ITAT Jodhpur Explains Valid Cash Source for Demonetisation Deposits & Limits on Section 115BBE for AY 2017-18

Background of the Appeal

The Jodhpur Bench of the Income Tax Appellate Tribunal decided an appeal in the case of Shri Harish Panwar Vs Income Tax Officer, concerning AY 2017-18. The core dispute related to cash deposits of ₹68,85,000 in the assessee’s Kotak Mahindra Bank account during the demonetisation window, largely comprising Specified Bank Notes (SBNs).

The assessee had filed his return of income declaring ₹13,26,090, which included:

  • Remuneration and interest received from partnership firms M/s Shri Ram Excellency and M/s Parihari Textiles, and
  • Income from other sources.

During scrutiny, the Assessing Officer treated the demonetisation-period cash deposits as unexplained money under Section 69A of the Income Tax Act 1961. The National Faceless Appeal Centre (NFAC), acting as Ld. CIT(A), affirmed the addition as well as the levy of tax at the special rate prescribed under Section 115BBE.

On further appeal, ITAT Jodhpur examined:

  1. Whether the cash deposits of ₹68,85,000 stood properly explained through available records, especially cash statements and partnership firm withdrawals, and
  2. Whether Section 115BBE, at its enhanced rate introduced by the Taxation Laws (Second Amendment) Act, 2016, could be applied to AY 2017-18, in light of the decision in Deepak Maratha Vs. Union of India.

The Tribunal ultimately deleted the entire addition and held the application of the enhanced rate under Section 115BBE to be incorrect for the relevant year.

Findings of the Lower Authorities

Assessing Officer’s Stand

The Assessing Officer concluded that the deposits of ₹68,85,000 during demonetisation represented unexplained money under Section 69A, relying mainly on the following points:

  • The assessee had filed ITR-2 and was not shown to be carrying on any independent business.
  • The assessee admitted depositing ₹68,85,000 in SBNs during the demonetisation period.
  • A claimed cash-in-hand figure of ₹68,85,000 as on 08.11.2016 was, in the AO’s view, without a credible basis.
  • The total cash deposits were more than five times the assessee’s returned income.
  • The income surrendered during survey on 02.12.2014 was not specifically on account of “cash found” but on advances/loans; therefore, linking present cash to that surrender was considered unacceptable.
  • The AO viewed the assessee’s explanations as an afterthought designed to “artificially” construct a source for the demonetisation cash deposits.

On this reasoning, the AO added ₹68,85,000 to the assessee’s income under Section 69A and taxed the same at the higher rate under Section 115BBE, along with consequential interest under Sections 234A, 234B and 234C.

NFAC / CIT(A)’s Reasoning

The Ld. CIT(A) substantially adopted the AO’s line of thinking, summarising that:

  • The assessee had claimed the cash was linked to income of ₹2,00,09,810 surrendered during survey on 02.12.2014 as “income from undisclosed sources”, but the authorities noted that this surrender did not relate to cash physically found.
  • The high level of cash claimed to be on hand, compared with the declared income, was considered implausible.
  • The assessee was held to have failed to furnish conclusive material to overturn the AO’s factual findings.

Accordingly, the addition of ₹68,85,000 and the application of Section 115BBE were confirmed.

Assessee’s Contentions Before the Tribunal

Before the ITAT, the assessee’s counsel produced a detailed trail of cash movement over three financial years and argued that the deposits during demonetisation were fully explainable.

Cash Statements and Books Produced

The assessee furnished:

  • Cash statement for FY 2014-15 (year of survey)
  • Cash book for FY 2015-16
  • Cash book/cash statement for FY 2016-17 (relevant to AY 2017-18)

These records were placed in the paper book and were said to have been filed before the lower authorities as well.