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Facts
The assessee, an individual, deposited Rs. 3,56,500/- in cash in his bank account during the demonetization period. He did not file a return of income for AY 2017-18. The Assessing Officer (AO) treated the entire deposit as unexplained income and made an addition. The CIT(A) confirmed the AO's order.
Held
The Tribunal held that the entire amount of undisclosed money cannot be treated as income, and only the estimated profit embedded in the transactions should be taxed. Following the Gujarat High Court decision in CIT vs. President Industries, the Tribunal directed the AO to disallow 30% of the addition, amounting to Rs. 1,06,950/-, considering it as profit.
Key Issues
Whether the entire cash deposit during the demonetization period can be treated as unexplained income, and if not, what portion can be taxed as profit.
Sections Cited
250, 144, 69A, 142(1), 115BBE
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Income Tax Appellate Tribunal, “SMC”
Before: DR. ARJUN LAL SAINI
सुनवाई की तारीख /Date of Hearing : 08/09/2025 घोषणा की तारीख /Date of Pronouncement : 06/11/2025 आदेश/Order Per, Dr. Arjun Lal Saini, A.M: Captioned appeal filed by the assessee, pertaining to Assessment Year 2017-18, is directed against the order passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) of the Commissioner of Income Tax (Appeal), ADDL/JCIT(A) dated 28.03.2025, which in turn arises out of an order passed by Assessing Officer u/s 144 of the Act, on 06.08.2019.
Grounds of appeal raised by the assessee, are as follows:
Laljibhai Dudabhai Buva vs. ITO 1. The learned Joint Commissioner of Income Tax (Appeals) [JCIT(A)] erred on facts as also in law in not admitting additional evidence submitted by the appellant. The additional evidence may kindly be admitted. 2. The learned JCIT(A) erred on facts as also in law in confirming the addition of Rs. 3,56,500/- made by treating cash deposited in bank account as unexplained. The addition made u/s 69A of the Act may kindly be deleted.
The appeal filed by the assessee is barred by limitation by 39 days. The assessee has moved a petition requesting the Bench to condone of delay. Learned Counsel for the assessee, explained the reasons of delay, stating that as soon as the appellate order was received by the consultant, the consultant tried to contact with the assessee. However, as assessee was shifted in Surat City to his Son's house therefore, the assessee could not contact with the consultant. When the assessee came to Rajkot City for residing at the house of his another Son, then assessee contacted the consultant and found that the appellate order was passed. Then after, the assessee immediately took necessary steps to file the appeal, therefore, in this process, the delay in filing the appeal has occurred, which may kindly be condoned in the interest of justice. However, learned DR for the revenue, opposed the prayer of the assessee for condonation of delay. I have heard the parties on this preliminary issue. Having regard to the reasons given in the petition, I condone the delay and admit the appeal for hearing.
Succinctly, the factual panorama of the case is that assessee before us is an Individual. As per the SFT report, the assessee had made cash deposit of Rs.3,56,500/- in his RDCC Bank account no.614049000881 held in Ramod Branch, during Demonetization period between 09/11/2016 to 30/12/2016 in old Rs.500 & Rs.1000 currency notes. Further as per ITS data, the assessee had not filed his return of income for assessment year (A.Y.) 2017-18.On the basis of this 2 Laljibhai Dudabhai Buva vs. ITO information the assessee was issued a notice u/s.142(1) of the Act on 14/06/2019 which was duly served on him. The assessee was asked to furnish details of all his bank accounts with bank statements and to explain the source of cash deposits made by him in old Rs.500 & Rs.1000 currency notes during Demonetisation period between 09/11/2016 to 30/12/2016. This information was asked to be submitted on or before 19/06/2019 but the assessee failed to submit any reply to the abovementioned notice on the appointed date. Therefore, a show cause notice was issued on 26/06/2019 as to why cash deposit of Rs.3,56,500/- made by him in his Bank account no.614049000881 held in Ramod Branch during Demonetisation period between 09/11/2016 to 30/12/2016 be treated as unexplained money u/s.69A of the Act and added to his total income for A.Y.2017-18. The assessee was asked to submit his reply by 27/06/2019 but once again the assessee failed to reply. Therefore, the assessing officer made addition in the hands of the assessee, to the tune of Rs.3,56,500/- under section 69A of the Act.
