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Facts
The assessee, a retired IAS officer, deposited Rs. 30,00,000/- during the demonetization period. The Assessing Officer (AO) added Rs. 26,00,000/- as unexplained cash credit, which was reduced to Rs. 23,33,000/- by the First Appellate Authority (FAA). The assessee claimed the source of the deposit was cash withdrawals from her bank account over several years.
Held
The Tribunal held that while the assessee's claim of past withdrawals as the source of deposit needs substantiation, considering her status as a senior citizen living alone, the addition made by the AO was restricted to 50% of the amount confirmed by the FAA. The Tribunal also ruled that the tax rate for prior transactions should be 30% as per section 115BBE of the Act, not 60%.
Key Issues
Whether the cash deposit made during demonetization is unexplained, and if so, at what tax rate should it be taxed under Section 115BBE of the Income Tax Act.
Sections Cited
68, 115BBE, 143(3), 250, 44AA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE KAND MS PADMAVATHY S
आदेश/ O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
This appeal filed by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 28.03.2025, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2017-18.
2 -: 2. The grounds raised by the assessee read as follows:-
1. The Commissioner of Income tax (Appeals) (the CIT(A)) erred both in law and facts of the case in upholding an addition made by the Assessing Officer (‘AO’) of 23,33,000/- as unexplained cash credit under section 68 of the Act.
The CIT(A) erred in treating the cash deposits made during the demonetization period as unexplained cash credit under section 68 of the Act whereas the Appellant had deposited on 16th November 2016 which was primarily out of previous cash withdrawals made from the bank.
3. The CIT(A) failed to consider the fact that the Appellant is a retired IAS officer with a credible financial background and was not a person of meagre means.
4. The CIT(A) failed to appreciate the fact in not considering that the Appellant was staying alone in Hyderabad and since none of her relatives were in Hyderabad, she always kept a reserve cash to meet emergencies,
5. The CIT(A) erred in law in not verifying the exactness of the assessment order passed by the AO wherein the AO had incorrectly applied the provision of section 68 of the Act which deals with any unexplained sum credited to the books of the assessee, ignoring the fact that the Appellant is not required to maintain books of accounts under section 44AA of the Act (as the Appellant does not have any business income).
6. The CIT(A) failed to appreciate that bank statement of the Appellant does not come within the ambit of the word books' mentioned in section 68 of the Act.
7. The CIT(A) further erred in deciding the appeal without considering the detailed submissions made by the assessee in respect of the tax demanded at special rate under section 115BBE of the Act, which has been erroneously charged at 60% as against the correct rate of 30%. The amendment made to section 115BBE of the Act was made only on 15th December 2016 by Chapter II of the Taxation Laws (Second Amendment) Act, 2016. Since the amendment did not have a retrospective application, the levy of tax at the rate of 60% under section 115BBE of the Act and 3 -: additional tax at the rate of 25% on the tax levied are not applicable to assessment year 2017-18 and therefore not correct in law.
8. The CIT(A) failed to appreciate that the income assessed cannot be presumed to be undisclosed in nature since the AO has not shown any evidence showing that assessee had any other source of income which needs to be taxed at 60% under section 115BBE of the Act.
9. In light of the above, the Appellant prays that: a. the order passed by the CIT(A) under section 250 of the Act upholding the additions made by the AO to the extent of 23,33,000/- be set aside; b. without prejudice to the prayer made above and if the additions made by the AO ought to be upheld, the additions upheld by the CIT(A) to the extent of Rs.23,33,000/- be charged under section 115BBE of the Act at the rate of 30%. c. any other remedy necessary and ancillary to this prayer be passed that the Bench may deem fit.
Brief facts of the case are as follows: The assessee is a retired IAS officer. For the assessment year 2017-18, the assessee has filed her return of income on 29.07.2017 which was revised by her on 30.07.2017 admitting total income of Rs.2,64,53,180/-. The assessee’s income consists of pension income, rental income and income from bonds and deposits. The assessment was selected for limited scrutiny to examine the source of cash deposits made during the demonetization period. During demonetization period assessee had deposited a sum of Rs.30,00,000/- in her bank account on 16.11.2016. The assessee explained the source of cash deposit as follows:-
4 -: Sl.No. Source of Funds Amount (Rs.) 1 Gifts received from relatives 2,50,000 2 Sale of personal effects 4,17,000 3 Amounts deposited out of earlier cash 23,33,000 withdrawals from banks Total 30,00,000
The AO completed the assessment u/s.143(3) of the Act vide order dated 12.09.2019. The AO in the assessment order added sum of Rs.26,00,000/- after accepting the source of cash deposit of Rs.4,00,000/- (Rs.4 lakhs accepted by the AO based on the confirmation of Jaya Sankara International School). The AO also applied the special rate of taxation u/s.115BBE of the Act.
