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Judgment
PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
This appeal arises from order dated 19.11.2025, passed by Ld. Addl./JCIT(Appeals)-2, Ludhiana, u/s 250 of the Income Tax Act, 1961 (hereafter as “the Act”). In this case, the Ld. AO added Rs.45,68,500/- as unexplained cash deposit during demonetization period. It is seen that before the Ld. AO the assessee could not apply fully with the terms of notices issued by him. However, even before the Ld. Addl./JCIT(A) the details filed could not convince the First Appellate Authority and the addition made by the Ld. AO was confirmed.
The aggrieved assessee has approached the ITAT with certain additional grounds on the validity of assumption of jurisdiction (additional grounds 1 & 2). These two grounds have not been pressed before us and hence, they are dismissed.
The remaining additional grounds challenge the action of Ld. AO in making the impugned addition and the Ld. Addl./JCIT(A) in confirming the same.
Before us the Ld. AR argued with the help of detailed paper books and case laws. It was stated that the amount in question was very much part of the legitimate business of the assessee and should not have been added. On a query from the Bench regarding the partial compliance before the Ld. AO to his notices and the inability of the assessee to convince the Ld. Addl./JCIT(A) with facts and documents, the Ld. AR stated that the assessee does not intend to pursue prolonged litigation in this matter. Thereafter, it was offered that some amount may be confirmed from the total added so that this matter could rest at this stage itself. Notwithstanding this offer, the Ld. AR stated that the assessee had a strong case on merit.
The Ld. DR relied on the orders of the authorities below.
We have considered the rival submissions and have gone through the documents before us. We find that the issue of whether the cash deposits were justified or not is an entirely factual matter for which the authorities below have not found enough evidence to grant relief to the assessee. However, considering the documents before us and the totality of facts & circumstances, it is felt that the assessee has a reasonable case in his favour. Accordingly, we deem it fit to restrict the addition to Rs.4,00,000/- and grant relief on the remaining amount.
It is also to be noted that following the case of S.M.I.L.E. Microfinance Limited reported in 179 taxmann.com 65 (Mad.) [2025] the tax on this amount of Rs.4,00,000/- cannot be @60% as per Section 115BBE of the Act. This proposition is derived from the following part of this order: -
“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]” The AO is directed to tax the amount sustained at normal rates, accordingly.
In the result, this appeal is partly allowed.