Assessee wins appeal against Section 69A addition for demonetization cash deposits due to inadequate verification

The ITAT Raipur allowed the assessee's appeal regarding addition under Section 69A for cash deposits made during demonetization. The assessee contended that cash deposits in bank accounts on 29.11.2016 were recorded in books of accounts, thus Section 69A provisions were inapplicable. The tribunal found that lower authorities failed to verify the authenticity of cash books before treating deposits as unexplained money. The matter was remanded to the AO for re-adjudication after proper verification of the assessee's explanation regarding the source of cash deposits.

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Issues Involved:
1. Legitimacy of the addition of Rs. 20,00,000/- under Section 69A of the Income-tax Act, 1961.
2. Justification for treating the cash deposits during the demonetization period as unexplained money.
3. Applicability of Section 115BBE(1) tax rate of 60% instead of 30% on the alleged unexplained money.

Detailed Analysis:

1. Legitimacy of the addition of Rs. 20,00,000/- under Section 69A of the Income-tax Act, 1961:

The assessee filed an appeal challenging the addition of Rs. 20,00,000/- made by the Assessing Officer (A.O) under Section 69A of the Income-tax Act, 1961. The A.O observed that the assessee deposited Rs. 10,00,000/- each in two bank accounts during the demonetization period. The assessee claimed the source as agricultural income. However, the A.O noted that the agricultural income was not declared in the assessee's return, and the agricultural land was owned by the assessee's HUF, making the claim an afterthought. Consequently, the A.O treated the amount as unexplained money under Section 69A.

2. Justification for treating the cash deposits during the demonetization period as unexplained money:

The assessee argued before the CIT(Appeals) that the cash deposits were recorded in the books of account, which were produced for verification. The CIT(Appeals) upheld the A.O's decision, citing a lack of supporting material for the assessee's claim. The assessee contended that the lower authorities erred in their observation, asserting that the cash deposits were sourced from the books of account and not from agricultural income. The Tribunal found substance in the assessee's claim, noting that the books of account for the relevant and preceding years were produced before the A.O. The Tribunal observed that the cash deposits were reflected in the cash book and directed the A.O to re-adjudicate the issue after verifying the explanation and documentary evidence provided by the assessee.

3. Applicability of Section 115BBE(1) tax rate of 60% instead of 30% on the alleged unexplained money:

The assessee also challenged the applicability of the 60% tax rate under Section 115BBE(1), arguing that the transactions occurred before the amendment's effective date (15.12.2016) and should be taxed at the earlier rate of 30%. The Tribunal did not provide a specific ruling on this issue but directed the A.O to re-examine the matter in light of the assessee's explanations and documentary evidence.

Conclusion:

The Tribunal found merit in the assessee's contention that the cash deposits were sourced from the books of account and not from agricultural income. It directed the A.O to re-adjudicate the issue after verifying the explanation and documentary evidence provided by the assessee. The appeal was allowed for statistical purposes, and the A.O was instructed to afford a reasonable opportunity of being heard to the assessee during the set-aside proceedings.

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