2025 (8) TMI 34 - AT - Income Tax

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

Geetanjali Sood Versus ITO, Ward-51 (3), Delhi

The ITAT Delhi reduced the addition under section 68 read with section 115BBE related to cash deposits during demonetization, allowing a lump sum addition ... Addition u/s 68 r/w section 115BBE - cash deposited during the period of demonetization in the bank account of the assessee - assessee is engaged in the business of trading gold jewellery, jewellery studded precious stones, diamonds etc. - HELD THAT:- Although the assessee has not satisfactorily discharged its onus of filing a complete reconciliation of its cash sales/cash in hands vis-à-vis the business turnover as representing cash deposits in issue, it could not be altogether denied the credit thereof in entirety as such this course of action would not be sustainable in law. We, therefore, deem it appropriate in the larger interest of justice that a lump sum addition only to the extent of INR 5 lakhs in the given facts would be just and proper with a rider that the same shall not be treated as a precedent. The assessee gets the relief of Rs. 1,38,61,727/- in other words. Necessary computation shall follow as per law. Assessment u/s 115BBE - As we quote S.M.I.L.E. Microfinance Ltd. [2024 (11) TMI 1444 - MADRAS HIGH COURT] has held that the impugned statutory provision would come into effect on the transaction done on or after 01.04.2017 only. The assessee is accordingly, directed to be assessed under the normal provision as per law. 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.