Unexplained cash credits under Section 68 get 10% ad hoc disallowance instead of full addition due to inadequate investigation

ITAT Surat partly allowed the appeal regarding unexplained cash credits under Section 68. The tribunal found that AO and CIT(A) doubted cash deposit sources as assessee showed no cash-in-hand for AY 2015-16 and 2016-17. However, noting lack of independent investigation into agricultural holdings and produce receipts, ITAT applied 10% ad hoc disallowance instead of full addition to prevent revenue leakage. Regarding enhanced tax rate under Section 115BBE, the tribunal held it inapplicable for AY 2017-18, citing multiple precedents including Samir Shantilal Mehta and others.

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Issues Involved:

1. Addition of Rs. 27,14,000/- as unexplained cash credits under Section 68 of the Income Tax Act, 1961.
2. Application of enhanced tax rate under Section 115BBE for taxing unexplained cash credits.
3. Condonation of delay in filing the appeal.

Issue-wise Detailed Analysis:

1. Addition of Rs. 27,14,000/- as Unexplained Cash Credits:

The primary issue in this appeal was the addition of Rs. 27,14,000/- as unexplained cash credits under Section 68 of the Income Tax Act, 1961. The assessee, an individual with declared income from agricultural activities and a partnership firm, deposited substantial cash during the demonetization period. The Assessing Officer (AO) noted discrepancies in the cash book and found no satisfactory evidence for the cash deposits, leading to the addition of Rs. 27,14,000/- as unexplained cash credits. The assessee contended that the cash was derived from agricultural income and cash-in-hand, substantiated by previous income tax returns and agricultural bills. However, the AO and the CIT(A) rejected these claims due to lack of documentary evidence for the opening cash balance and discrepancies in the cash book. The Tribunal, considering the overall facts, found that a reasonable disallowance would suffice to prevent revenue leakage, thus allowing a partial relief by disallowing 10% of the addition.

2. Application of Enhanced Tax Rate under Section 115BBE:

The second issue was the application of the enhanced tax rate under Section 115BBE for the unexplained cash credits. The assessee argued that the enhanced rate, introduced in December 2016, should not apply retrospectively to the transactions made before its enactment. The Tribunal noted that various benches have consistently held that the enhanced rate under Section 115BBE is not applicable for the assessment year 2017-18. Consequently, the Tribunal sided with the assessee, ruling that the enhanced tax rate should not apply to the unexplained cash credits for that assessment year.

3. Condonation of Delay in Filing the Appeal:

The appeal also involved a delay of 74 days in filing, which the assessee attributed to not receiving the order through post or email and not regularly checking the ITBA portal. The Tribunal accepted the explanation, noting that the delay was neither intentional nor unreasonable, and condoned the delay to allow the appeal to be heard on merits.

Conclusion:

The Tribunal partially allowed the appeal, granting relief by disallowing only 10% of the addition under Section 68 and ruling against the application of the enhanced tax rate under Section 115BBE for the assessment year 2017-18. The decision reflects a balanced approach, acknowledging the assessee's explanations and the procedural challenges faced in the faceless assessment system.

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