Shri Harish Panwar Vs Income Tax Officer (Income Tax Appellate Tribunal, Jodhpur Bench)
Jodhpur ITAT Deletes ₹68.85-Lakh Demonetisation Addition: Cash Withdrawals From Partnership Firm Adequately Explained Deposits; Enhanced Section 115BBE Rate Inapplicable to AY 2017-18
Summary: The Jodhpur Bench of the Income Tax Appellate Tribunal allowed the assessee’s appeal for AY 2017-18 and deleted an addition of ₹68.85 lakh relating to Specified Bank Notes deposited in his Kotak Mahindra Bank account during the demonetisation period. The assessee had returned income of ₹13.26 lakh, including remuneration and interest from partnership firms M/s Shri Ram Excellency and M/s Parihari Textiles and income from other sources. The Assessing Officer treated the ₹68.85 lakh cash deposit as unexplained money under Section 69A, while the CIT(A) sustained the addition. The lower authorities were not satisfied with the assessee’s explanation of availability of substantial cash in hand and considered, inter alia, that the claimed cash balance was disproportionately high compared with the returned income and that the surrender made during an earlier survey was not on account of excess cash found.
Before the Tribunal, the assessee explained the complete movement of cash through cash statements for FYs 2014-15, 2015-16 and 2016-17. The assessee submitted that during a departmental survey conducted on 02.12.2014 he had surrendered approximately ₹2 crore relating to cash loans/advances and that the amounts subsequently recovered were reflected in his cash records. The cash statement for FY 2014-15 showed that the surrendered amount recovered in cash was deposited into the bank account and, together with the opening cash balance, resulted in a closing cash balance of about ₹8 lakh. In the succeeding year, the assessee withdrew approximately ₹45 lakh from his partnership firm M/s Shri Ram Excellency and, after a ₹10 lakh redeposit and monthly personal drawings, was stated to have a closing cash balance of ₹41.04 lakh.
For the relevant FY 2016-17, the assessee carried forward the opening cash balance of ₹41.04 lakh and additionally withdrew ₹52 lakh from the partnership firm during September and October 2016. The assessee emphasised that the immediate source of a substantial portion of the ₹68.85 lakh deposited between 05.11.2016 and 03.12.2016 was the ₹52 lakh withdrawn shortly before demonetisation, including withdrawals on 18.09.2016 and 29.10.2016. These withdrawals were corroborated by corresponding entries in the books of the partnership concern and had not been disputed by the lower authorities. The balance was explained from earlier cash withdrawals of approximately ₹45 lakh made from the partnership concern in April 2015, which were likewise reflected in the firm’s books.
The Tribunal found merit in the assessee’s explanation. It specifically noted that the cash statement for the relevant year demonstrated an immediate source of ₹52 lakh from withdrawals from the partnership firm before the cash deposits. The lower authorities had not disputed these withdrawals but had nevertheless overlooked their significance. Consequently, the Tribunal held that the source of ₹52 lakh stood adequately explained and that the addition to that extent was unsustainable on facts.
As regards the remaining amount, the Tribunal accepted that cash withdrawals of approximately ₹45 lakh in the preceding year explained the opening cash-in-hand balance of ₹41.04 lakh and consequently the remaining cash deposited during the relevant year. It further examined the assessee’s explanation connecting the cash balances with the income surrendered during the FY 2014-15 survey. The Tribunal observed that the cash statement for FY 2014-15 showed recovery of the surrendered advances and deposit of those amounts into the assessee’s bank account. The bank deposits constituted third-party corroborative evidence. Since the undisclosed income discovered during the survey consisted of the advances surrendered by the assessee and no other source of undisclosed income had been found by the Revenue, the Tribunal considered the cash statement for that year corroborated by the survey surrender.
The subsequent cash statements were also supported principally by withdrawals from the partnership firm, which in turn were corroborated by the firm’s books of account. The Tribunal therefore held that the cash statements spanning FY 2014-15 to FY 2016-17 were duly corroborated. Once those statements were accepted, the source of the demonetisation-period deposits stood explained through the two identified sources, predominantly the partnership-firm withdrawals. Accordingly, the Tribunal directed deletion of the entire ₹68.85 lakh addition.