On appeal, ld.CIT(A) confirmed the action of the assessing officer. That is, the appeal preferred by the assessee did not find favour with the Commissioner of Income Tax (Appeals), who confirmed the order of the Assessing Officer in this regard. Calling into question the said order, the assessee preferred appeal before this Tribunal.
At the outset, the Ld. Counsel for the assessee submitted that the assessee has deposited the cash during the demonetization period to the tune of Rs.3,56,500/-. The assessee has not filed the return of income, as the assessee does not have any Laljibhai Dudabhai Buva vs. ITO source of income. However, the assessee has deposited the cash of Rs.3,56,500/- out of his past savings. The Ld. Counsel for the assessee submitted that before the Ld. CIT(A), the assessee has submitted additional evidences to prove his claim that the amount of Rs.3,56,500/- was deposited out of the definite past sources of the assessee and for that additional evidences were produced before the Ld. CIT(A). However, the Ld. CIT(A) has rejected these additional evidences. By way of additional evidence, the assessee submitted that the assessee has earned out of agricultural activity and for that assessee submitted the sales bills and the land holding etc. and also submitted the proof that the part amount was from the past savings of the assessee. However, the Ld. CIT(A) did not accept these evidences and confirmed the addition made by the AO which is not justifiable.
7.The Ld. Counsel for the assessee further submitted that since the assessee has not filed the return of income, therefore, the basic exemption limit, of Rs.2,50,000/- is available to the assessee. Therefore, the assessee need not to pay the tax up to the amount of Rs.2,50,000/-, which is the maximum amount, which is not chargeable to tax, hence, to the extent of Rs. 2,50,000/-, no addition should be made in the hands of the assessee. However, Ld. Counsel for the assessee, alternatively, further submitted that the entire cash deposited in the bank account to the tune of Rs.3,56,500/- should not be the profit in the hands of the assessee. Therefore, profit element should be added in the hands of the assessee, by making estimated ad hoc addition in the hands of the assessee, considering the smallness of the amount.
Laljibhai Dudabhai Buva vs. ITO 8. On the other hand, Ld. DR for the Revenue, argued that in order to protect the interest of the revenue, and considering the fact of smallness of the amount, profit element at the rate of 30% of the cash deposited in the bank account should be added in the hands of the assessee, to meet the end of Justice.
I have heard both the parties and perused the materials available on record. I note that total addition made by the AO is to the tune of Rs.3,56,500/-. Since, the assessee has not filed the return of income, therefore, the maximum amount which is not chargeable to tax to the tune of Rs.2,50,000/- should not be added in the hands of the assessee, that is, to the extent of Rs.2,50,000/-, no addition should be made in the hands of the assessee. However, I note that the amount of addition made by the AO is in excess of Rs.2,50,000/-, that is, it is Rs.3,56,500/-, therefore, I am of the view that the profit element on such cash deposit in the bank account should be treated as income of the assessee. Therefore, considering the facts and circumstances and by following the decision of the Hon’ble Jurisdictional High Court of Gujarat in the case of CIT v. President Industries, [2002] 258 ITR 654 (Guj), wherein it was held that the entire amount of undisclosed money cannot be treated as income and only estimated profit embedded in these transactions may be taxed. The Hon’ble High Court also held that 30% estimated addition in the case of ‘on money’ is sufficient to protect the interest of the revenue. Therefore, respectfully following the judgment of the Hon’ble Jurisdictional High Court of Gujarat in the case of President Industries (supra), I direct the assessing officer (AO) to disallow 30% of Rs.3,56,500/- in the hands of the assessee which comes to Rs.1,06,950/-.
Laljibhai Dudabhai Buva vs. ITO 10. I also note that since the assessee has deposited amount during demonetization period out of his definite sources, therefore, it should be assessed by applying the normal rate of income tax and not u/s.115BBE of the Act. I also make it clear that this adjudication in the assessee’s appeal, has been done by me, considering the smallness of the amount, therefore, this should not be treated as a precedent in the previous year as well as in the subsequent year.
In the result, appeal filed by the assessee is allowed partly in above terms.
Order pronounced in the open court on 06/11/2025.