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Judgment
ORDER
Per Sanjay Awasthi, Accountant Member:
This appeal arises from order dated 22.12.2025 passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by Additional / JCIT (Appeal)-2, Vadodara.
In this case, the Ld. AO is seen to have added an amount of Rs. 17,24,388/- u/s 68 of the Act, on account of cash deposited during the demonetization period (09.11.2016 to 30.12.2016). There is a finding that the claim of cash deposits due to increased sales during demonetization period, was not believed by Ld. AO and thereafter he proceeded ahead to make the impugned addition.
Aggrieved with this order, the assessee approached the Ld. Addl. /JCIT. However, he could not succeed mainly on account of findings given on pages 8 to 9 of the impugned order. Briefly, the finding of the Ld. First Appellate Authority is that no day-to-day cash flow statement was ever filed by the assessee or even any linkage between the alleged withdrawal of cash from bank and the retention thereon of the same, which was later deposited during demonetization period. Also, the Ld. First Appellate Authority has stated that the cash flow during demonetization period was in excess of the historical cash flow visible in the case of the assessee.
Further aggrieved, the assessee has approached the ITAT with as many as 11 very detailed grounds, challenging the action of the authorities below and also presenting arguments in favour of the assessee.
Before us, the Ld. AR argued with the help of a detailed paper book and submitted that the assessee was engaged in the trading of garments and traditionally this kind of trade was prone to huge cash sales. It was the submission that cash out of such sales was duly deposited in the bank account during demonetization period and there was also availability of some cash which was withdrawn earlier from the bank. The Ld. AR rebutted the findings of the Ld. AO / Additional /JCIT (Appeals) by pointing out a number of documents in support of his arguments that the sales for the entire year, included during the demonetization period, were duly accounted for in the books of accounts, which was nonetheless added to the declared income. However, it was submitted that the assessee was not interested in any prolonged litigation in the matter and wanted closure at this level only.
Ld. DR relied upon the orders of the authorities below and submitted that there were gaps in the submission of the assessee before the authorities below, and the same were duly pointed out by both of the authorities below. It was the submission that due to such short-comings in the presentation of the assessee, that the authorities below had no option but to resort to the addition, which was under consideration.
We have carefully considered the rival submissions and gone through the records before us. We find that there are certain visible gaps in the presentation of facts before the authorities below, which have been used against the assessee to effect the impugned addition. We also find that the assessee had considerable documentation available with him, which was also filed before the authorities below, in justification for the cash flow during the entire year, including during the period of demonetization. However, we find that the insistence by the Ld. AO of day-to-day sales, etc., being proved was not entirely misplaced. However, taking a broad view of the matter, we feel that the ends of justice would be met in case an addition of Rs. 2 lakhs was to be sustained out of the impugned amount, with relief on the remainder.
It is also directed that regarding the applicability of Section 115BBE of the Act in this case, we need to be guided by the case of S.M.I.L.E. Microfinance Ltd. (supra) where the following finding is relevant: -
“In the aforesaid objects and reasons nowhere it is stated that due to "demonetization" the unaccounted money ought to be charged 60 per cent 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 has 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 1.4.2017. Therefore, this Court is of the considered opinion that the revenue is empowered to impose 60% rate of tax for the transactions from 1.4.2017 onwards and not prior to the said cut-off date. And for prior transaction the revenue is empowered to impose only 30 per cent rate of tax. [Para 17]”
Accordingly, it is clear that the assessee cannot be taxed @ 60 per cent rate of tax, rather than at normal tax rates.
In the result, appeal of the assessee is partly allowed.