On Section 115BBE, the Tribunal held that once the underlying addition itself had been deleted, there was no question of applying the special rate of tax. It additionally referred to the jurisdictional Rajasthan High Court ruling in Deepak Maratha Vs. Union of India, under which the enhanced rate introduced through the Taxation Laws (Second Amendment) Act, 2016 was prospective and the enhanced rate under Section 115BBE could not govern FY 2016-17 relevant to AY 2017-18. The Tribunal therefore held the application of Section 115BBE incorrect both in law and, following deletion of the addition, on facts. All grounds were allowed and the assessee’s appeal was allowed.
Cases Discussed
- Deepak Maratha Vs. Union of India, DB Civil Writ Petition No. 3625/2020 — Rajasthan High Court ruling relied upon for holding that the enhanced rate under Section 115BBE could not apply to AY 2017-18.
FULL TEXT OF THE ORDER OF INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH
The present appeal has been filed by the assessee against the order passed by the National Faceless Appeal Centre (NFAC), Delhi(hereinafter referred to as “Ld. CIT(A)”), dated 07.11.2024 under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).
2. The grounds raised by the assessee read as under:-
1.The Id.CIT(A) has erred in sustaining the addition of Rs. 68,85,000/- made by the Id. AO on account of cash deposit made in the bank account. The addition so sustained is bad in law and bad on facts.
2.The Id. CIT(A) has erred in sustaining charging of tax u/s 115BBE of the Act.
3.The Id. CIT(A) has erred in sustaining interest charged u/s 234A, 234B and 234C
4.The appellant crave liberty to add, amend, alter, modify, delete any of the ground of appeal on or before its hearing before your honours.
3. The solitary issue involved in the present appeal pertains to the addition made to the income of the assessee on account of cash found deposited in his bank account during demonetization period. The assessee has also challenged the levy of tax at the special rate prescribed u/s 115BBE of the Act on the addition so made to the income of the assessee.
4. The facts relating to the case are that, the assessee for the impugned year had filed return of income declaring income of Rs.13,26,090/- which included income from business and profession as remuneration and interest from firm M/s Shri Ram Excellency and from M/s. Parihari Textiles and also income from other sources. During the impugned year, the assessee was noted to have deposited cash in his bank account in the form of Specified Bank Notes (SBNs) of Rs.68,85,000/- in his Kotak Mahindra Bank Account. The assessee had explained the source of the same as emanating out of his cash in hand and withdrawals from his partnership firm but the same was rejected both by the AO and the Ld. CIT(A).
5. The Ld. CIT(A) has reiterated the findings of the AO while confirming the addition made to the income of the assessee recording the same at page 30 and 31 of his order as under:-
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Further, it is seen from the impugned order that assessee claimed that this amount was cash in hand out of Rs.2,00,09,810/- declared as income from undisclosed sources during survey conducted on 02.12.2014 by Income Tax Department. The AOin his detailed findings in the impugned order concluded that considering all the discrepancy in the natures of transaction claimed by the assessee during the assessment proceedings with regard to cash deposited during demonetisation of Rs.68,85,000/-, this amount is nothing but unexplained money of the assessee for AY 2017-18 as per section 69A of the I.T. Act, 1961. The reasoning of the AO is based on the following observations:-
1. The assessee has not claimed to have any business and have filed ITR 2 for the year.
2 The assessee has accepted this Cash Deposit of Rs. 68,85,000/- during demonetisation.
3. The assessee has claimed Cash in Hand as on 08.11.2016, of Rs. 68,85,000/-without any basis. The assessee’s claim that he was holding this cash from last two years also not found tenable and in such case it is not possible to accept claim the Cash in Hand of Rs. 71,14,084/- by any stretch of imagination.
4. The Total Cash deposit by the assessee during the demonetisation is more than 500% of total Income as per ITR.
5. The surrender of Income, during the Survey conducted on 02.12.2014 was not on the “Excess Cash Found’ or “Cash Found”, hence to claim that this “Cash in Hand” is out of that surrender of Income can also not be accepted.
6. In view of these several Contradictory facts it is hereby observed that the assessee is making impractical claims as an afterthought to artificially create source or explanation for the Unexplained Money of the assessee which he deposited in his bank account during the demonetisation period. This cannot be accepted as genuine.
Before this appeal, Appellant hasn’t produced any material evidence to controvert the detailed and tangible findings of the AO in the impugned order and facts summarized above. In view of these, I have no reason to interfere with action of the AO and hence, addition made by the AO is sustained. Therefore, ground No ‘2’ of appeal is dismissed.
