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Facts
The assessee filed his return declaring income and agricultural income. He deposited cash in Specified Bank Notes (SBN). The AO added a significant portion of the deposits as income from undisclosed sources, which was confirmed by the CIT(A).
Held
The Tribunal, considering the submissions and records, restricted the impugned addition to a lump sum amount of Rs.1.50 Lacs, applying the normal rate of tax on the sustained addition.
Key Issues
Whether the addition made by the AO on account of cash deposits in SBNs as income from undisclosed sources, which was partly confirmed by the CIT(A), is sustainable and to what extent.
Sections Cited
143(3), 69A, 115BBE
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Income Tax Appellate Tribunal, “SMC” BENCH, CHANDIGARH
(िनधा�रणवष� / Assessment Year: 2017-18) Shri Surinder Kumar ITO Ward 3 Vill Barichpur, PO Barout, Ladwa बनाम/ Vs. Kurukshetra Kurukshetra (Haryana) - 136132 Haryana - 136132 �थायीलेखासं./जीआइआरसं./PAN/GIR No. DNWPK-3779-L (अपीलाथ�/Appellant) : (��थ� / Respondent) अपीलाथ�कीओरसे/ Appellant by : Sh. Manoj Lamba (CA) – Ld. AR ��थ�कीओरसे/Respondent by : Dr. Ranjeet Kaur (Addl. CIT) – Ld. Sr. DR सुनवाईकीतारीख/Date of Hearing : 02-12-2025 घोषणाकीतारीख /Date of Pronouncement 08-12-2025 : आदेश / O R D E R
Aforesaid appeal by assessee for Assessment Year (AY) 2017- 18 arises out of an order of learned Addl. / Joint Commissioner of Income Tax (Appeals), Agra [CIT(A)] dated 31-07-2025 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s 143(3) of the Act on 27-12-2019. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under.
From case records, it emerges that the assessee filed his return of income declaring income of Rs.2.68 Lacs and agricultural income of Rs.6 Lacs. It transpired that the assessee deposited cash in Specified Bank Notes (SBN) for Rs.13.06 Lacs on 11-11-2016 as maintained with Axis Bank. The amount of Rs.3 Lacs was stated to be sourced out of earlier withdrawals which were accepted by Ld. AO. The deposits of Rs.3.49 Lacs were stated to be sourced out of dairy business, Rs.2.50 Lacs was stated to be gift received in cash from father-in-law, Rs.1.50 Lacs was stated to be agricultural receipts from M/s Chandan Trading Co. and deposit of Rs.2.57 Lacs were stated to be sourced out of agricultural income. The Ld. AO did not accept the gift on the ground that the assessee failed to provide evidence of source and genuineness of the transactions. No evidence was furnished for agricultural receipt from M/s Chandan Trading Co. On agricultural income, majority of Form-J was found to be pertaining to month of April and December, 2016. Finally, the amount of Rs.10.06 Lacs was added as income from undisclosed sources u/s 69A r.w.s. 115BBE. The Ld. CIT(A) confirmed the assessment against which the assessee is in further appeal before us.
From assessee’s return of income, it could be seen that the assessee has reflected business income on presumptive basis for Rs.2.68 Lacs apart from agricultural income of Rs.6 Lacs. The gross receipts from business are reflected at Rs.13.80 Lacs. The said receipts have been sourced to make the impugned deposits since Ld. AO has accepted the business income of Rs.2.68 Lacs. The assessee has reflected agricultural income of Rs.6 Lacs which also has been accepted by Ld. AO in the computation sheet. The deposits from past savings could also not be ruled out. Considering all these facts, I restrict the impugned addition to lump sum amount of Rs.1.50 Lacs.
The same would be subjected to normal rates of tax as per the decision of Hon’ble High Court of Madras (Madurai Bench) in S.M.I.L.E. Microfinance Ltd. vs. ACIT (WP (MD) No.2078 of 2020 dated 19-11-2024) holding 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 utilised for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc., so that there is justice and equality. An overview of the amendments proposed in the Bill are placed below; xxxxx xxxxx 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. The Hon’ble Court held 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. Respectfully following the same, I direct Ld. AO to apply normal rate of tax on sustained addition of Rs.1.50 Lacs. No other ground has been urged in the appeal.
The appeal stands partly allowed accordingly. Order pronounced on 08th December, 2025.