ITAT reduces addition under Sec 68 and limits Sec 115BBE to post-April 2017 transactions, allows partial credit

The ITAT Delhi reduced the addition under section 68 read with section 115BBE related to cash deposits during demonetization, allowing a lump sum addition of INR 5 lakhs instead of the full disputed amount, as the assessee failed to fully reconcile cash sales but was entitled to partial credit. The addition was directed not to set a precedent. Regarding assessment under section 115BBE, following the Madras HC ruling, the provision applies only to transactions on or after 01.04.2017; hence, the assessee was ordered to be assessed under normal provisions for earlier transactions.

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ISSUES:

Whether cash deposits made during the demonetization period can be treated as unexplained money under section 68 of the Income Tax Act, 1961.Whether addition of cash deposits as unexplained income constitutes double addition when trading results have been accepted.Whether the provisions of section 115BBE apply to the assessment year in question.

RULINGS / HOLDINGS:

On the issue of cash deposits, the Court held that although the assessee did not satisfactorily discharge the onus of filing a complete reconciliation of cash sales vis-à-vis bank deposits, the credit could not be denied in entirety; accordingly, a lump sum addition of INR 5 lakhs was deemed just and proper, with the remainder of the cash deposits allowed.The Court rejected the contention that addition of cash deposits was a double addition of income, emphasizing that the Revenue's comparison of cash sales figures was insufficient to wholly disallow the deposits.Regarding section 115BBE, the Court ruled that the statutory provision applies only to transactions on or after 01.04.2017; hence, the assessee is to be assessed under normal provisions for the assessment year concerned.

RATIONALE:

The Court applied the statutory framework of the Income Tax Act, 1961, particularly section 68 relating to unexplained cash credits, and section 115BBE concerning taxation of unexplained cash credits.The Court noted the failure of lower authorities to adequately consider the assessee's recorded sales and supporting evidence, instead relying on a simplistic comparison of cash sales figures across months.The decision reflects a balanced approach, recognizing the assessee's partial failure to fully explain cash deposits while avoiding a complete denial of credit, thus avoiding an unsustainable legal position.The Court relied on precedent interpreting the effective date of section 115BBE, referencing a recent judgment clarifying its applicability only from 01.04.2017 onwards.

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