ITAT Upholds Addition as Cash Deposits Lack Evidence; Section 115BBE Amendment Prospective

Indira Rani Mulpuri Vs ITO (ITAT Visakhapatnam)

The appeal before the Income Tax Appellate Tribunal (ITAT), Visakhapatnam, was filed by the assessee challenging the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 19 February 2024. The appeal arose from an assessment order passed under Section 144 of the Income Tax Act, 1961 dated 25 December 2019 for Assessment Year (AY) 2017–18. The appeal before the Tribunal was filed with a delay of 318 days.

The assessee filed a petition seeking condonation of delay, explaining that she was not a regular income tax assessee and the Chartered Accountant engaged to handle her tax matters had passed away on 7 October 2022. She stated that she was unaware of the order passed by the CIT(A) until she received a call from the department. Thereafter, she contacted a new counsel who advised her to file an appeal before the Tribunal. The assessee submitted that the delay was neither intentional nor deliberate and requested that the delay be condoned in the interest of justice. After examining the condonation petition, the Tribunal found that reasonable cause existed for the delay and accordingly condoned the delay and admitted the appeal.

In the factual background, the assessee had not filed a return of income for AY 2017–18. The department observed that the assessee had made cash deposits of ₹19,27,126 in her bank account during Financial Year 2016–17. Statutory notices under Section 142(1) were issued seeking an explanation regarding the sources of the cash deposits. However, the assessee did not comply with these notices. Consequently, the Assessing Officer completed the assessment under Section 144 and made an addition of ₹19,27,126 under Section 69A treating the amount as unexplained money.

Aggrieved by the assessment order, the assessee filed an appeal before the CIT(A). The CIT(A) upheld the assessment order and dismissed the appeal. The assessee then filed the present appeal before the Tribunal raising several grounds. These included the contention that the assessment order and the appellate order were contrary to the facts and provisions of law. The assessee also claimed that the notice issued under Section 142(1) had not been received, and therefore the assessment under Section 144 lacked legal validity. It was further argued that the CIT(A) disposed of the appeal ex-parte without granting a reasonable opportunity and in violation of the principles of natural justice as well as Section 250(6) of the Act, which requires the appellate authority to pass a speaking order on merits.

The assessee also explained the source of the cash deposits. It was submitted that she had taken gold loans from banks to help her mother-in-law and sisters-in-law. According to the assessee, when these relatives returned the money, she deposited the amounts into her bank accounts. The deposits included ₹6,30,512 made during the non-demonetization period and ₹12,96,914 deposited during the demonetization period. The assessee further submitted that due to a change of residence from Sriperambadur in Tamil Nadu to Vijayawada, she did not receive the departmental notices and therefore could not attend the proceedings before the Assessing Officer or the CIT(A).

The Departmental Representative relied on the orders passed by the revenue authorities.

The Tribunal examined the record and noted that the assessee had made total cash deposits of ₹19,27,126 in various bank accounts during the relevant assessment year. The Tribunal observed that the assessee had not produced any documentary evidence before the revenue authorities to substantiate the explanation regarding the source of cash deposits. Even before the Tribunal, no documentary evidence was produced to support the claim that the deposits represented funds returned by relatives after the assessee had taken gold loans. In view of the absence of supporting evidence, the Tribunal held that the CIT(A) had rightly confirmed the addition made by the Assessing Officer under Section 69A. Accordingly, the Tribunal found no infirmity in the order of the CIT(A) on this issue.

The assessee also raised an additional ground relating to the tax rate applicable under Section 115BBE of the Act. It was contended that the Finance Act 2017 amended Section 115BBE to increase the tax rate from 30% to 60% through the Taxation Laws (Second Amendment) Act, 2016, and that this higher rate applied only to transactions occurring from 1 April 2017 onwards. The assessee relied on the decision of the Ahmedabad Bench of the Tribunal in the case of Naranbhai Samatbhai Bharwad v. ITO dated 3 January 2025.

The Tribunal examined the issue and noted that the Ahmedabad Bench had relied on the judgment of the Madras High Court in the case of SMILE Microfinance Limited v. Assistant Commissioner of Income Tax. The High Court had held that the amended rate of 60% under Section 115BBE was applicable only to transactions from 1 April 2017 onwards and not to earlier transactions. The court had also observed that the objects and reasons of the Taxation Laws (Second Amendment) Bill, 2016 indicated that the higher tax rate was intended to apply prospectively to future transactions.

