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Judgment
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER :
This captioned appeal has been filed by the assessee against the order of the learned Commissioner of Income Tax (Appeals)-NFAC-Delhi [‘CIT(A)’ in short] dated 03.12.2025 arising from the assessment order dated 24.12.2019 passed by the ITO, Ward – 24(4), Delhi under Section 143(3) of the Income Tax Act, 1961 (‘the Act’) concerning Assessment Year (A.Y.) 2017-18.
The grounds raised by the assessee are as under :
1.“That the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi has erred both in law and, on facts in upholding the determination of income made by the learned Income Tax Officer, Ward-24(4), Delhi of the appellant company at Rs.56,49,030/- as against declared income of Rs. 23,84,030/- in an order of assessment dated 24.12.2019 u/s 143(3) of the Act.
2.That the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) has erred both in law and on facts in upholding an addition made of Rs.32,65,000/- re-presenting alleged unexplained cash deposits in the bank account of the appellant company during the period of demonetization and erroneously held as unexplained money u/s 69A of the Act read with section 115BBE of the Act.
3.That both the authorities below have failed to appreciate that once the books of accounts are duly audited both under the Companies Act' 2013 and also under section 44AB of the Act which have been accepted as such and not rejected u/s 145(3) of the Act; the addition made on surmises and conjectures and factually incorrect assertions and observations the addition made and sustained is illegal, arbitrary and unsustainable and otherwise too without jurisdiction.
4.That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that there was bank withdrawal of Rs. 49,12,000/- during the period 1.4.2016 to 8.11.2016 coupled with the opening cash balance of Rs. 7,18,762/- and there is utilization of only Rs.17,77,860/- upto 8.11.2016 the deposits of Rs. 32,63,000/- out of balance of Rs. 38,52,902/- was duly explained and could not have been rejected on surmises, conjectures and suspicion.
5.That various adverse findings recorded in the impugned order are factually incorrect, legally misconceived and untenable.
6.That without prejudice to the above and in the alternative, even otherwise, the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in holding that amount deposited in the bank by the appellant company is taxable as income under section 69A of the Act and thereafter computed the demand in accordance with the rates specified in section 115BBE of the Act as amended by Taxation Laws (Second Amendment) Act, 2016.
7.That the notice issued u/s 143(2) of the Act is not in accordance with CBDT notification dated 23.6.2017 vide F. No. 225/157/2017/ITA-II and therefore order of assessment is illegal, invalid and void-ab-initio.
8.That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in upholding the levy of interest of Rs.8,86,578/- u/s 234B of the Act, interest of Rs. 20,063/- u/s 234C of the Act and interest of Rs.449/- u/s 234D of the Act which are not leviable on the facts of the appellant company.
9.It is therefore, prayed that, that addition made and sustained by the learned Commissioner of Income Tax (Appeals) be deleted and appeal of the appellant company be allowed.”
The brief fact leading to the case is this that the assessee is engaged in the business of manufacturing drugs and pharmaceuticals. The assessee filed its original return of income on 30.10.2017 declaring total income of Rs.23,84,030/- which was subsequently revised on 11.11.2017 declaring the same income. The case was selected for complete scrutiny under CASS for the reasons of "abnormal increase in cash deposited during demonetization period as compared to pre-demonetization period" and "depreciation claim", and statutory notice under section 143(2) of the Act dated 24.09.2018 was issued and served through ITBA followed by multiple notices under section 142(1) of the Act.
During assessment, the Assessing Officer noticed that while the assessee had reported NIL cash deposits for the period 09.11.2016 to 30.12.2016 in the ITR, the SFT information reflected cash deposits of Rs.32,13,000/-, and further verification from ICICI Bank and Central Bank of India confirmed deposits aggregating to Rs.32,65,000/- during the demonetization period, with no corresponding deposits in earlier periods. The assessee failed to furnish complete details regarding source of cash despite repeated opportunities, and its explanation that deposits represented cash withdrawals retained for factory expenses was not supported by any credible documentary evidence. After considering the material on record and the provisions of section 69A, the Assessing Officer treated cash deposits of Rs.32,65,000/- as unexplained money, added the same to the total income, taxed it under section 115BBE of the Act. The assessment was thus completed determining total income at Rs.56,49,030/-.
When the aggrieved assessee went in appeal before the ld. CIT(A), the ld. CIT(A) dismissed the appeal. The aggrieved Assessee is before us.
Before us, the ld. counsel for the assessee vehemently submitted that the cash deposits in the bank account during the period of demonetization were out of sales and duly recorded in the books of account.
Per contra, the ld. DR relied on the orders of the authorities below.
We have heard the rival submissions and have perused the relevant material on record. In the instant case, we find that the assessee has attempted to prove the entire cash deposit during demonetization period as being out of sales and recorded in the books of account. Although the assessee, prima facie, appears to have discharged its onus of explaining the cash deposits, it’s contentions to prove the cash deposits during the demonetization period, hardly deserves to be accepted in entirety especially when the assessee could not give satisfactory explanation for the disproportionate increase in cash sales just before demonetization period. On the other hand, the Revenue’s endeavour to disbelieve the assessee’s contention that cash deposits are supported by stock register, purchase records, cannot be fully justified. In this factual matrix, there is some element of failure to explain some of the cash sales, cannot be ruled out. Be that as it may, it is deemed appropriate, in larger interest of justice, that a lump-sum addition of Rs. 2 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 assessee’s ground on this count is partly allowed.
In so far as 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.
In the result, appeal of the assessee in ITA No. 1220/DEL/2026 is partly allowed.