Tax Tribunal Sets 5% Rate for Unexplained Cash Deposits During Demonetization; Business Income Estimate Reduced.

The Tribunal partially allowed the appeal, directing the Assessing Officer to apply a 5% estimation rate to the cash deposits made during the demonetization period, aligning with the reduced business income estimation previously determined by the Commissioner of Income Tax (Appeals). The Tribunal found the assessee failed to substantiate the sources of the cash deposits and upheld the CIT(A)'s decision to reduce the business income estimation from 8% to 5%, deeming it reasonable. The decision was pronounced in November 2024 in Chennai, addressing the assessment for the year 2017-18 under the Income Tax Act, 1961.

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Issues:
Assessment based on cash deposits during demonetization period, estimation of business income, substantiation of sources of cash deposits.

Analysis:
The appeal was against an order by the Commissioner of Income Tax for the assessment year 2017-18 under the Income Tax Act, 1961. The assessee had not filed returns for previous years and deposited significant cash during demonetization. The Assessing Officer assessed unexplained cash deposits and estimated business income. The CIT(A) confirmed the addition of cash deposited during demonetization. The assessee argued that major transactions were through banking channels and requested deletion of the addition. However, the CIT(A) reduced the estimated business income to 5% from 8%. The Tribunal found the assessee failed to provide evidence for the source of cash deposits. The AO's initial 8% estimation was reduced to 5% by the CIT(A), which the Tribunal deemed reasonable. The Tribunal directed the AO to apply the same 5% estimation to demonetization deposits. The Tribunal noted the similarity in nature of transactions throughout the year, rejecting the artificial distinction for demonetization deposits. The appeal was partly allowed, with the order pronounced in November 2024 at Chennai.

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