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Facts
The assessee, an individual, filed a revised return of income for AY 2017-18. During demonetization, the assessee made cash deposits totaling Rs. 12,15,000. The assessee claimed these deposits were met from agricultural income of Rs. 1,93,500 and rental receipts of Rs. 5,50,000. The Assessing Officer (AO) found that the rental receipts were not in cash and added back Rs. 10,21,500 as unexplained income.
Held
The Tribunal held that the assessee failed to provide cogent documentary evidence to substantiate the source of cash deposits. The addition made by the AO and sustained by the CIT(A) was upheld. However, regarding the additional ground on the rate of tax under section 115BBE, the Tribunal followed the High Court of Madras's decision and directed the AO to apply the pre-amended rate of 30%.
Key Issues
Whether the addition of Rs. 10,21,500 as unexplained cash deposits during demonetization is justified, and the applicability of the enhanced tax rate under Section 115BBE for AY 2017-18.
Sections Cited
143(3), 142(1), 69A, 115BBE, 270A, 271AAB
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Income Tax Appellate Tribunal, VISAKHAPATNAM“DIVISION” BENCH, VISAKHAPATNAM
Before: SHRI RAVISH SOOD, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
आदेश /O R D E R
PER SHRI S BALAKRISHNAN, ACCOUNTANT MEMBER:
This appeal is Filed by the assessee against order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal centre, Delhi [hereinafter in short “Ld.CIT(A)”] vide DIN & Order
I.T.A.No.268/VIZ/2025 Paladugu Reshma No.ITBA/NFAC/S/250/2024-25/1073292480(1) dated14.02.2025 for the A.Y.2017-18 arising out of the order passed under section 143(3) of the Income Tax Act, 1961 (in short ‘Act’) dated 25.11.2019.
Brief facts of the case are that, assessee is an individual and filed her revised return of income for the A.Y.2017-18 on 03.08.2017 admitting a total income of Rs.3,56,360/-. Subsequently, the case was selected for limited scrutiny to verify the cash deposits made during demonetization period. A notice under section 143(2) of the Act dated 08.08.2018 was issued and served. Subsequently, notices under section142(1) of the Act were issued calling for certain information. In response, assessee filed her reply on various dates along with statement containing the sources for each cash deposit and also utilization of each debit, and submitted that assessee holds agricultural income of Rs.1,93,500/- from agricultural land and had rental receipts of Rs.5,50,000/- and that the cash deposits of Rs.12,15,000/- were met from out of the above resources. Ld.Assessing Officer [hereinafter in short “Ld. AO"] on verification of bank statements and financial transactions noticed that rental receipts of Rs.5,50,000/- were not available with the assessee in the form of cash. Thus, the assessee could not establish the source to the extent of Rs.5,50,000/-. However, the agricultural receipts of Rs.1,93,500/- did not appear to have been reflected in the bank account thus the balance of Rs.10,21,500/- out of Rs.12,15,000/- were added back under section.69A r.w.s. 115BBE of the Act.
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I.T.A.No.268/VIZ/2025 Paladugu Reshma 3. On being aggrieved by the addition made by the Ld. AO, assessee preferred an appeal before the Ld. CIT(A) and reiterated the submissions made before the Ld. AO. Ld. CIT(A) after considering the submissions of the assessee, confirmed the addition made by the Ld.AO on the ground that no evidences have been produced for the cash deposits.
On being aggrieved by the order of the Ld. CIT(A), assessee is in appeal before us by raising following grounds of appeal: -
“1. The order of Learned Commissioner of Income Tax (Appeals) is contrary to the facts and also the law applicable to the facts of the case. 2. The learned Commissioner of Income Tax (Appeals) is not justified in sustaining the addition of Rs.10,21,500 made u/s 69A of the Act towards unexplained cash deposits during demonetization period. 3. Any other ground that may be urged at the time of appeal hearing.’
Ground Nos. 1 & 3 are general in nature and needs no adjudication.
With regard to Ground No.2 which in in respect of sustaining the addition of Rs.10,21,500/- made by the Ld. AO under section 69A of the Act towards unexplained cash deposits during demonetization period. Ld. Authorised Representative [hereinafter “Ld.AR”] submitted that without properly appreciating the submissions of the assessee with respect to the cash deposits made during the demonetization period, the Ld.CIT(A) sustained the addition made by the Ld. AO. Therefore, the Ld. AR pleaded that the addition sustained by the Ld. CIT(A) may be deleted.
