Loading judgment…
Facts
The assessee, a senior citizen, deposited Rs. 23.54 Lacs cash during the demonetization period (AY 2017-18). The Assessing Officer made an addition of Rs. 10.79 Lacs under Section 69A read with Section 115BBE, deeming it taxable at 60%, after the assessee explained some sources. The CIT(A) upheld this addition.
Held
The Tribunal recognized the assessee's status and allowed partial acceptance of claimed cash sources, including past savings and receipts from friends/relatives. Following a High Court decision, it ruled that the 60% tax rate under Section 115BBE is applicable only from April 1, 2017, and not for demonetization transactions in FY 2016-17, for which the 30% rate applies. Consequently, the tribunal estimated a lump sum addition of Rs. 3 Lacs, taxable at normal rates.
Key Issues
Whether the higher tax rate under Section 115BBE (60%) applies to cash deposits made during the demonetization period (FY 2016-17) or only from April 1, 2017, and the validity of cash source explanation.
Sections Cited
Section 143(3), Section 69A, Section 115BBE, Income Tax Act, 1961
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH, CHANDIGARH
Before: HON’BLE SHRI RAJPAL YADAV & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2017- 18 arises out of an order of learned Addl. / Joint Commissioner of Income Tax (Appeals)-7, Mumbai [CIT(A)] dated 30-09-2024 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s 143(3) of the Act on 24-12-2019. At the time of hearing, none appeared for assessee. The perusal of order sheet entries would reveal that none is appearing for assessee since past many occasions. The Ld. Sr. DR pleaded for dismissal of the appeal. Left with no option, the appeal is dispose-off as under.
The assessee aged more than 70 years filed regular return of income declaring income of Rs.12.63 Lacs. It transpired that the assessee deposited cash of Rs.23,54,996/- during demonetization period and accordingly, the assessee was required to explain the sources thereof. The Ld. AO accepted substantial explanation of the assessee except for opening cash balance of Rs.5 Lacs and cash receipts of Rs.5,79,470/- as stated to be received by the assessee from friends, relatives and his wife. The addition of Rs.10,79,470/- was thus made by Ld. AO u/s 69A r.w.s. 115BBE which would be taxable at higher rates of 60%. The Ld. CIT(A) confirmed the assessment against which the assessee is in further appeal before us.
It could be seen that the assessee is a senior citizen and employed in a private job. The assessee and his wife are shown to have approximate cash balance of Rs.5 Lacs as on 01-04-2016 which is stated to be sourced out of sale of ornaments and household articles. Considering the background of the assessee, accumulation of past savings could not be ruled out. The explanation that some amount was received during the year from friends, relatives and his wife is also to be accepted partially considering the background of the assessee. By considering all these facts, we estimate lump sum addition of Rs.3 Lacs in the hands of the assessee which would be taxable at normal rates by giving benefit of 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, we direct Ld. AO to apply normal rate of tax on sustained addition of Rs.3 Lacs.
The appeal stands partly allowed accordingly. Order pronounced on 15th January, 2026.