Respectfully following the decision of the Madras High Court as relied upon by the Ahmedabad Bench of the Tribunal, the ITAT held that the higher tax rate of 60% under Section 115BBE could not be applied to transactions occurring prior to 1 April 2017. Accordingly, the Tribunal allowed the assessee’s additional ground on this issue.

In conclusion, the Tribunal upheld the addition of ₹19,27,126 under Section 69A due to lack of evidence supporting the explanation of cash deposits. However, it allowed the additional ground regarding the applicability of the higher tax rate under Section 115BBE and held that the earlier rate of 30% would apply to the transactions in question. The appeal was therefore partly allowed.

FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM

This appeal is filed by the assessee against the order of the Commissioner of Income Tax(Appeals) [“Ld.CIT(A)”], National Faceless Appeal Centre (“NFAC”), Delhi in DIN & Order No. ITBA/NFAC/S/250/2023-24/1061137115(1) dated 19.02.2024 arising out of the order passed u/s.144 of the Income Tax Act, 1961 (in short “the Act”), dated 25.12.2019 for the AY 2017-18 with the delay of 318 days. The assessee filed a petition for condonation of delay and submitted that she is not a regular income tax assessee and the CA engaged by her to look after her income tax matters was passed away on 07.10.2022 and the assessee was not aware of the order passed by the Ld.CIT(A) until she received a call from the department. Without any further delay she approached the present counsel who advised her to file an appeal before the Tribunal, which caused the delay. She further submitted that the delay was neither intentional nor deliberate, therefore, pleaded to condone the delay and admit the appeal for hearing in the interest of justice.

2. We have gone through the condonation petition filed by the assessee and find that there is a reasonable cause for the assessee to file the appeal belatedly. We therefore, condone the delay and admit the appeal for hearing.

3. Briefly stated, the facts of the case are that the assessee is an individual and did not file her return of income for the A.Y.2017-18. It was observed by the department that the assessee has made cash deposits in her bank account during the F.Y.2016-17 amounting to Rs.19,27,126/-. Statutory notices u/s 142(1) were issued to the assessee, calling for sources of cash deposits in her bank account. But the assessee did not comply with any of the notices. Hence, assessment was completed by the Ld.AO by making an addition of Rs.19,27,126/- u/s 69A of the Act.

4. Aggrieved by the order of the Ld.AO, the assessee filed an appeal before the CIT(A) and the Ld.CIT(A) upheld the order of the Ld.AO and dismissed the appeal filed by the assessee.

5. On being aggrieved with the order of the Ld.CIT(A) the assessee is in appeal before the Tribunal by raising the following grounds of appeal :

1. That, on the facts and circumstances of the case and in law, the order passed u/s 144 of the IT Act, 1961, dt. 25/12/2019, as upheld by the Ld. CIT(A), NFAC, vide order u/s 250 dt. 19/02/2024, is contrary to the facts of the case and the provisions of law and, therefore, liable to be set aside.

2. That the Ld. AO is said to have served a notice u/s 142(1) of the IT Act on dt. l4/02/2019, which the assessee denies having received. In the absence of valid service of such notice and in the absence of a return of income (since the assessee was under no obligation to file the same), the assessment completed u/s 144 of the IT Act lacks legal sanctity and is bad in law.

3. That the Ld. CIT(A) has disposed of the appeal ex-parte, without granting a reasonable opportunity to the assessee, thereby violating the principles of natural justice.

4. That the ex-parte disposal of the appeal by the Ld. CIT(A) is in contravention of Section 250(6) of the IT Act, which mandates that the appellate authority shall dispose of the appeal on merits by issuing a speaking order.

5. That the Ld. CIT(A) has failed to appreciate that the appellant made cash deposits during both the demonetization and nondemonetization periods primarily from funds received back from the mother-in-law and sister-in-law, to whom funds were originally advanced out of gold loans taken by the assessee from the bank.

6. For these and other grounds that may be urged at the time of hearing, the appellant prays that the order passed u/s 250 of the IT Act be set aside and the additions made by the Ld. AO be deleted.

