2025 (12) TMI 347 - AT - Income Tax

Cash deposits during demonetisation taxed under s.69, but s.115BBE 60% rate held inapplicable pre-2017 for relevant assessment year

ITAT Chandigarh partly allowed the assessee's appeal concerning addition under s. 69 r.w.s. 115BBE on cash deposits made during the demonetization period. ... Addition u/s 69 r.w.s. 115BBE - assessee deposited cash during demonetization period - HELD THAT:- It is clear from assessee’s replies before lower authorities that out of cash deposits of Rs. 14.19 Lacs, the assessee could not establish the sources of Rs. 3.19 Lacs. Even before us no new material has been placed to differ with the view of lower authorities. However, the higher rate of tax as prescribed u/s 115BBE would not apply in this year as per the decision of S.M.I.L.E. Microfinance Ltd. [2024 (11) TMI 1444 - MADRAS HIGH COURT] The Hon’ble Court held that the revenue is empowered to impose 60% rate of tax for the transactions from 01-04-2017 onwards and not prior to the said cut-off date and for prior transaction, the revenue is empowered to impose only 30% rate of tax. Respectfully following the same, direct Ld. AO to apply normal rate of tax on addition. Assessee appeal is partly allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the delay of 71 days in filing the appeal before the Tribunal deserved condonation. 1.2 Whether the addition of Rs. 3.19 lakhs as unexplained cash deposit under section 69 read with section 115BBE, arising out of cash deposits during the demonetization period, was sustainable on merits. 1.3 Whether the enhanced rate of tax under section 115BBE (60%) was applicable to the addition made in respect of cash deposits made during the demonetization period, or whether only the earlier/normal rate of 30% was applicable. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Condonation of delay in filing the appeal Interpretation and reasoning: The Tribunal considered the assessee's condonation petition and supporting affidavit explaining the 71 days' delay. Having regard to the contents of these documents and the relatively small period of delay, the Tribunal accepted the explanation. Conclusions: The delay of 71 days in filing the appeal was condoned and the appeal was admitted for adjudication on merits. Issue 2: Sustainaibility of addition of Rs. 3.19 lakhs under section 69 Legal framework (as discussed): The assessment was framed under section 144. The Assessing Officer had treated Rs. 3.19 lakhs, out of total cash deposits of Rs. 14.19 lakhs during the demonetization period, as unexplained investment under section 69 and subjected the same to tax under section 115BBE. Interpretation and reasoning: The Tribunal noted from the assessee's replies before the lower authorities that, out of cash deposits of Rs. 14.19 lakhs, the assessee could not establish the sources of Rs. 3.19 lakhs. The Assessing Officer had already granted benefit for the portion explained as agricultural income and restricted the addition to the unexplained balance. Before the Tribunal, no one appeared on behalf of the assessee and no new material was produced to rebut the concurrent findings of the lower authorities or to substantiate the source of the impugned sum. Conclusions: The Tribunal upheld the addition of Rs. 3.19 lakhs as unexplained under section 69, affirming the findings of the Assessing Officer and the appellate authority on this point. Issue 3: Applicability of enhanced rate of tax under section 115BBE to demonetization-period deposits Legal framework (as discussed): The Tribunal considered section 115BBE and the amendment increasing the rate of tax from 30% to 60% with effect from 01.04.2017. It referred to the judgment of the High Court (Madura Bench) in 'S.M.I.L.E. Microfinance Ltd. vs. ACIT (WP (MD) No. 2078 of 2020 dated 19-11-2024)'. The High Court had examined the objects and reasons of the Taxation Laws (Second Amendment) Bill, 2016, including the Press Information Bureau note explaining the legislative intent behind the changes introduced in connection with demonetization and the Pradhan Mantri Garib Kalyan Yojana, 2016. The High Court, after extracting and analysing the objects and reasons, concluded that: (a) The amendment to section 115BBE enhancing the rate to 60% was effective from 01.04.2017. (b) The language of the objects and reasons, including the expression 'instead of allowing people to find illegal ways of converting their black money into black again', indicated that the enhanced rate was intended to operate prospectively for future transactions from 01.04.2017 onwards. (c) Consequently, the revenue was empowered to levy 60% tax only on transactions from 01.04.2017 onwards, and for transactions prior to that cut-off date, only the earlier rate of 30% was applicable. Interpretation and reasoning: The Tribunal noted that the cash deposits in question pertained to the demonetization period between 08.11.2016 and 30.12.2016. Relying on and respectfully following the above decision of the High Court, the Tribunal held that the higher rate of 60% under the amended section 115BBE could not be applied to such pre-01.04.2017 transactions. Therefore, the addition sustained under section 69 had to be taxed at the normal/earlier rate of 30% and not at 60%. Conclusions: While sustaining the quantum addition of Rs. 3.19 lakhs as unexplained, the Tribunal directed the Assessing Officer to apply only the normal rate of tax (30%) under section 115BBE and not the enhanced rate of 60%. The appeal was thus partly allowed to the extent of relief in the applicable tax rate.