ITAT Restricts Demonetization Cash Deposit Addition to Rs.1 Lakh Because Earlier Withdrawals Were Ignored

Pankaj Kumar Vs ITO (ITAT Agra)

The Income Tax Appellate Tribunal, Agra Bench, partly allowed the assessee’s appeal for assessment year 2017-18 against the order passed by the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre under Section 144 of the Income-tax Act, 1961. The dispute related to additions made by the lower authorities treating cash deposits during the demonetization period from 9 November to 30 December 2016 amounting to Rs.15.44 lakh and interest credits of Rs.2,51,150 as unexplained under Section 69A and taxing the same under Section 115BBE.

The assessee contended that the cash deposits and credit entries were sourced from earlier cash withdrawals of Rs.8 lakh and Rs.10.50 lakh made on 15 and 16 March 2016. The Tribunal observed that the Revenue could not dispute these withdrawal entries. However, the Tribunal also noted that the assessee had failed to furnish a cash-flow statement or substantive evidence directly reconciling the withdrawals with the subsequent cash deposits and credit entries.

At the same time, the Tribunal found that the lower authorities had also failed to grant credit for the cash withdrawals shown by the assessee. Considering the overall facts and circumstances, the Tribunal held that a lump sum addition of Rs.1 lakh alone would meet the ends of justice and clarified that the order should not be treated as a precedent. As a result, the assessee received relief of Rs.16,95,150.

Regarding taxation under Section 115BBE, the Tribunal relied on the Madras High Court decision in S.M.I.L.E. Microfinance Ltd. vs. ACIT dated 19.11.2024, which held that Section 115BBE would apply only to transactions carried out on or after 01.04.2017. Accordingly, the Tribunal directed the Assessing Officer to assess the assessee under the normal provisions of the Act instead of Section 115BBE.

The appeal was partly allowed.

FULL TEXT OF THE ORDER OF ITAT AGRA

This assessee’s appeal for assessment year 2017-18, arises against the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre [in short, the “CIT(A)/NFAC”], Delhi’s DIN and order no. ITBA/NFAC/S/250/2023-24/1058364976(1) dated 30.11.2023 involving proceedings under section 144 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).

2. Heard both the parties. Case file perused.

3. It emerges during the course of hearing that the assessee is aggrieved against both the learned lower authorities’ action addition his cash deposits during demonetization between 9th November to 30t^h December, 2016 amounting to Rs.15.44 lakhs and other credit interest during relevant previous year of Rs.2,51,150/- as unexplained under section 69A of the followed by assessment thereof under section 115BBE of the Act.

4. It is in this factual backdrop that the assessee’s case before us is that all these cash deposits as well as credit entries representing his cash withdrawal of Rs.8 lakhs and 10.50 lakhs dated 15^th and 16^th March, 2016, respectively. The Revenue could hardly dispute these clinching withdrawal entries in the relevant previous years. The fact, however, remains that the assessee has not filed either his cash-flow statement or all the other substantive evidence directly reconciling the said cash withdrawals with the cash deposits as well as the credit entries herein so as to get the addition in question deleted in entirety. Be that as it may, we are of the considered view that both the learned lower authorities have also not given credit to the assessee’s foregoing cash withdrawal entries.

5. Faced with this situation, it is deemed appropriate in the larger interest of justice that a lump sum addition of Rs. 1 lakh only in the given facts would be just and proper with a rider that the same shall not treated as a precedent. The assessee’s gets the relief of Rs.16,95,150/- in other words.

6. So far as assessee’s assessment under section 115BBE herein is concerned, case law S.M.I.L.E. Microfinance Ltd. Vs. ACIT, W.P. (MD) No.2078 of 2020 & 1742 of 2020, dated 19.11.2024 (Madras), has settled the issue that the impugned statutory provision under section 115BBE would come into effect on the transactions done on or after 01.04.2017 only. We accordingly direct the learned Assessing Officer to assess the assessee under the normal provisions in very terms.

7. This assessee’s appeal is partly allowed.

Order pronounced in the open court on 4^th February, 2025