ITAT grants Rs. 5 lakh exemption on unexplained demonetization cash deposits under CBDT guidelines

ITAT allowed the appeal, holding that the assessee and spouse are entitled to a blanket exemption of Rs. 5,00,000 on unexplained cash deposits made during demonetization, based on CBDT instructions. The deposits represented past savings in a single joint account, with no evidence of unaccounted income or assets. The tribunal emphasized that amounts within the prescribed exemption limits (Rs. 2.5 lakh per person, Rs. 5 lakh for those above 70) need not be scrutinized. Considering the assessee's consistent filing history and submission of supporting evidence, no adverse inference was drawn. The balance amount was deleted, and the appeal was allowed.

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Issues Involved:
1. Addition of Rs. 10,20,000/- under Section 68 of the Income Tax Act, 1961 due to alleged unexplained cash credits.
2. Taxing the income under Section 115BBE at 77.25% instead of 35.54%.

Issue-wise Detailed Analysis:

Issue 1: Addition of Rs. 10,20,000/- under Section 68 of the Income Tax Act, 1961
The assessee filed a return of income declaring Rs. 3,09,870/- for AY 2017-18. The case was selected for scrutiny due to large cash deposits during the demonetization period. The assessee deposited Rs. 10,20,000/- in old denomination notes between 09.11.2016 and 31.12.2016. The assessee claimed these deposits were from past savings, withdrawals, and his wife's savings. However, the Assessing Officer (AO) rejected this explanation due to lack of documentary proof and added the amount as unexplained cash credits.

The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the AO's decision. The assessee then appealed to the ITAT, arguing that the deposits were from legitimate sources, including past savings and withdrawals, and that his wife also contributed her savings to the same bank account.

The ITAT considered the CBDT's instructions and guidelines for verification of cash deposits during demonetization, which provide a blanket exemption of Rs. 2,50,000/- per person. The ITAT noted that the assessee and his wife used the same bank account, and his wife had no other operational bank account. Therefore, the assessee was entitled to a blanket exemption of Rs. 5,00,000/- (Rs. 2,50,000/- for himself and Rs. 2,50,000/- for his wife).

For the remaining Rs. 5,20,000/-, the ITAT examined the assessee's past income, regular filing of returns, and cash withdrawals. The assessee had gross income of Rs. 21,67,215/- over the past nine years and cash withdrawals of Rs. 9,35,000/- in the immediate three years, which were sufficient to cover the remaining amount. The ITAT found that the AO did not provide evidence that the cash withdrawals were used for unaccounted expenses. The ITAT concluded that the assessee had sufficient cash balance to justify the deposits and deleted the addition of Rs. 5,20,000/-.

Issue 2: Taxing the income under Section 115BBE at 77.25% instead of 35.54%
Since the ITAT deleted the entire addition of Rs. 10,20,000/-, the issue of taxing the income under Section 115BBE became infructuous and did not require adjudication.

Conclusion:
The ITAT allowed the appeal filed by the assessee, deleting the addition of Rs. 10,20,000/- and rendering the issue of higher tax rate under Section 115BBE moot. The judgment emphasized that the decision should not be treated as a precedent for other assessment years. The order was pronounced on 18/10/2022.

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