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Judgment
O R D E R
PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
The main appeal arises from order dated 09.12.2025, passed by Ld. CIT(A), NFAC, u/s 250 of the Income Tax Act, 1961 (hereafter as “the Act”). The Cross Objection has been filed by the assessee in support of the order of Ld. CIT(A).
It may be mentioned that the assessee decided to not press the Cross Objection and this fact is recorded in the order-sheet entry dated 02.07.2026. Accordingly, the Cross Objection is dismissed as not pressed.
In the quantum matter, it is seen that the Ld. AO made an addition of Rs.261,23,155/- u/s 68 of the Act r.w.s. 115BBE of the Act. In this case, cash deposits amounting to Rs.2,70,00,000/- are seen to have been made between 09.11.2016 and 30.12.2016. The Ld. AO analyzed the pattern of deposits and the surrounding evidences before coming to the conclusion that the amount of Rs.261,23,155/- needed to be added as unexplained income u/s 68 of the Act. However, the Ld. CIT(A) found that the Ld. AO disregarded the documents filed before him by the assessee and proceeded to make the impugned addition on the basis of his own notion about adequate evidence that could be in possession of the assessee. Needless to say, relief was granted at first appellate stage.
Aggrieved with this action of Ld. CIT(A), the Revenue is before us with grounds which challenge this action mainly on the ground that the pattern of sales during demonetization period was abnormally high and the assessee had not been able to fully justify the cash sales.
The ld. DR took us through the Ld. AO’s detailed findings and pointed out multifarious instances of the short comings in the assessee’s submissions before the Ld. AO. It was also stated that the abnormal cash generation during the demonetization period was not satisfactorily explained by the assessee.
The Ld. AR relied on the findings given by the Ld. CIT(A) and also brought to our notice certain documents like audited accounts etc. which had been filed before the authorities below. It was the submission by the Ld. AR that the assessee was not interested in prolonged litigation and wanted the matter to be amicably settled at this stage. It was offered that a small fraction of the total addition could be considered for confirmation purely as a method of buy peace of mind and bring finality to proceedings. It was also the submission that Section 115BBE could not be applied in the present year due to the case of S.M.I.L.E. Microfinance Ltd. reported in 179 taxmann.com 65 (Mad.) [2025].
We have carefully considered the rival submissions and have gone through the record before us. We find that in this case, the Ld. AO has done considerable fact finding whereas the Ld. CIT(A) has primarily relied on the VAT returns etc. to hold that the cash deposits were justified. We find that the Ld. CIT(A) has not rebutted the Ld. AO’s finding in a comprehensive manner. Therefore, it is felt that there is a degree of lacuna in fact finding. Be that as it may, we feel that the interest of justice would be served if Rs.10,00,000/- is sustained as an addition out of the impugned amount, with relief to the assessee on the remainder.
Regarding the applicability of Section 115BBE of the Act in this case we are 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, while the Cross Objection is dismissed, the Revenue’s appeal is partly allowed.