Wrong charging section for demonetisation cash deposits rendered the addition unsustainable and the assessment bad in law.

Cash deposits made during demonetisation could not be sustained as an addition where the Revenue invoked Section 69 of the Income-tax Act, 1961 for what was a source-of-funds issue. The Tribunal noted that the controversy did not relate to an unexplained investment outside the books, but to cash deposits, for which Section 69A would have been the relevant provision if applicable. It further found that the assessment was framed mechanically and without due application of mind in using the wrong charging section. The assessment was therefore held arbitrary and bad in law, and the addition was deleted.

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Issues: Whether the addition relating to cash deposit during demonetization could be sustained where the Revenue invoked the wrong charging provision and the assessment was found to have been framed without proper application of mind.

Analysis: The cash deposit was examined by the Department as a matter of source of funds, yet the addition was made under Section 69 of the Income-tax Act, 1961 as unexplained investment. The Tribunal held that the dispute did not concern an investment outside the books but the explanation for cash deposits, for which the appropriate provision, if at all applicable, would be Section 69A of the Income-tax Act, 1961. It further held that the Revenue authorities proceeded mechanically and without due application of mind in invoking an incorrect charging section.

Conclusion: The assessment was held arbitrary and bad in law, and the addition could not be sustained.

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