6. The assessee raised an additional legal ground as follows:

The Finance Act 2017 introduced an amendment to Section 115BBE of the IT Act, which set a higher tax rate of 60% through the Taxation (Second Amendment) Act, 2016. This amended rate is applicable only for assessments conducted from 01.4.2017 onward. Therefore, it is not permissible to apply the revised rate tot eh assessment year in question.

7. At the outset, the learned authorized representative for the assessee (“Ld.AR) submitted that the assessee has taken gold loans from the banks just to help her mother-in-law and sisters-in-law. As and when they returned the money, assessee deposited the same into her loan accounts with bank. Assessee further deposited cash of Rs.6,30,512/- during non-demonetization period and Rs.12,96,914/-during demonetization period. As the assessee has not received any notices from the department due to change of her residence from Sriperambadur, Tamilnadu to Vijayawada she did not attend the proceedings before the Ld.AO. The assessee could not even appear before the Ld.CIT(A) as she was unaware of the service of notices until she received a call from the revenue authorities. He further submitted that the source for the deposits is explained and the revenue authorities are not justified in treating the amount of Rs.19,27,126/-as unexplained money. He, therefore, pleaded to set aside the order passed by the Ld.CIT(A) and allow the appeal filed by the assessee.

8. Per contra, the learned Departmental Representative (“Ld.DR”) relied on the order of the revenue authorities.

9. We have heard both the sides and perused the material available on record. It is an undisputed fact that assessee has made total cash deposits of Rs.19,27,126/- into the various bank accounts during the impugned assessment year. However, the assessee could not substantiate the cash deposits by any documentary evidences before the Revenue Authorities. Assessee has simply stated that she has taken gold loans from the banks just to help her mother-in-law and sisters-in-law. As and when they returned the money, assessee deposited the same into her loan accounts with bank. Assessee further deposited cash of Rs.6,30,512/- during non-demonetization period and Rs.12,96,914/- during demonetization period. As the assessee has not received any notices from the department due to change of her residence from Sriperambadur, Tamilnadu to Vijayawada she did not attend the proceedings before the Ld.AO. The assessee could not even appear before the Ld.CIT(A) as she was unaware of the service of notices. No documentary evidences were produced even before us substantiating the cash receipts from various sources as stated by the assessee. Ld. CIT(A) in Para No.4 to 5 observed as follows: –

10. Given these facts and circumstances the case, we find that Ld. CIT(A) has rightly confirmed the additions made by the Ld. AO amounting to Rs.19,27,126/- and hence we do not find any infirmity in the order of the Ld.CIT(A).

11. With respect to the additional ground raised by the assessee, assessee placed reliance on the order of the Co-ordinate Bench of the Ahmadabad Tribunal in the case of Naranbhai Samatbhai Bharwad ITO in ITA No.272/AHD/2024 dated 03.01.2025. The contention of the assessee is section 115BBE of the Act was amended with respect to the tax imposing from 30% to 60% w.e.f 01.04.2017 onwards. The Ld.AR contended that therefore the imposing of tax @60% was applicable only to the transactions from 01.04.2017 onwards and cannot be applied retrospectively.

12. Per contra, Ld. DR relied on the orders of the Revenue Authorities.

13. We have heard both the sides and perused the material available on record regarding the additional ground. In the case of Naranbhai Samatbhai Bharwad ITO (supra) relied on by the assessee, we find that the Co-ordinate Bench of Tribunal in Para No. 12 held as follows:

1. “12. We find that the issue stands settled by the order of the Hon‘ble High Court of Madras in the case of SMILE Microfinance Limited Vs. the Assistant Commissioner of Income Tax. The relevant extract of the order is reproduced as under: –

2. “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 15 of 26 https://www.mhc.tn.gov.in/judis 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 sothat 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;

Overview of Amendments Proposed

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.

3. Thus, respectfully following the above decision of Hon‟ble High Court of Madras, the ground of appeal of the assessee on the issue of section 115BBE of the Act is hereby allowed.”

14. Respectfully following the decision of the Hon’ble Madras High Court relied on by the Co-ordinate Bench of Ahmadabad Tribunal, we allow this ground of appeal raised by the assessee on the issue of section 115BBE of the Act.

15. In the result, appeal of the assessee is partly allowed.

Order pronounced in the open court on ^5thDecember, 2025.