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6. As is evident from the above, the assessee’s claim of the cash deposited of Rs.68,85,000/- in his bank account during demonetization period as out of cash in hand available with him was rejected noting it to be 500% of the total income returned by the assessee. The assesse’s explanation for the huge cash in hand attributed to the surrender made by the assessee during survey conducted on 02.12.2014. was also rejected noting that the surrender was not on account of cash found during survey.
7. Before us, ld. Counsel for the assessee contended that it had been explained to the Authorities below that the source of huge cash balance was out of the amount of Rs.2 crores declared at the time of survey proceedings conducted by the Department on 02.12.2014; that the assessee had surrendered this amount as cash loan given in AY 2014-15; thatthe said cash was available with the assessee which had been deposited in the bank during the demonetization period and further there was regular deposit and withdrawal of funds from the firm where the assessee was partner. He contended that the assessee had filed his cash statement for the impugned year in which the survey was conducted i.e. FY 2014-15 ,the cash book for the succeeding Financial Year i.e. FY 2015-16 and also the cash book for the FY 2016-17 pertaining to the assessment year before us i.e. AY 2017-18. Copies of the same, he pointed out, are placed before us at paper book page No.39-40, 41 and 36-38 respectively. Referring to the cash book for FY 2014-15 placed before us at paper book page No.39-40 he pointed out that the entire cash surrendered by the assessee during survey conducted on 02.12.2014 was received in cash and deposited in the bank account of the assessee along with the opening balance of cash available with him resulting in a closing balance of Rs.8 lakhs being available with the assessee during the impugned year.
8. That in the succeeding year the assessee had withdrawn Rs.45 lakhs from his partnership firm from M/s Shri Ram Excellency and at the end of the year was left with balance of Rs.41.04 lakhs after redeposit of Rs.10 lakhs in the partnership firm and after utilizing Rs.15,000/- per month for his drawings.
9. Accordingly for the impugned year, he pointed out, the assessee had an opening balance of Rs.41.04 lakhs which was increased by Rs.52 lakhs again on account of withdrawals from his partnership firm M/s Shri Ram Excellency in the month of September 2016 and October 2016 ,which was deposited in his bank account along with opening balance during the demonetization period.
10. He pointed out that the immediate source of the cash deposited in the bank account of the assessee during demonetization period from the 05.11.2016 to 03.12.2016 of Rs.68,85,000/- was primarily the cash withdrawn from his partnership firm of Rs.52 lakhs in September 2016 i.e. 18.09.2016 and 29.10.2016 which is corroborated with the corresponding entry in the books of the partnership concern also and which has not been disputed by the Authorities below. For the remaining amount he contended that the same is sourced from the cash withdrawn from his partnership concern of Rs.45 lakhs in the preceding year on the 4th of April 2015 and the 12th of April 2015 which is corroborated with the corresponding entry in the books of accounts of the firm and which has remained undisputed by the Department.
11. He contended that this copy of cash book was submitted to the Authorities below who had failed to consider the explanation furnished by the assessee in the proper light. That the assessee received considerable amount of money which was surrendered during survey as loans advanced and the said amount was deposited in the bank account of the assessee as and when received in the year of survey itself, which resulted in huge accumulation of cash in hand as at the beginning of the year. He stated that the basis with the Revenue Authorities for rejecting the assessee’s explanation was not justified by stating that the survey was on account of some other reason and not on account of cash found with the assessee. He contended that even otherwise the cash deposits being substantiated with corresponding withdrawals from the partnership firm of the assessee, there was no reason to hold the cash deposit during the bank account of the assessee as out of unexplained sources.
12. The Ld. DR however, relied on the order of the Ld. CIT(A).
13. Having considered the contention of the ld. Counsel for the assessee and on going through the orders of the Authorities below, we find merit in the contention of the ld. Counsel for the assessee that source of cash deposit in the bank account of the assessee of Rs.68,85,000/- stood adequately explained. We have noted that in the impugned year the cash statement filed by the assessee reflected the immediate source of cash deposited during the demonetization period to the extent of Rs.52 lakhs, as being from cash withdrawn from the partnership firm of the assessee. These facts were there before the Authorities below also but were surprisingly overlooked by them. The Authorities below have not disputed the fact of the assessee having withdrawn cash from its partnership firm of Rs.52 lacs , before deposit in the bank account of cash.
14. In the light of the same, the source of cash deposit of Rs.52 lakhs during the impugned year we hold stands adequately explained and the addition made to this extent is held to be not sustainable on facts.
