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Judgment
PER NAVEEN CHANDRA [ACCOUNTANT MEMBER]:
The above captioned four appeals are preferred by the assessee against the order dated 09.01.2026, passed by Learned Commissioner of Income Tax (Appeals)/NFAC, Delhi [hereinafter referred to as ‘ld. CIT(A)/NFAC], under section 250 of the Income Tax Act, 1961 [hereinafter referred to as, ‘the Act’] against the assessment order dated 13.12.2019 passed u/s 144 of the Act by the ITO, Ward-54(4), Delhi (ITA No.1231/Del/2026), penalty order dated 15.03.2022 passed u/s 270A of the Act by the NFAC, Delhi (ITA No.1232/Del/2026), order dated 25.11.2021 passed u/s 272A(1)(d) of the Act by the NFAC, Delhi (ITA No.1233/Del/2026) and penalty order dated 02.03.2022 passed u/s 271AAC(1) of the Act by the NFAC, Delhi (ITA No.1234/Del/2026) for A.Y. 2017.18.
Since the above captioned appeals were heard together and the facts in issues are identical, all the four appeals are being disposed of by this common order for the sake of convenience and brevity.
Brief facts of the case are that the return of income for the A.Y. 2017-18 was filed by the assessee electronically on 15.07.2017 declaring total income of Rs. 3,04,250/-. It was electronically processed under section 143(1) of the Act at returned income and the case was selected for Scrutiny through CASS on account of Abnormal increase in cash deposits during demonetization period as compared to pre-demonetization period.
In absence of any responses to the notices the learned AO passed the assessment order u/s 144 of the Act, on the basis of material available on record and on the basis of reply filed by the assessee during the course of assessment proceedings. In view of the same, the amount of cash deposited in various bank accounts during demonetization period and other cash and credit entries during F.Y. 2016-17 collectively to tune of Rs. 80,92,108/- was considered to be unexplained money from undisclosed sources and accordingly added to his income u/s 69A of the Act, 1961 for the year under consideration. The learned AO in his assessment order assessed an income of Rs. 83,96,360/- and charge interest as per provisions of the Act. Penalty proceedings u/s 271AAC of the I.T. Act and penalty proceedings u/s 270A(2) of the I.T. Act are separately initiated.
When the aggrieved assessee went in appeal before the ld. CIT(A), the ld. CIT(A) dismissed the four appeals with the observation that “on account of being filed beyond the period prescribed under the Act, therefore, I am not expressing any opinion on merit of the case”. The aggrieved Assessee is before us in ITA 1231/Del/2026 with the following grounds:
“1.That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in passing the impugned assessment order without assuming jurisdiction as per law and without complying with the requisite procedure in accordance with law.
2.That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not condoning the delay in filing of first appeal and that too without providing any reasonable opportunity of being herd to the assessee and in gross violations of principles of natural justice.
3.That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making aggregate addition of Rs.80,92,108/- (Rs. 49,67,500/-on account of cash deposits in bank account and Rs.31,24,608/- on account of other credits in the bank account) by treating it as income of assessee u/s 69A and charging the same to tax u/s 115BBE and that too by recording incorrect facts and findings and without considering the submissions of the assessee and without observing the principles of natural justice.
4.That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in passing the impugned assessment order dated 13-12-2019 is illegal, bad in law, void ab-initio and against the facts and circumstances of the case and without following the principles laid down u/s 144 of the Act and in gross violation of principles of natural justice and barred by limitation also and with providing adequate opportunity of being heard.
5.That having regard to facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in taxing the addition of Rs. 80,92,108/- made u/s 69A as per the amended provisions of section 115BBE i.e., at the high rate of tax of 60% which is bad-in-law in view of the decision of Hon'ble Madras High Court in the case of S.M.I.L.E MicroFinance Ltd. vs. ACIT, WP(MD) 2078 of 2020 dated 19.11.2024.
6.That having regard to the facts and circumstances of the case, Ld. AO has erred in law and on facts in charging interest u/s 234B of the Income Tax Act, 1961.
7.That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
Before us, the learned 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. 10 lakhs 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. 1231/DEL/2026 is partly allowed.
ITA No.1232/Del/2026 ; ITA 1233/Del/2026 and 1234/Del/2026:
The ITA No.1232/Del/2026 relates to penalty u/s 270A; ITA 1233/Del/2026 relates to penalty u/s 272A(1)(d) and ITA 1234/Del/2026 relates to penalty u/s 271AAC(1).
We have herein above estimated an income of Rs 10 lakh as income of the assessee for the instant year and have deleted the application of the provisions of section 115BBE. In such facts and circumstances the penalty levied under section 270A for misreporting or underreporting of income cannot be imposed when income is added solely on an estimate basis. Penalties require concrete evidence of misreporting, not merely an ad-hoc or estimated addition to profits. Under such situation, the above penalty levied for misreporting u/s 270A(9) are not sustainable in the eyes of law. The same is deleted.
The penalty is leviable u/s 271AAC at 10% of the tax payable under 115BBE(1)(i). We have herein above deleted the invocation of the provision of section 115BBE. In such factual matrix, the penalty levied u/s 271AAC(1) is not sustainable in the eyes of the law and is accordingly deleted.
The penalty levied u/s 272A(1)(d) for non-compliance of notices. We find that the CIT(A) has dismissed the appeal on account of delay in filing of appeal before him. We are of the considered view that the dismissal of appeal on account of delay appears to be unwarranted on account of the fact that the CIT(A) did not adhere to the principal pf natural justice, of providing adequate opportunities to explain the delay in filing appeal. Taking into consideration the entire facts of the case, we are of considered view that penalty levied u/s. 272A(1)(d) of the Act is liable to be deleted. Ground is allowed.
In the result, all the four appeals are decided as under: In ITA Nos.1231/Del/2026 is partly allowed while appeal in ITA 1232, 1233 & 1234/Del/2026 are allowed.