-18). The Assessing Officer (AO) added this amount under Section 69 read with Section 115BBE, as the assessee could not provide a satisfactory explanation for the source, despite claiming to have sufficient cash on hand from a hardware trading business. The CIT(A) dismissed the assessee's appeal.
Held
The Tribunal, relying on a Madras High Court judgment and a coordinate bench decision, held that Section 115BBE is applicable only for transactions undertaken on or after 01.04.2017. Since the cash deposits were made in FY 2016-17, Section 115BBE could not be invoked. The Tribunal set aside the orders of the lower authorities and directed the AO to recompute the income without applying Section 115BBE.
Key Issues
The key issue was the applicability of Section 115BBE for cash deposits made during the demonetization period (Financial Year 2016-17 / Assessment Year 2017-18), specifically whether it could be applied retrospectively for transactions prior to 01.04.2017.
Sections Cited
69, 115BBE
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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: HON’BLE SHRI MANU KUMAR GIRI & HON’BLE SHRI AMITABH SHUKLA
Assessment Years: 2017-18 Babu Palanisamy, Income Tax Officer, No.110/51, West Jones Road, Non-Corp Ward-19(4) Saidapet, Chennai. Chennai-600 015. [PAN: ARYPB8669D] (प्रत्यर्थी/Respondent) (अपीलार्थी/Appellant) अपीलार्थी की ओर से/ Assessee by : Mr.T.Vasudevan, Advocate प्रत्यर्थी की ओर से /Revenue by : Ms.R.Anitha, Addl. CIT सुनवाई की तारीख/Date of Hearing : 19.06.2025 घोषणा की तारीख /Date of Pronouncement : 06.08.2025 आदेश / O R D E R PER AMITABH SHUKLA, A.M :
This appeal is filed by the assessee against the order bearing DIN & Order No.ITBA / NFAC / S / 250 / 2024-25 / 1074486353(1) dated 13.03.2025 of the Learned Commissioner of Income Tax [herein after “CIT(A), National Faceless Appeal Centre(NFAC), Delhi, for the assessment year 2017-18. The reference to the word “Act” in this order hereinafter shall mean the Income Tax Act, 1961 as amended from time to time. 2.0 The only issue raised through grounds of appeal are regarding an addition of Rs.20,43,000/- made u/s. 69 of Act on account of unexplained cash deposit. The Ld.AO had noted that assessee had deposited an amount of Rs.19,92,000/- and Rs.51,000/- in its bank account in Canara Bank during demonetization period. The Ld.AO further noted that as on 08.11.2016, the assessee had cash on hand of Rs.15,88,635/-. The Ld.AO noted that the assessee was not able to offer any satisfactory explanation towards sources thereof and therefore he proceeded to add to Rs.20,43,000/- (Rs.19,92,000/- plus Rs.51,000/-) u/s 69 r.w.s 115BBE. 3.0 It is the case of the assessee that the addition has been made by the Ld.AO without appreciating true facts of the case. It was contended that it had filed all the details before the Ld.AO and hence the addition was unwarranted. The Ld.Counsel further contended that the Ld.CIT(A) also misdirected himself to the facts of the case while dismissing the appeal. 4.0 Per contra, the Ld.DR relied upon the order of lower authorities. 5.0 We have heard the rival submissions in the light of material available on records. Before us the assessee filed a voluminous paper book containing 177 pages. It has been certified that the entire paper book comprising copies of IT Returns, VAT Returns for AY-2016-17, Copy of cash book, Show Cause notices of lower authorities and reply was filed before lower authorities etc. It has been contended before us the VAT audit reports and VAT returns clearly indicate that the assessee Page - 2 - of 6 was in the business of trading of hardware items and that therefore the conclusion drawn by the Ld.CIT(A) of non-existent hardware business are unfounded (pages 5 to 141 of paper book). The assessee has also placed before us a cash book summary at page 142 of the paper book showing an opening balance of about 15,88,634/- as on 08.11.2016. We have also noted the Ld.CIT(A) in para 5.2.1 of his order noted assessee’s submission that out of total cash deposit, Rs.4,03,365/- was made through non-SBNs. Based upon the perusal and consideration of material placed on records, we are of the considered view that no case of any addition is made out on account of unexplained cash deposits.
6.0 As regards the invocation of provisions of section 115BBE, we have noted with reverence the decision of Hon’ble Madras High Court in its judgement dated 19/11/2024 qua W.P (MD) NO. 2078 Of 2020 & W.M.P (MD) NO. 1742 Of 2020 in the case of S.M.I.L.E Microfinance Ltd holding that section 115BBE is not applicable for AY-2017-18 but that is applicable only for and from FY-2017-18.
We have also noted the decision of a Coordinate Bench of this Tribunal in / Chny / 2025 dated 13.06.2025 for AY-2017-18 in the case of Balasubramaniam Venkitachalam vs Income Tax Officer holding as under:
Page - 3 - of 6 “………We have heard rival submissions in the light of material available on records. We are of the considered opinion that provisions of section 115BBE would not be applicable in this case. In this regard respectful reliance is placed upon the decision of Hon’ble madras High Court from its judgement dated 19/11/2024 qua W.P (MD) NO. 2078 Of 2020 & W.M.P (MD) NO. 1742 Of 2020 I n the case of S.M.I.L.E Microfinance Ltd, holding that:- “………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 15 of 26 https://www.mhc.tn.gov.in/judis 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 16 of 26 https://www.mhc.tn.gov.in/judis 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. Page - 4 - of 6 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 utilised for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc., so that there is justice and equality………………………………………………………………………………………… …………………………………………………………………………………………………… …….
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….”. 7.1 Thus, Hon’ble high court has held that section115BBE would be applicable for transactions undertaken w.e.f. 1/4/2017 and not of earlier period. In the present case undisputedly transaction were undertaken in FY 2016-17 and hence section115BBE could not have been invoked in this case. The orders of lower authorities on the issue is therefore set aside and the Ld.AO is directed to recompute the income without applying provisions of section 115BBE. Accordingly, the ground of appeal raised by the assessee are allowed…..”
7.0 Accordingly, in view of the judicial precedents discussed hereinabove and in respectful reliance thereof, we are of the considered view that there is no case of invocation of section 115BBE in this case. Page - 5 - of 6 Accordingly, all the grounds of appeal raised by the assessee are therefore allowed. 8.0 In the result, the appeal of the assessee is allowed. Order pronounced on 6th Aug-2025 at Chennai.