ITAT Delhi’s Ruling on Demonetisation Cash Deposits, Section 69A Additions and Penalties

1. Background and Core Controversy

During the demonetisation phase of November–December 2016, many assessees faced scrutiny over large cash deposits. In Satish Chandra Vs ITO (ITAT Delhi), the Delhi Bench of the Tribunal examined whether cash deposits aggregating to ₹80.92 lakh made during this sensitive period could be treated as unexplained money under Section 69A and be subjected to the enhanced tax regime under Section 115BBE, along with multiple penalties.

The dispute revolved around:

• Treatment of demonetisation-period cash deposits as unexplained under Section 69A,
• Applicability of higher tax under Section 115BBE, and
• Sustainability of penalties under Sections 270A, 271AAC(1) and 272A(1)(d) when the addition itself was ultimately sustained only on an estimated amount.

The ITAT’s decision provides important guidance on how recorded business sales, spike in cash transactions around demonetisation, and penalty provisions should be evaluated in such cases.

2. Facts of the Case

2.1 Return Filing and Selection for Scrutiny

• The assessee filed a return of income for AY 2017-18 on 15.07.2017, declaring a total income of ₹3,04,250.
• The return was processed under Section 143(1) at the returned income.
• The case was selected for scrutiny under CASS based on an abnormal increase in cash deposits during demonetisation compared with the pre-demonetisation period.

2.2 Assessment Proceedings and Ex Parte Order

The Assessing Officer (AO) issued statutory notices. According to the assessment order:

• There was absence of proper compliance with notices.
• The AO therefore completed the assessment ex parte under Section 144, relying on material available on record and some submissions filed earlier by the assessee.

The AO identified:

• Cash deposits of ₹49,67,500 during the demonetisation window; and
• Additional cash and credit entries of ₹31,24,608 during FY 2016-17.

These together totalled ₹80,92,108, which the AO treated as unexplained money under Section 69A.

The AO:

• Added the full amount of ₹80,92,108 to the assessee’s income,
• Assessed total income at ₹83,96,360 (as against returned income of ₹3,04,250),
• Applied Section 115BBE to tax the addition at the elevated rate, and
• Initiated separate penalty proceedings under:
  • Section 270A (for under-reporting/misreporting),
  • Section 271AAC(1) (linked to tax under Section 115BBE), and
  • Section 272A(1)(d) (for non-compliance with notices).

3. First Appeal before CIT(A) / NFAC

3.1 Dismissal on Limitation without Merits Examination

The assessee filed four appeals before the CIT(A)/NFAC, Delhi – one against the quantum assessment and three against the respective penalty orders.

The CIT(A) did not enter into the merits of:

• The Section 69A addition,
• The applicability of Section 115BBE, or
• The levy of penalties.

Instead, the CIT(A):

• Dismissed all four appeals on the ground that they were filed beyond the prescribed time limit,
• Declined to condone the delay,
• Categorically recorded that, due to delay, no opinion on merits was being expressed.

This led the assessee to approach the ITAT, Delhi.

4. Issues before the ITAT

The Tribunal was required to adjudicate:

1. Quantum issue:

   • Whether cash deposits totalling ₹80.92 lakh during the demonetisation period and other related entries could be treated as unexplained money under Section 69A, given the assessee’s claim that these represented cash sales recorded in the books.

2. Rate of tax:

   • Whether the sustained addition, if any, should be taxed under the enhanced regime of Section 115BBE for AY 2017-18.

3. Penalties:

   • Whether penalties under Sections 270A, 271AAC(1) and 272A(1)(d) could legally survive when the addition was either reduced or sustained on a purely estimated basis.

5. Assessee’s Stand before the ITAT

Before the Tribunal, the assessee’s counsel submitted that: