Demonetisation Cash Deposit Explained through Sale Deeds & Wealth-Tax Records: ITAT Allows 90% Relief, Directs Not to be Taxed u/s 115BBE [Read Order]
Demonisation Deposits, when Backed by Records, Cannot Automatically Attract Provisions like Section 69A or Penal Tax Rates under Section 115BBE
The Rajkot Bench of the Income Tax Appellate Tribunal ( ITAT ) has granted substantial relief to assessee, restricting an addition of ₹37.65 lakh made under Section 69A in respect of cash deposited during the demonetisation period, to only 10% of the amount (₹3,76,500).
The Tribunal also held that the restricted addition shall not be taxed under Section 115BBE, but at normal slab rates.
The appeal arose from an order passed by the NFAC/CIT(A), which had upheld the Assessing Officer’s conclusion that the assessee had failed to satisfactorily explain the source of demonetisation-period cash deposits.
The assessee, Nathabhai Parsana, an 85-year-old individual, had deposited ₹37,65,000 in cash during the demonetisation window. The case was selected for limited scrutiny to verify “large cash deposits vis-à-vis returned income”.
During assessment, the assessee explained that he had sold immovable properties in FY 2014-15 for ₹2.79 crore, and received ₹2.70 crore in cash. After which, he did not deposit the cash in the bank in earlier years, and retained substantial cash-in-hand as per books of accounts, cash-flow statement, and wealth-tax returns showing cash balance of ₹2.71 crore.
The AO rejected the explanation, calling the records “self-serving”, and made a full addition of ₹37.65 lakh under Section69A, applying Section 115BBE.
The CIT(A) confirmed the addition on the ground that, applying “human probabilities”, the assessee could not have retained such large cash balances for years.
The Bench comprising Dr. Arjun Lal Saini (Accountant Member) and Shri Dinesh Mohan Sinha (Judicial Member) found significant lapses in the AO’s approach. The Tribunal noted that the AO simply brushed aside the evidence without any cogent findings, and also did not offer reasons for rejecting the sale deeds, cash-flow statement, wealth-tax records or bank statements.
The ITAT held this to be contrary to settled law that evidence cannot be rejected merely on suspicion or surmise. The assessee had documented sale consideration received in cash and maintained consistent books of accounts, but none of these facts were disproved by the Revenue.
The Tribunal reiterated that only real income is taxable, and not every cash deposit represents income. An honest and fair estimation is required. Accordingly, instead of sustaining the full addition, the ITAT estimated 10% of the cash deposit as income.
To conclude, the Tribunal restricted addition to 10% of ₹37,65,000, i.e., ₹3,76,500. It was further directed that this amount shall not be taxed under Section 115BBE, but shall be taxed at normal income-tax rates, as the cash was from explained sources. The Bench also clarified that the order shall not be treated as a precedent for other years.
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