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I.T.A.No.268/VIZ/2025 Paladugu Reshma 7. Per contra, Ld. Departmental Representative [hereinafter in short “Ld.DR”] vehemently opposed to the submissions of the Ld. AR and submitted that after thorough verification and examining the facts and submissions of the assessee as well as the evidences submitted by the assessee, the Ld. CIT(A) dismissed the appeal of the assessee. Therefore, Ld. DR prayed that the decision of the Ld. CIT(A) needs no interference.
We have heard both the sides and perused the material available on record. It is a fact that in the case of the assessee, the Ld. AO made addition of Rs.10,21,500/- under section 69A r.w.s 115BBE of the Act since the assessee could not substantiate her claim of cash deposits during the demonetization period. No documentary evidences were produced even before us substantiating the cash receipts from various sources as stated by the assessee. The Ld. CIT(A) sustained the addition made by the Ld. AO by observing as under: -
“7.3.2 Ground Nos.2 to 6 relates to addition of Rs.10,21,500/- on account of cash deposit u/s.69A of the Act. The appellant vide its ground raised has contended before the FAA that she owned extensive lands and thereby she could save agricultural income to the tune of Rs.9,00,000/- for the current year and the earlier years and she had savings from withdrawals made earlier. Further the appellant has contested against the invoking of provisions of Section 69A by claiming that the cash deposits were recorded in the books of accounts such as bank account. The appellant has also claimed to have received monetary gifts in form of the financial support from her close relatives. The appellant stated that confirmation letters issued by them would be filed during the course of appellate proceedings. However, the same has not been filed before the FAA. As seen from the assessment order, inspite of sufficient opportunities
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I.T.A.No.268/VIZ/2025 Paladugu Reshma afforded, the appellant has failed to establish the source of the cash deposits made by her during the period under consideration fully. Out of the total cash deposit of Rs. 12,15,000/-, the appellant could only establish the source for the amount of Rs.1,93,500/- being agricultural receipts, which has been accepted by the Assessing Officer. Further, on verification of the bank account, the AO observed that as regards the amount of Rs.5,50,000/- claimed as rental receipts by the appellant, the same were not received in cash. Thus, the appellant failed to establish the source of the cash deposit made by her to the tune of Rs. 10,21,500/- before the Assessing Officer. 7.3.3 During the course of appellate proceedings, sufficient opportunities were afforded to the appellant through various notices served from time to time. However, the appellant has failed to discharge the onus of establishing the source of cash deposits made during the demonetization period by providing relevant documents or evidence. The appellant has merely submitted that she is a regular filer of income tax returns and hence, it was pertinent to hold Rs. 12,00,000/- in her lifetime of 30 years and has submitted capital account for the period under consideration. She has claimed in the grounds of appeal that the cash was gifts from close relatives and that she would be filing confirmation letters during the course of appellate proceedings. However, no such documents have been furnished till date. Although she has submitted copy of cash book for the year showing opening balance of Rs 10,68,816/-, there are no supporting evidences to prove genuineness of the opening balance as the cash book is self-made document. Her statements are made without any concrete evidence and thus lack substance. The appellant has not produced any documentary evidences such as relevant ITRs of earlier years and other documents such as gift deed from family members etc to prove that the cash deposits were made from disclosed sources of income. The appellant has failed to refute the findings of the AO. Therefore, the said grounds of appeal are dismissed.”
9. Given these facts and circumstances the case, in the absence of any cogent documentary evidence, we hereby uphold the decision of the Ld. CIT(A) and sustain the addition of Rs.10,21,500/-. Accordingly, we do not find any infirmity in the order of the Ld.CIT(A). It is ordered accordingly.
10. Further, assessee has raised an additional legal ground as follows: -
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I.T.A.No.268/VIZ/2025 Paladugu Reshma "The assessing officer is not justified in levying tax at increased rate of 60% u/s 115BBE of the Act and levying surcharges @25% in as much as the amended provisions of S.115BBE of the Act are applicable only from A.Y.2018-2019 onwards."
With respect to the additional ground raised by the assessee, assessee placed reliance on the order of the Co-ordinate Bench of the Ahmedabad Tribunal in the case of Naranbhai Samatbhai Bharwadv. ITO in dated 03.01.2025. The contention of the assessee is section 115BBE of the Act was amended with respect to the tax imposing from 30% to 60% w.e.f 01.04.2017 onwards. The Ld.AR contended that therefore the imposing of tax @60% was applicable only to the transactions from 01.04.2017 onwards and cannot be applied retrospectively.
Per contra, Ld. DR relied on the orders of the Revenue Authorities.
