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Judgment
PER NAVEEN CHANDRA [A. M]:
The above captioned appeal is preferred by the assessee against the order dated 06.08.2025, passed by National Faceless Appeal Centre/Learned Commissioner of Income Tax(Appeals), New Delhi (hereinafter referred to as ‘ld. CIT(A)), under section 250 of the Income Tax Act, 1961 [hereinafter referred to as, “Act”] for Assessment Year 2017-18. The assessment order in this appeal is passed by the Assessing Officer [for short, AO] under section 143(3) of the Act.
The assessee has raised following grounds of appeal:-
1.On the facts and circumstances of the case. the order passed by the Learned Commissioner of Income Tax (Appeals), Income Tax Department, National Faceless Appeal Centre (NFAC) [hereinafter referred to as CIT (A)] is bad, both in the eye of law and on the facts.
2.On the facts and circumstances of the case, the learned CIT(A), has erred both on facts and in law in confirming the action of AO despite the fact that notice issued u/s 143(2) of the Act and consequent assessment order passed by the AO are invalid, non-est and liable to be quashed as notice under section 143(2) of the Act has been issued violating the mandatory guidelines issued by CBDT vide Instruction no. 225/157/2017/ITA.II dated 23.06.2017.
3.(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on fact and in law, in confirming the addition of Rs. 44,89,500/- made by the AO on account of cash deposits under section 69A read with section 115BBE of the Income Tax Act, 1961 ("the Act").
(ii)That the abovesaid addition has been confirmed rejecting the detailed submissions and explanations along with the evidences brought on record by the assessee to justify the source of deposit made in the bank account.
4.On the facts and circumstances of the case, the learned CIT(A) has erred both on fact and in law, in confirming the addition made by the AO under section 69A of the Act despite the fact that provisions of section 69A are not applicable since the assessee is maintaining regular books of accounts and alleged transaction has been duly recorded in the books of the assessee.
5.On the facts and circumstances of the case, learned CIT(A) has erred both on facts and in law in confirming the abovesaid addition, ignoring the contention of the assessee that cash deposits were made out of cash sales which were already recorded in the books of accounts, and any further addition by the AO will lead to double taxation of the same amount in the hands of the assessee.
6.On the facts and circumstances of the case, the learned CIT(A) has grossly erred both on facts and in law in confirming the above additions despite the fact that addition has been made by the AO, without pointing out any defect in the evidences furnished by the assessee.
7.On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of AO despite the fact that the assessee has been maintaining proper books of accounts and cash sales were made out of the purchases that have not been doubted and rejected by the AO.
8.On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition, despite the fact that the assessee has been regularly maintaining books of accounts, audited as per law and nothing adverse were pointed out by the AO during the course of assessment proceedings.
9.On the facts and circumstances of the case, the learned CIT(A) has grossly erred both on facts and in law in confirming the action of AO by indulging in surmises and conjectures without bringing on any direct evidence against the assessee, only on the basis of presumption and assumption.
10.Without prejudice to the above, the learned CIT(A) has erred both on facts and in law in confirming the AO's action of charging tax under section 115BBE of the Act at an exorbitant rate of 60% with surcharge of 25% despite the fact that the provisions of section 69A as well as provisions of section 115BBE are not applicable.
11.Without prejudice to the above, the Learned CIT(A) has erred in law in confirming the retrospective application of the amendment brought by The Taxation Laws (Second Amendment) Act, 2016 under Section 115BBE, effective from 01.04.2016, despite the Act being notified only on 15.12.2016.
12.The appellant craves leave to add, amend or alter any of the grounds of appeal.
The sole issue involved in this case is addition of Rs.44,89,500/-as unexplained cash deposits under section 69A r.w.s 115BBE of the Act. The AO found that the cash deposits of Rs.44,89,500/- during demonetization period was not explained, which was confirmed by the ld. CIT(A).
Before us, the ld. Counsel for the assessee stated that the ld. Counsel for the assessee is in the business of manufacturer of TMT Steels and the sale made is out of cash sales and out of cash in hand available in the books. The ld. Counsel further stated that the AO accepted the books of accounts, the stock register, and the cash books. Therefore, the addition made under section 69A is not valid.
Per contra, the ld. DR heavily relied upon the orders of the authorities below.
We have heard the rival submissions and perused the materials available on record. In the instant case, we find that the assessee has attempted to prove the entire source of cash deposit during demonetization as cash sales and cash in hand. Although the assessee, prima facie, appears to have discharged its onus of explaining source of cash deposit, it’s contentions to prove the source, hardly deserves to be accepted in entirety especially when the AO found that the cash deposits hugely deviate from the normal business activity compared with cash deposits in the same period in the preceding year. On the other hand, the Revenue’s endeavour to disbelieve the assessee’s contention that cash deposit has been made out of sales, cannot be fully justified. In this factual matrix, there is some element of failure to explain some of the cash deposit, cannot be ruled out. Be that as it may, it is deemed appropriate, in larger interest of justice, that a lump-sum addition of ₹ 5 lakh only would be just and proper with a rider that the same shall not be treated as a precedent, so as to cover all loopholes. The ground of appeal no 3 to 9 is partly allowed.
In so far as assessee's levy of tax at a higher rate under section 115BBE of the Act is concerned, we find that the Madras High Court in the Writ petition in the case of 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 held that the impugned statutory provision would come into effect on the transaction done on or after 01.04.2017 only. Accordingly, we direct the AO to tax the addition under normal provisions of tax and not under the provisions of 115BBE. The ground 10 raised by the assessee is allowed.
In the result, the appeal of the assessee in ITA No.5593/Del/2025 is partly allowed.
Order was pronounced in the open court on 18.02.2026.