Cash Deposits during Demonetization: ITAT directs Normal 30 % Tax Rate citing S. 115BBE not Retrospective [Read Order]

The Surat Bench of the Income Tax Appellate Tribunal (ITAT) ruled that the higher tax rate introduced under Section 115BBE could not be applied retrospectively in the case involving cash deposit during demonetization.

Manjulaben Madhubhai Hapani, (assessee) filed her return of income declaring total income of Rs. 2,38,920 and agricultural income of Rs. 6,92,062. The AO found that the assessee had deposited Rs. 11,43,500 in her bank accounts during the demonetization period.

The AO found discrepancies between agricultural income declared in the years preceding and succeeding the demonetization period. The AO restricted the agricultural income to Rs. 2,00,000.

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The AO treated the excess Rs. 4,92,062 for AY 2017–18 and Rs. 5,17,797 for AY 2016–17 as unexplained cash credits under Section 68 of the Income Tax Act. The AO applied the enhanced tax rate of 60% under Section 115BBE of the Income Tax Act.

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Aggrieved by the order of AO, the assessee filed an appeal before the Commissioner of Income Tax (appeals)[CIT(A)]. The CIT(A) upheld the additions made by the AO due to failure of the assessee to substantiate the source.

Aggrieved by the order of CIT(A), the assessee filed an appeal before the ITAT. The assessee’s counsel submitted various documents including land records and argued that the increase in agricultural income was due to additional leased land.

The two-member bench comprising Pawan Singh ( Judicial Member ) and Bijayananda Pruseth (Accountant Member) observed that the AO had examined the claim and found no record of tenancy, irrigation facilities, or actual agricultural activity.

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The Tribunal observed that the assessee was also engaged in retail trading under the name Shreeji Paints & Ply and also observed that the assessee was entitled to the benefit of cash sales and debt recovery.

The Tribunal ruled that the amendment to Section 115BBE of the Act made on 15 December 2016 could not be applied retrospectively. The Tribunal directed the AO to apply the normal tax rate and not the enhanced 60% rate under Section 115BBE.

The Tribunal directed the Assessing Officer (AO) to levy tax at the normal rate of 30% on unexplained cash deposits made during the demonetization period. The appeal of the assessee was partly allowed.

To Read the full text of the Order CLICK HERE

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