Delhi ITAT Limits Demonetization Cash Addition to Rs. 2 Lakh for Forex Dealer; Quashes Retrospective Application of Section 115BBE

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, recently delivered a pragmatic ruling concerning cash deposits made during the 2016 demonetization period by businesses dealing in heavy cash transactions. In the matter of Harmony Forex And Travels Pvt. Ltd. Vs ITO, the Tribunal significantly reduced an unexplained money addition and clarified the prospective applicability of the penal tax rates under Section 115BBE of the Income Tax Act 1961.

This decision serves as a crucial reference point for the assessee engaged in the money-changing business, where cash-in-hand is an inherent operational requirement.

Background of the Dispute

The dispute originated from the assessment proceedings for the Assessment Year (AY) 2017-18 under Section 143(3) of the Income Tax Act 1961.

During the demonetization phase, the assessee, a recognized forex dealer, deposited a total of Rs. 25,88,000/- in cash into its bank accounts. The Assessing Officer (AO) scrutinized these deposits and, dissatisfied with the explanations provided, categorized the entire amount as unexplained money.

Consequently, the AO invoked Section 69A of the Act and subjected the entire Rs. 25,88,000/- to the stringent taxation framework of Section 115BBE.