Aggrieved by the order of assessment completed, the assessee filed appeal before the First Appellate Authority (FAA). The FAA partly-allowed the appeal of the assessee. The FAA accepted the source in respect of Rs.2,50,000/- (confirmation of gift from spouse of assessee’s uncle) and also for the amounts received from sale of personal effects. The balance sum of Rs.23,33,000/- was confirmed by the FAA.
Aggrieved by the order of the FAA, the assessee has filed the present appeal before the Tribunal. The Ld.AR submitted that assessee is staying alone and had cash withdrawals for past four 5 -: years totaling to Rs.32,85,700/-. It was submitted that assessee has no other commitment except meeting her household expenses and balance amount of Rs.23,33,000/- is out of her past withdrawals which has been kept aside for meeting unforeseen contingencies due to her old age and ill health. The Ld.AR further submitted that the AO has erred in applying a special rate of tax at 60% u/s.115BBE of the Act instead of 30%. The Ld.AR submitted that for transaction from 01.04.2017 onwards alone 60% tax is to be applied and for prior period transaction, Revenue is empowered to impose only 30% rate of tax. In support of his submissions, the Ld.AR relied on the judgment of Hon’ble Madras High Court in the case of S.M.I.L.E Microfinance Limited vs. ACIT in W.P(MD) No.2078 of 2020 and W.M.P.(MD) No.1742 of 2020 (judgment dated 19.11.2024).
On the other hand, the Ld.DR strongly supported the orders of the AO and the FAA.
We have heard rival submissions and perused the material on record. The issues argued before us are two fold, i) whether the addition made and sustained by the FAA amounting to Rs.23,33,000/- u/s.68 of the Act is justified or not and ii) whether 6 -: tax at 60% or 30% is to be calculated u/s.115BBE of the Act. The assessee is a retired IAS officer and has served the Government for over forty years in various capacities. She has retired in the year 2009 and is deriving income from pension, rental income and income from bonds and bank deposits. The assessee had made cash deposit of Rs.30,00,000/- on 16.11.2016. The AO had made an addition of Rs.26,00,000/- u/s.68 of the Act, which was reduced by FAA to Rs.23,33,000/-. The assessee had submitted that the source of cash deposit of Rs.23,33,000/- is out of cash withdrawals from her bank account. On perusal of material on record, we find that the assessee has withdrawn cash from bank accounts for various years as under:- Particulars Amount (Rs.) Cash Withdrawals out of State Bank of India and State Bank of Hyderabad -2013 – 14 9,70,700 - 2014-15 6,17,000 -2015-16 10,23,000 -2016-17 (till 8th November 2016) 6,75,000 Total withdrawals during the 4 years 32,85,700
The contention of the assessee is that she stays alone with no other commitment and therefore, the cash withdrawn over the years are not fully spent. The assessee accordingly claims that the accumulated cash after household expenses is deposited. However, in our view there is merit in the contention of the 7 -: revenue that other withdrawals from past 4 years are kept without spending/without depositing cannot be accepted without proper justification or substantiation. Having said so, we are also conscious of the fact that the assessee is a senior citizen living alone and requires cash for any medical emergency. Considering the facts peculiar to the assessee’s case, we are restricting the addition made by the AO to 50% of Rs.23,33,000/- on the ground that balance is saved from past withdrawals. The grounds raised by the assessee is partly-allowed in this regard.
As regards the assessee’s ground of appeal
(Ground 7) that tax ought to be calculated at the rate of 30% instead of 60% u/s.115BBE of the Act, we are of the view that it is well settled that Income-tax Act as it stands amended on the first day of April of any financial year must apply to the assessment for that year. Any amendments in the Act which come into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force. In this context, we rely on the judgment of the Hon’ble Apex Court in the case of Karimtharuvi Tea Estate Ltd., vs. State of Kerala reported in 60. ITR 262 (SC).
8 -: 11. The Hon’ble Madras High Court in the case of S.M.I.L.E Microfinance Ltd., supra had categorically held that higher rate of tax at 60% u/s.115BBE of the Act will apply only to transactions from 01.04.2017 onwards and not prior to the said cutoff date. It was further held by the Hon’ble Jurisdictional High Court that for the prior transaction the Revenue is empowered to impose tax only 30% rate of tax. The relevant finding of the Hon’ble Madras High Court in the case of S.M.I.L.E Microfinance Ltd., supra reads as follows:- 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.
In light of the aforesaid judgment of the Hon’ble High Court, we direct the AO to calculate tax at the rate of 30% on the
In the result, the appeal filed by the assessee is partly- allowed.
Order pronounced in the open court on 1st August, 2025 at Chennai.