15. Besides the ld. Counsel for the assessee has fairly demonstrated before us that in the preceding year also the assessee had withdrawn cash of approximately Rs.45 lakhs. The said withdrawal explains the cash deposit of the remaining amount of Rs.16 lakhs in the bank account of the assessee during the impugned year. The cash so withdrawn from the partnership concern can safely be said to explain the opening cash in hand balance of Rs. 41.04 lakhs
16. Besides we have noted that the assessee’s explanation of the cash deposit in his bank account during demonetization period being sourced on account of huge cash balance available with it on account of the income surrendered during survey holdings is duly evidenced with entries in its books of accounts.
17. We have noted that in the cash book/cash statement of the assessee for the year in which survey was conducted i.e. FY 2014-15 and in which the assessee had admittedly surrendered Rs.2 crores on account of advance given to persons, the entire amount surrendered has been shown to have been recovered by the assessee and deposited in his bank account. The fact that the surrendered amount stood deposited in his bank account, which is the third party evidence, corroborates assessee’s explanation of the cash statement for FY 2014-15 to be correct, since in FY 2014-15 the assessee had made a surrender of undisclosed income of Rs.2.04 crores on account of advance given and that was the only undisclosed income found with the assessee, which the assessee has shown to have recovered and deposited in his bank account. The cash available with the assessee therefore in the said year which was admittedly deposited in the bank account cannot be attributed to any other source except the surrender made by the assessee, since no other source of income was discovered by the Revenue in the said year other than that which was surrendered by the assessee.
18. Therefore, the cash statement for FY 2014-15 stood duly corroborated with the surrender made by the assessee during the survey. The subsequent receipts of cash in his cash statements in the succeeding years is of primarily on account of cash withdrawal from the partnership firm of the assessee which is corroborated by entries in the books of accounts of the partnership firm. Therefore, the entire cash statements submitted by the assessee right from FY 2014-15 to FY 2016-17 pertaining to AY 2017-18 the impugned year before us, is we hold duly corroborated by the surrender made by the assessee during the survey and the recording of withdrawal of cash from the partnership firm of the assessee.
19. The cash statement filed by the assessee having been found to be correct, the source of cash deposited in the bank account also emanating from these two sources alone and primarily as noted above from the cash withdrawals made from his partnership firm. We have no hesitation therefore in holding that the source of cash deposited in the bank account of the assessee during demonetization period stood duly explained. The addition made to the income of the assessee of Rs.68,85,000/- is accordingly held to be not sustainable onfacts and is directed to be deleted.
20. Since we have deleted the addition made there is no question of invoking the special rate of tax u/s 115BBE of the Act. Even otherwise it has been pointed out to us that the Hon’ble Jurisdictional High Court in the case of Deepak Maratha Vs. Union of India in DB Civil Writ Petition No.3625/2020 has held that the provisions of Section 115BBE of the Act are not applicable for the impugned assessment year i.e. AY 2017-18 .Copy of the order was placed before us. The relevant findings of the Hon’ble High Court in this regard are as under:-
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17. SUMMARY/CONCLUSION As an upshot of the discussion and analysis, as above, in our opinion, the Correct Legal Position which emerges is summarized as below :-
(i) The law applicable to an assessment year is the law in force on the first day of that year — i.e., 01st April. A provision coming into force after that date, without express retrospective language, cannot be applied to assessments for that year.
(ii) Changes in law occurring after the commencement of a financial year cannot govern the tax liability for that year unless the amendment is expressly made retrospective.
(iii) The amendment to Section 115BBE came into force on 01.04.2017 i.e. the first day of financial year 2017-18.
For FY 2016-17, the law in force on 01.04.2016, prescribing a rate of 30%, must govern. The enhanced rate of tax @60% came into force on 01.04.2017 and can apply only from that date, i.e. for financial year 2017-18 onwards.
(iv) The Taxation Laws (Second Amendment) Act, 2016 contains no express language for it’s retrospective effect of section 115BBE.
18. We thus hold that the Taxation Laws (Second Amendment) Act, 2016 is prospective in effect as specified therein (from 15.12.2016 except the amendment of Section 115BBE, which is effective from 01.04.2017). The question framed in para 8.1, in the preceding part, is answered accordingly..
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21. In view of the above, the application of Section 115BBE of the Act for the impugned A.Y 2017-18 is also held to be incorrect both in law and even on facts, since we have deleted the addition made on merits. Accordingly, all the grounds raised by the assessee are allowed.
22. In effect, appeal of the assessee is allowed.
Order pronounced in the Open Court on 25.08.2026
