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Judgment
PER MANISH AGARWAL, AM :
The present appeal is filed by assessee against the order dated 03.09.2025 passed by Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. NFAC/2016-17/10428461 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 29.12.2024 passed u/s 143(3) r.w.s 254 r.w.s. 144B of the Act pertaining to Assessment Year 2017-18.
Brief facts of the case are that the assessee has filed its return of income, declaring total income of INR 1,23,760/- on 28.03.2018. The case was selected for limited scrutiny for the reason large cash deposit during demonetization period in Specified Bank Notes (SBN) of INR 34,09,000/- in bank accounts maintained with UCO Bank and Bank of Baroda. An order was passed u/s 143(3) of the Act dated 07.12.2019 and the matter was travelled upto the Tribunal as no proper opportunity was provided to the assessee, therefore, the matter was remanded back to the AO for framing fresh assessment in accordance with law.
During the set aside proceedings, the opportunity was provided to the assessee to explain the source of cash deposits in SBN during demonetization period. The claim of the assessee was that it was engaged in the business of manufacturing and sale of paints, putty and thinner and the cash was accumulated out of cash sales made during the month of October, 2016 till 08.11.2016 out of which cash in SBN was deposited. The AO has not accepted the claim of the assessee as there were no details of the parties to whom the goods were sold and further the assessee has not produced the books of accounts maintained therefore, the AO has treated the said cash deposit in SBN of INR 34,09,000/- as unexplained money u/s 69A of the Act and made the addition of the same and further, invoked the provisions of section 115BBE of the Act for charging special rate of tax.
In first appeal, Ld.CIT(A) in terms of the order passed dated 03.09.2025, has confirmed the addition made by the AO and dismissed the appeal of the assessee.
Aggrieved by the said order, the assessee is in appeal before the Tribunal by taking various Grounds of appeal mentioned in the appeal memo.
All the grounds of appeal taken by the assessee are with respect to the confirmation of the addition of Rs. 34,09,000/- made by the AO and uphold by ld. CIT(A) therefore, they are taken together and both the were heard at length. After considering the submission and considering the material available and facts of the case, it is observed that in the instant case, the immediate source of cash deposits during demonetization period in SBN was explained as out of cash sales made during the period from October, 2016 till 08.11.2016. The AO observed that there was a difference between the cash sales declared by the assessee and sales declared in the VAT return filed by the assessee. Further, there was abnormal spikes in the sales and despite of having sufficient cash in hand, the assessee has not deposited any sum in the month of October, 2016 in the bank accounts. Further, it is not undisputable as to why the cash was deposited on regular basis during the period 12.11.2016 to 03.12.2016 in both bank accounts when assessee was having lumpsum cash available with him. The ld. CIT(A) while confirming the addition has made the following observations:
“I have carefully considered rival submissions and examined the records. The appellant explained the Nature and Source of Cash Deposits as under:
A total of Rs 34,09,000 was deposited in cash during Nov–Dec 2016, fully sourced from recorded cash sales: - Trading cash sales (Oct–Nov 2016): Rs 33,71,474 - Manufacturing cash sales: Rs 3,37,392 - Total Cash Sales: Rs 37,08,866 - Cash Deposits: Rs 34,09,000 All these sales were: -Recorded in VAT returns and cash ledger - Supported by cash memos -Included in audited books
- The assessee’s explanation is contradictory – while claiming cash sales of Rs 37,08,866/-, VAT returns show cash sales of over Rs 44.78 lakh. This mismatch itself weakens the assessee’s case.
- The unusual spike in October 2016 sales (Rs 31.88 lakh) just before demonetization, without any cogent evidence of corresponding market demand or comparable trend in earlier quarters, cannot be accepted as genuine. It is strange that all the cash sales happened before demonetization.
- The deposit pattern is highly abnormal. Despite recording huge October sales, negligible deposits were made during that month. Instead, deposits were concentrated after 8 November 2016 in staggered tranches, clearly indicating accommodation of old currency rather than business proceeds.
