Cash deposits up to Rs. 2,50,000 during demonetization treated as explained under CBDT guidelines, Section 69 addition reduced

ITAT Ahmedabad partially allowed the assessee's appeal regarding unexplained cash deposits during demonetization. The assessee deposited Rs. 5,00,000 in a joint account on 10.11.2016. The tribunal applied CBDT's SOP guidelines, holding that cash deposits up to Rs. 2,50,000 by non-business individuals should be treated as prima facie explained without further verification, absent exceptional circumstances indicating concealment. The tribunal found the assessee's explanation regarding household cash and personal withdrawals plausible for half the amount. However, lacking documentary evidence for the remaining Rs. 2,50,000 and absence of personal cash records, the tribunal upheld the addition under section 69 for this portion. The total addition was reduced from Rs. 5,00,000 to Rs. 2,50,000, granting partial relief to the assessee.

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ISSUES:

• Whether cash deposits made during the demonetization period can be treated as unexplained income under section 69 of the Income-tax Act, 1961, in the absence of satisfactory explanation or documentary evidence.
• Whether the Standard Operating Procedure (SOP) issued by the Central Board of Direct Taxes (CBDT) dated 21.02.2017 is applicable for verification of cash deposits during demonetization period and to what extent it limits the scope of additions under section 69.
• Whether the addition of Rs. 5,00,000/- sustained by the appellate authority as unexplained cash deposit in a joint account is justified.

RULINGS / HOLDINGS:

• The addition of Rs. 5,00,000/- as unexplained cash deposit under section 69 was partly justified; however, applying the CBDT's SOP, a cash deposit of Rs. 2,50,000/- by an individual without business income should be treated as prima facie explained and does not warrant further verification.
• The benefit of the SOP's threshold limit for non-verification applies to individuals without business income up to Rs. 2,50,000/-; deposits exceeding this limit require substantiation through documentary evidence such as income earned in past years, filing of return of income, cash withdrawals, or other relevant sources.
• The absence of any documentary evidence such as a personal cash book, household ledger, or contemporaneous withdrawal records to substantiate the source of the balance Rs. 2,50,000/- justifies treating that portion as unexplained income under section 69.

RATIONALE:

• The Court applied the statutory provisions of the Income-tax Act, 1961, particularly sections 69 (unexplained cash credits) and 144 (best judgment assessment), along with the procedural guidelines under Rule 46A of the Income-tax Rules, 1962.
• The Court gave significant weight to the CBDT's Standard Operating Procedure dated 21.02.2017, which provides a framework for uniform verification of cash deposits during the demonetization period, specifying monetary thresholds and criteria for verification to avoid arbitrary additions.
• The decision aligns with precedent from the Surat Bench of the Tribunal, which recognized the applicability of the SOP and accepted explanations for cash deposits below the prescribed threshold in demonetization-related cases.
• The Court noted the absence of exceptional facts indicating concealment or fictitious transactions, and the assessee's status as an individual without business income, as relevant factors in applying the SOP thresholds.
• The Court modified the appellate authority's order by restricting the addition to Rs. 2,50,000/-, thereby partially allowing the appeal.

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