We have heard both the sides and perused the material available on record regarding the additional ground. In the case of Naranbhai Samatbhai Bharwadv. ITO (supra) relied on by the assessee, we find that the Co-ordinate Bench of Tribunal in Para No. 12 held as follows: -
“12. We find that the issue stands settled by the order of the Hon’ble High Court of Madras in the case of SMILE Microfinance Limited Vs. the Assistant Commissioner of Income Tax. The relevant extract of the order is reproduced as under: - “16. The next contention raised by the Learned Senior Counsel is that the undersection 115BBEthe 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
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I.T.A.No.268/VIZ/2025 Paladugu Reshma 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 sothat 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;
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I.T.A.No.268/VIZ/2025 Paladugu Reshma Overview of Amendments Proposed PARTICULARS PROPOSED PROVISIONS EXISTING PROVISIONS GeneralProvisionForpe PENALTY(Section270A) Nochangesproposed nalty Under-reporting - @f0°S of taxMisreporting-@50% of tax (Under- reporting/ Misreporting income is normally difference between returned incomeandassessedincome) Provisions TAX(section 115BBE) TAX (Section115BBE) for&oftaxation Flat rate of tax @30% surcharge + cess penaltyunexplainedc + Flat rate of tax re.dit, investment, @60%surcharge (No expense, deductions, set-off is allowed) cash and other @25%]’tax(i.e15% of such assets income).Sototal incidence of tax is 75% approx. (Noexpense,deductions,set- offis allowed). PENALTY(Section271AAC) IfAssessingOfficerdeterminesincom ereferredto in section 1I5BBE, penalty @l0% of tax payable in addition to tax ("including surcharge) of 75%. Penaltyforsearch Penalty (27IAAB) Penalty(271AAB) Seizure cases. (i) 30% of (i) 10%ofincome, ifadmitted, returnedand income,ifadmitted,returnedandt taxes arepaid axesarepaid (ii) 20% ofincome,ifnotadmittedbutreturnedandtaxes Not(ii)60%ofincome in anyother arepaid (iii) 60%ofincomeinanyothercase NewTaxationandInvestmentRegime Undisclosedincomeintheform of Taxation cash & bank deposit can be InvestmentRegimeand declared for Pradhan MantriGaribKalyan (A) Tax,Surcharge,Penalty Yojana,2016’ Payabletax @ 30% ofincome (PMGKY) declared Surcharge@33% ofPenalty@10% of income declared Total @50% of Income (approx.) (B) Deposit 25% of declared income to be deposited in interest. Free Deposit scheme for four years.
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.
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I.T.A.No.268/VIZ/2025 Paladugu Reshma 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. Thus, respectfully following the above decision of Hon’ble High Court of Madras, the ground of appeal of the assessee on the issue of section 115BBE of the Act is hereby allowed.”
Further, it was also submitted that the Hon’ble High Court of Kerala in the case of Maruthi Babu Rao Jadav vs. ACIT, Central Circle-1, Kozhikode, WA No. 984 of 2019, dated 23/09/2020 while dealing with the issue as to whether or not the enhanced rate of tax liability contemplated in the post- amended Section 115BBE of the Act as made available on the statute vide the Taxation Laws (Second Amendment) Act, 2016, dated 15/12/2016 w.e.f 01/04/2017 will apply to Assessment Year 2017-18, has answered in the affirmative.
Considering the aforesaid conflicting view of the non-jurisdictional High Courts, we are guided by the judgment of the Hon’ble High Court of Bombay in the case of K. Subramanian & Ors. Vs. Siemens India Ltd vs. Anr. (1985) 156 ITR 11 (Bombay) that in the case of conflicting view of the non-jurisdictional High Courts the view that was favourable to the assessee and not against him is to be adopted. We thus, based on the aforesaid position of law respectfully follow the view taken by the Hon’ble High Court of Madras in the case of S.M.I.L.E Microfinance Limited vs. ACIT (supra), and direct the AO to determine the tax liability on the impugned addition of Rs.10,21,500/- made in Page No. 9
I.T.A.No.268/VIZ/2025 Paladugu Reshma the hands of the assessee U/s. 69A of the Act by applying the tax rate of 30% as was contemplated in the pre-amended section 115BBE of the Act. The additional grounds of appeal is allowed in terms of our aforesaid observations.
Respectfully following the decision of the Hon’ble Madras High Court 16. relied on by the Co-ordinate Bench of Ahmedabad Tribunal, we allow this ground of appeal raised by the assessee on the issue of section 115BBE of the Act.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 24th September, 2025.