Limited scrutiny and unexplained cash deposits: source inquiry stayed within jurisdiction, and section 69A addition with section 115BBE applied.

Cash deposits examined within the very reason for limited scrutiny do not, by that fact alone, take the assessment beyond jurisdiction where the inquiry stays confined to the selected scrutiny parameter. Unsubstantiated bank deposits may be assessed as unexplained money under section 69A when the assessee does not satisfactorily prove the nature and source or show proper recording in the books. The amended special tax rate under section 115BBE was treated as applicable from assessment year 2017-18, so the challenge to its application for the year in question failed. The additions and resulting tax treatment were sustained.

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Issues: (i) whether the assessment was vitiated for having allegedly travelled beyond the scope of limited scrutiny; (ii) whether cash deposits of Rs. 65 lakh could be brought to tax as unexplained money under section 69A of the Income-tax Act, 1961; and (iii) whether section 115BBE of the Income-tax Act, 1961, as amended, was inapplicable to the year under consideration.

Issue (i): whether the assessment was vitiated for having allegedly travelled beyond the scope of limited scrutiny.

Analysis: The selected scrutiny reasons included cash deposited during the demonetization period. The examination of the source of the cash deposit fell within that very issue. Since the inquiry remained confined to the selected limited-scrutiny parameter, no jurisdictional infirmity was found.

Conclusion: The objection to jurisdiction on the ground of limited scrutiny failed and was decided against the assessee.

Issue (ii): whether cash deposits of Rs. 65 lakh could be brought to tax as unexplained money under section 69A of the Income-tax Act, 1961.

Analysis: Section 69A applies where the assessee is found to be the owner of money not recorded in the books of account and no satisfactory explanation of the nature and source is offered. The cash stood deposited in the bank without a substantiated source and was not shown to have been recorded in the assessee's books in the manner required by the provision. The explanation that it represented disclosed income was not accepted on the facts.

Conclusion: The addition under section 69A was upheld and the issue was decided against the assessee.

Issue (iii): whether section 115BBE of the Income-tax Act, 1961, as amended, was inapplicable to the year under consideration.

Analysis: The amended charging mechanism under section 115BBE was held applicable from assessment year 2017-18. The assessee's contention that the amendment operated only prospectively so as to exclude the impugned deposits did not prevail.

Conclusion: The challenge to the application of section 115BBE failed and was decided against the assessee.

Final Conclusion: The additions and tax treatment made by the lower authorities were sustained in full, leaving no relief to the assessee.

Ratio Decidendi: Where cash deposits are examined as part of the very reason for limited scrutiny, the Assessing Officer does not exceed jurisdiction by testing their source; and money deposited without a satisfactorily explained and recorded source may be assessed as unexplained income and taxed under the special rate provision applicable to such income.

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