AO incorrectly invokes Section 69A and Charges Tax u/s 115 BBE of Income Tax Act: ITAT deletes addition [Read Order]

The Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) has deleted the addition where the Assessing Officer had incorrectly invoked Section 69A, of the Income Tax Act, 1961,  which applies only when unaccounted money is not recorded in the books of accounts, and erroneously applied Section 115BBE of the Income Tax Act, 1961, at a 60% rate.

An assessee, Dipak Balubhai Patel who is the Karta of a Hindu Undivided Family (HUF) with income from House Property and Other Sources. For the Assessment Year (A.Y.) 2017-18, the assessee filed a Return of Income on 11-08-2017, declaring a total income of ₹5, 73,170. During scrutiny assessment, the Assessing Officer observed that the assessee had deposited ₹10, 75,000 in a Bank of Baroda account during the demonetization period. A show cause notice was issued to explain the source of this cash deposit.

The assessee explained that the cash deposited in the Bank of Baroda was withdrawn from accounts in four other banks, including Corporation Bank, State Bank of India, and two other Bank of Baroda accounts. This cash deposit was reflected in the Return of Income filed in ITR-2 on Page No. 4, Serial No. 14. The assessee, having only rental and other income but no business income, did not file a Profit and Loss account or Balance Sheet with the Return of Income. However, the assessee provided these documents along with a cash book, showing an opening balance of ₹10, 75,000 as of 01-04-2016, which was deposited during the demonetization period.

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The Assessing Officer rejected the books of accounts, noting that the Return of Income for A.Y. 2016-17 showed a closing cash balance of zero, whereas the Cash Book for A.Y. 2017-18 reflected an opening balance of ₹10, 09,933. This discrepancy led to an addition of unexplained money under Section 69A of the Income Tax Act, taxed at a higher rate under Section 115BBE.

Mr. Pritesh Shah, representing the assessee, argued that the blank entry in Schedule AL of ITR-2 was mistakenly interpreted as a zero balance by the Assessing Officer, which was not accurate since the assessee’s income did not exceed ₹50 lakh. It was contended that Section 69A was inapplicable as the cash withdrawals and deposits were recorded in the cash book, Profit and Loss account, and Balance Sheet. The Assessing Officer's addition under Section 69A and tax under Section 115BBE were thus deemed incorrect.

Further argued that neither the Assessing Officer nor the CIT (A) had provided evidence showing that the withdrawn cash was not accounted for. The addition made by the Assessing Officer was therefore considered unjustified and liable for deletion.

Santosh Kumar, representing the Revenue, supported the orders passed by the Lower Authorities and requested the bench to uphold the same.

The bench, consisting of Accountant Member Annapurna Gupta and Judicial Member T.R. Dentil Kumar, reviewed the submissions and evidence. It was established that during the demonetization period, the assessee deposited ₹10, 75,000, with explanations and documentation provided for these deposits. The Assessing Officer had incorrectly invoked Section 69A, which applies only when unaccounted money is not recorded in the books of accounts, and erroneously applied Section 115BBE at a 60% rate.

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The bench concluded that the addition made under Section 69A and the tax imposed under Section 115BBE were incorrect. The cash deposits were properly recorded in the books of accounts, and the explanations provided were adequate. Therefore, the addition made by the Assessing Officer was ordered to be deleted, and the grounds raised by the assessee were allowed.

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