Rajesh Kumar Seth vs ITO Ward 43(1)

PER NAVEEN CHANDRA [A. M]:

The above captioned appeal is preferred by the assessee against the orders dated 08.07.2025, by Ld. CIT(A)- Delhi-31, u/s 250 of the Income Tax Act, 1961 [hereinafter referred to as, “Act”] for A.Y. 2017-18.

The sole issue involved in the case is addition made on account of cash deposit of Rs. 2.27 Cr. during the demonetization period added u/s 68 of the Income Tax Act.

The fact of the matter in the instant case is that the assessee is in the business of trading in jewellery and had made cash deposits of Rs 2.27 crore during the period of demonetization. The AO has sought to tax the cash deposited in the bank of Rs 2,27,35,000/- which is stated to be out of cash sales u/s 68 of the Act and has invoked the provisions of section 115 BBE of the Act. The CIT(A) confirmed the amount of addition u/s 68. Aggrieved the assessee is before us.

The Ld. Counsel of the Assessee, before us, vehemently argued that the addition made u/s 68 of the Act is invalid as the AO has not rejected the books of accounts, the stock register and the addition has been made only on account of surmises and conjectures. Therefore, the addition made be deleted.

Per contra, the Ld. DR of the revenue relied heavily on the assessment order and the order of the Ld. CIT(A).

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 source of cash deposit during demonetization as cash sales. Although the assessee, prima facie, appears to have discharged its onus of explaining source of cash deposit, it’s contentions to prove the source, hardly deserves to be accepted in entirety especially when the AO found unexplained increase in sales during the period of demonetisation. On the other hand, the Revenue’s endeavour to disbelieve the assessee’s contention that cash deposit has been made out of sales, cannot be fully justified. In this factual matrix, there is some element of failure to explain some of the cash deposit, cannot be ruled out. Be that as it may, it is deemed appropriate, in larger interest of justice, that a lump-sum addition of ₹ 10 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 ground of appeal no 1 to 5 is partly allowed.

In so far as assessee's 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. The additional ground 6 raised by the assessee is allowed.

In the result, appeal of assessee in ITA No. 5529/DEL/2025 is partly allowed.