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PER PAWAN SINGH, JUDICIAL MEMBER;
This appeal by assessee is directed against the order of learned CIT(A)/National Faceless Appeal Centre, Delhi dated 14.10.2025 for assessment year (AY) 2017-18. The assessee has raised following grounds of appeal:
“1. That the learned Commissioner Income Tax (Appeals) has grossly erred both in law and on facts, in sustaining an assessment under section 143(3) of the Income Tax Act 1961 ("Act"), at an income of Rs. 36,38,690/- as against returned income of Rs. 5,00,690/-.
2. That the learned Commissioner of Income Tax (Appeals) has further erred, both in law and on facts, in sustaining an addition of Rs. 31,38,000/- under section 68 of the Act, treating the amounts deposited in bank account as unexplained cash credit, while ignoring the explanations and evidences duly submitted by the appellant. The said finding is contrary to the facts on record, based on mere conjectures and surmises, and is bad in law.
Without prejudice to the foregoing grounds, the appellant craves leave to raise the following Additional Ground:
That on the facts and in the circumstances of the case, and in law, the Learned Assessing Officer has erred in applying the provisions of section. 115BBE of the Income-tax Act, 1961, as amended by the Taxation Laws (Second Amendment) Act, 2016, to the addition made under section 68 of the Act, and in consequently levying tax at the rate of 60% along with surcharge at 25%. The Learned Assessing Officer failed to appreciate that the said amendment, being substantive and penal in nature, cannot be applied retrospectively to cash receipts or credits pertaining to the period prior to its enactment on 15th December 2016. The application of the higher rate of tax under the amended provisions is therefore unjustified, unconstitutional, and bad in law, and the addition, if any, ought to have been taxed at the rate applicable under the unamended provisions.
4. That the learned Commissioner of Income Tax (Appeals) has further erred in sustaining initiation of penalty proceedings under section 271AAC, 272A(1) and 270A of the Act and in upholding the levy of interest under sections 234B and 234C of the Act, which are not leviable on the facts and circumstances of the case.”
Brief facts of the case are that the assessee is individual and engaged in the business of Civil contract, filed his return of income for AY 2017-18 declaring income of Rs.5.00 lakhs(approximately). The case was selected for limited scrutiny about the increase in cash deposit during demonetization period.
During assessment, the Assessing Officer noted that the assessee has made cash deposit with his two bank accounts maintained with Shivalik Mercantile Cooperative Bank of Rs.30.49 lakhs in the form of specified bank note (SBN) during demonetization period. There was other cash deposit during the financial year of Rs.31.38 lakh. The Assessing Officer recorded that in response to show-cause notice, the assessee explained that cash was deposited out of cash withdrawals by him as well as his son. The reply of the assessee was not accepted by the Assessing Officer. The Assessing Officer added the entire cash deposit during the year of Rs.31.38 lakhs.
3. Aggrieved by the additions in the assessment order, the assessee filed appeal before learned CIT(A). Before the learned CIT(A) the assessee submitted that he is carrying business of civil contract. The Assessing Officer made addition of Rs.31.38 lakhs on account of cash deposit in Shivalik Mercantile Cooperative Bank Ltd. All the cash deposits are from the cash withdrawals by assessee and his Son Shri Avdesh Kumar who is also a joint account holder in the same account. Copy of current account of Shri Avdesh Kumar xxxxx72 in the name of M/s Anjali Construction Co. in Bank of Baroda was also furnished. A copy of his return of income was also furnished. The assessee furnished the joint bank statement of assessee as well as his son. The learned CIT(A) on considering the submissions of the assessee prepared summary of cash withdrawals from M/s Anjali Construction Co. of Rs.47.11 lakhs, on page-8 of order of learned CIT(A). The learned CIT(A) noted that issue for his consideration relates to deposit of Rs.30.00 lakhs out of total of Rs.31.38 lakhs, which was deposited in a single instance on 28.11.2016. The learned CIT(A) further recorded that it is difficult to convince him that cash withdrawal made in May, 2016, July, 2016 and August 2016, was kept and re-deposited in cash against term loan in November, 2016. There is no other bulk cash withdrawal in the month of November, 2016. On the basis of such observations, the learned CIT(A) confirmed the action of the Assessing Officer. Further aggrieved, the assessee has filed the present appeal before the Tribunal.
