ITAT Hyderabad Rules 30% Tax Rate Applicable Under Section 115BBE For AY 2017-18 Demonetisation Deposits

Background Of The Dispute

In Manchala Satyanarayana Naidu Vs ITO (ITAT Hyderabad), ITA No. 175/Hyd/2026, order dated 27/08/2026, the Hyderabad Bench of the ITAT examined two main aspects:

  1. Whether a 511-day delay in filing the appeal could be condoned, and
  2. Whether the enhanced tax rate of 60% under Section 115BBE, introduced by the Taxation Laws (Second Amendment) Act, 2016 with effect from 01.04.2017, could be applied to unexplained cash deposits made during FY 2016-17 (AY 2017-18), particularly during the demonetisation period.

The assessee, a 75-year-old agriculturist, had never previously been assessed to income-tax. The assessment for AY 2017-18 was framed ex parte under Section 144 on **24.12.2019`. During FY 2016-17, the assessee deposited cash amounting to ₹11,86,500 in bank accounts with Corporation Bank and A.P. Mahesh Co-operative Urban Bank Ltd.

In the absence of an explanation accepted by the Assessing Officer, the deposits were treated as unexplained money under Section 69A and taxed at 60% in terms of the amended Section 115BBE. The first appeal before the CIT(A), National Faceless Appeal Centre, Delhi, was dismissed ex parte for non-prosecution, without examining the merits of the case.

When the assessee eventually moved the Tribunal, there was a delay of 511 days in filing the appeal. Alongside the factual grounds, the assessee also raised a pure question of law on the applicability of the 60% rate under Section 115BBE to transactions prior to **01.04.2017`.

Nature Of The Additional Ground

The assessee filed an additional ground before the Tribunal in the following terms:

“Whether on the facts and in the circumstances of the case, the revenue is empowered to impose 60% tax under section 115BBE of the Act for transactions before 1.4.2017, especially for transactions that took place before demonetization?”

The issue raised was purely legal, relating only to the rate of tax applicable to the Section 69A addition and did not require fresh factual investigation.

The Tribunal, relying on the Supreme Court decision in National Thermal Power Company Ltd vs. CIT, (1998) 229 ITR 383 (SC), held that a pure question of law that can be decided on the basis of the existing record can be raised at any stage of the appellate proceedings. Accordingly, the additional ground was admitted.

Condonation Of 511-Day Delay

Assessee’s Explanation For Delay

The assessee, through an affidavit dated 05.06.2026, explained the reasons for the 511-day delay:

  • He is a septuagenarian (75-year-old) agriculturist.
  • He is illiterate and not familiar with the use of computers, email or online income-tax portal systems.
  • He had never faced income-tax proceedings earlier, and therefore did not understand or track electronically issued notices.
  • He came to know of the assessment proceedings only when recovery action was initiated by the Department.

On this basis, the assessee’s counsel argued that the delay was bona fide, arising from lack of knowledge and technological familiarity rather than neglect or indifference.

Revenue’s Objection

The Departmental Representative opposed condonation, emphasising that:

  • The assessee did not participate in the assessment proceedings, resulting in an ex parte assessment under Section 144.
  • The appeal before the CIT(A) was also dismissed for non-prosecution.
  • Even thereafter, the assessee took a long time to approach the Tribunal.

This pattern, according to the Revenue, suggested that the assessee had taken the proceedings casually, and the delay should not be condoned.

Tribunal’s Approach To Delay

The Tribunal noted that the chronology of:

  • non-participation at assessment stage,
  • dismissal of appeal by CIT(A) for non-prosecution, and
  • eventual delayed approach to the Tribunal

did, at first sight, point towards a repeated lack of diligence.