- The cash book and bank book were not provided to verify the cash sales reported by the appellant • It is settled law that mere entries in books or VAT returns do not ipso facto establish genuineness of transactions, especially when surrounding circumstances raise grave doubts (refer CIT v. Durga Prasad More (82 ITR 540, SC) and Sumati Dayal v. CIT (214 ITR 801, SC)).
- In this case, the AO has demonstrated inconsistencies and improbabilities in the assessee’s version. The burden to prove the genuineness of cash sales was on the assessee, which has not been discharged.
- Case laws relied by the appellant are on different set of facts.
Accordingly, I find no infirmity in the AO’s conclusion that the deposits of Rs 34,09,000/- are not satisfactorily explained and rightly taxed u/s 69A.
The addition of Rs 34,09,000/- u/s 69A is confirmed.”
Before us, Ld.AR for the assessee has failed to controvert any such findings of ld. CIT(A) by placing any contrary material on record. The ld. CIT(A) made observations after considering the facts of the case and the submissions alongwith the relevant evidences filed. The assessee filed the copies of VAT returns and copy of the ledger accounts and certain bills which do not contain the details of the parties. The assessee also filed to produce the books of account before the AO for examination and this fact was recorded by the AO while making the addition. From the above facts, it is observed that the assessee has failed to substantiate the claim by placing on record sufficient material to support the contention that the cash deposit during the demonetization period was accumulated out of the cash sales made.
In view of the above discussion, we are unable to deviate from the observations of the lower authorities accordingly, the addition made of INR 34,09,000/- u/s 69A is hereby, confirmed.
Regarding the applicability of the provision of section 115BBE of the Act, the same has been incorporated w.e.f. 01.04.2018 and applicable from AY 2018-19 as has been held by Hon’ble Madras High Court in the case of SMILE Microfinance Ltd. v. ACIT in WP(MD) No. 2078 of 2020 & 1742 of 2020 dated 19.11.2024 (Mad.) wherein Hon’ble Madras High Court has already settled this issue and held that Section 115BBE applies from AY 2018-19 and onwards. Recently the hon’ble Rajasthan High Court in the case of Deepak Maratha Vs. Union of India in DB CWP No. 3625/2020 vide order dt. 27.05.2026 has held as under:
17.“SUMMARY/CONCLUSION As an upshot of the discussion and analysis, as above, in our opinion, the Correct Legal Position which emerges is summarized as below :
(i)The law applicable to an assessment year is the law in force on the first day of that year -- i.e., 01st April. A provision coming into force after that date, without express retrospective language, cannot be applied to assessments for that year.
(ii)Changes in law occurring after the commencement of a financial year cannot govern the tax liability for that year unless the amendment is expressly made retrospective.
(iii)The amendment to Section 115BBE came into force on 01.04.2017 i.e. the first day of financial year 2017-18. For FY 2016-17, the law in force on 01.04.2016, prescribing a rate of 30%, must govern. The enhanced rate of tax @60% came into force on 01.04.2017 and can apply only from that date, i.e. for financial year 2017-18 onwards.
(iv)The Taxation Laws (Second Amendment) Act, 2016 contains no express language for it's retrospective effect of section 115BBE.
18.We thus hold that the Taxation Laws (Second Amendment) Act, 2016 is prospective in effect as specified therein (from 15.12.2016 except the amendment of Section 115BBE, which is effective from 01.04.2017). The question framed in para 8.1, in the preceding part, is answered accordingly.”
Thus, by following the aforesaid judgements of hon’ble high courts, considering the fact that the year under appeal before us is AY 2017-18 thus, we are of the view that the provision of section 115BBE of the Act are not applicable for AY 2017-18 and are applicable from AY 2018-19 and onwards. Therefore, we direct the AO to charge the tax at normal rate of tax. All the Grounds of appeal raised by the assessee are thus, partly allowed.
In the result, the appeal of the assessee is partly allowed.