I have heard the submissions of learned Authorized Representative (AR) of the assessee as well as the learned Senior Departmental Representative (Sr. DR) for the Revenue. The learned AR of the assessee submits that assessee and his son engaged in the business of civil contract. The assessee is running a proprietor firm in the name of Raja Construction Co. In response to show cause notice, the assessee furnished his reply before Assessing Officer. The assessee also furnished a details of total cash withdrawal and cash deposit by him as well as his son, who is also having a similar business of construction in the name of Anjali Construction Co. Due to sudden demonetization of currency note of Rs.1000 and Rs.500, the assessee has no option except to deposit all the cash available. The assessee made such deposit in cash deposit in current account against term loan. The Assessing Officer has not proved that cash withdrawal was used for any other purpose. The assessee was having cash withdrawn more than Rs. 41.00 lakhs out of which about Rs.31 lakhs plus odd amount was deposited during demonetization period and rest of the amount which was withdrawn was used for day to day expenses of his business proprietary concern. There was no justification for making addition of entire cash deposit. The learned AR of the assessee submits that once the assessee has explained the source of cash deposit which was from cash withdrawal from bank account, there was no justification of making such addition. The Assessing Officer taxed the addition under section 115BBE. The provision of section 115BBE is not applicable on the cash deposit during demonetization period as has been held by various Benches of the Tribunal. Recently, Hon’ble Madras High Court in S.M.I.L.E. Microfinance Ltd. Vs. ACIT, in W.P. (MD)
No.2078 of 2020 & 1742 of 2020, dated 19.11.2024 (Madras) also held that enhance rate of tax under section 115BBE is applicable from 01.04.2017 onwards.
On the other hand, the ld. Senior Departmental Representative (Sr DR) for the Revenue supported the orders of the lower authorities. Learned Sr. DR of Revenue submits that Assessing Officer as well as learned CIT(A) has given a categorical finding that the assessee failed to explain the nature and source of cash deposit. The explanation of the assessee that cash deposit was from earlier withdrawals is not convincible for the reasons that ordinary circumstances when a person is having sufficient balance in his hand, there is no need to withdraw more cash from the banking institute only parking to the pocket. The learned Sr. DR prayed for dismissal of the appeal.
I have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. I find that the Assessing Officer prepaid a summary of cash deposit during demonetization period as well as during the entire financial year in the following manner.
S. Name of Bank Account No. Cash Deposit No. Demon. Period Entire year 1 Shivalik Mercantile Co- 101941001399 30,00,000/- 30,00,000/- Operative Bank 2. Shivalik Mercantile Co- 1011910009862 49,000 1,38,000/- Operative Bank Total 30,49,000/- 31,38,000/-
I find that case of assessee was selected for limited scrutiny about cash deposit during demonetization period. The cash deposit during demonetization period as per summery prepared by assessing officer is of Rs.30,49,000/-only.
However, the Assessing Officer made addition of entire cash deposit of Rs.31,38,000/-. Though, no such objection is raised by assessee either before learned CIT(A) or before this Bench. In my view, there is apparent mistake of addition, however, facts remains the same that the main figure of cash deposit during demonetization period is of Rs.30.00 lakhs. The assessee before me, explained that cash deposit during demonetization period is out of cash withdrawals from April, 2016 onwards. The assessee has shown total cash withdrawal more than Rs.47.00 lakhs out of which about Rs.30 lakhs was deposited in term loan account. I find that despite providing complete bank statement by the assessee of his own proprietary concern as well as of bank statement of proprietary firm of his son namely Anjali Construction, the Assessing Officer has not carried out further verification of fact or if any revenue or capital expenditure is incurred by the assessee out of the withdrawal shown. Considering the overall fact that it was an unforeseen situation for individual due to demonetization and have no option to except the deposit of cash available in the form of SBN to deposit during demonetization period in the nationalise bank. In my view, the assessee has discharged his onus in showing sufficient cash balance of more than Rs. 47 lakhs out of which only Rs.30.49 lakhs was deposited. Thus, I find that the assessee has explained the nature and source of cash deposit. In the result, ground no.1 and 2 raised by the assessee is allowed. Considering the fact that the appeal of the assessee is allowed on ground no.1 and 2, therefore, adjudication of ground no.3 have become academic.
In the result, the appeal of the assessee is allowed. Order was pronounced in the open Court on 04thDecember, 2025.