In a recent judgment that could set an interesting tone for similar cases, the Income Tax Appellate Tribunal (ITAT), Delhi Bench “SMC”, provided partial relief to an assessee in a matter involving cash deposits made during the demonetization period.
Background of the Case
The appeal was filed by Shri Abhishek, a resident of Rohtak, against the order passed by the National Faceless Assessment Centre (NFAC), Delhi for the Assessment Year 2017-18. The key issue in the case was the cash deposit of Rs.13,15,000 made by the assessee in his HDFC Bank account during the demonetization period for which no Income Tax Return had been filed.
Since Abhishek did not respond to initial notices from the Assessing Officer (AO), the assessment was carried out under Section 144 of the Income Tax Act, which allows for best judgment assessment in cases of non-compliance. Eventually, the AO added the entire cash deposit amount as unexplained income under Section 69A and taxed it under Section 115BBE– a provision that levies a higher tax rate on unexplained credits, investments, or expenditures.
The first appellate authority upheld the AO’s order, prompting the assessee to escalate the matter to the Tribunal.
The Assessee’s Stand
Represented by Advocate Shri Naveen Gupta, the assessee argued that he is solely engaged in agriculture, with no other source of income, and owns around 13 acres of agricultural land, as documented in the Farad Jamabandi submitted to the Tribunal.
It was contended that since agricultural income is exempt from tax, and no unaccounted income was involved, the entire addition made by the AO was unjustified. Further, it was argued that the application of Section 115BBE was also not valid for Assessment Year 2017-18. The defense relied on precedents, including the ITAT Delhi ruling in Deepak Sharma’s case and the Madras High Court’s verdict in SMILE Microfinance Ltd., which clarified that Section 115BBE is only applicable to transactions on or after April 1, 2017.
Tribunal’s Verdict
Presided over by Hon’ble Vice President Shri Mahavir Singh, the Tribunal acknowledged the arguments from both sides and emphasized the need for a balanced approach.
While the Tribunal found that the assessee failed to fully explain the cash deposits, it also observed that the Revenue could not dismiss the agricultural evidence outright. Therefore, in the interest of justice, the ITAT reduced the addition from Rs.13,15,000 to Rs.3,15,000, granting a relief of Rs.10,00,000 to the assessee. The Tribunal clarified that this decision shall not serve as a precedent for future cases.
Regarding the application of Section 115BBE, the Tribunal upheld the view of the Madras High Court and confirmed that the provision did not apply to the transactions related to AY 2017-18.
Final Words
This judgment serves as a reminder that while unexplained cash deposits during demonetization invite scrutiny, genuine agricultural income, if supported by proper documentation, can hold ground in appeals. However, the case also highlights the importance of timely compliance and clear record-keeping to avoid adverse inferences.
The appeal was partly allowed, giving much-needed respite to the taxpayer while maintaining judicial balance.
