Demonetisation cash deposits linked to earlier survey-disclosed surrendered cash; s.69A addition deleted; s.115BBE not applied retrospectively

Cash deposits during demonetisation were treated as unexplained money under s.69A. The Tribunal held that the assessee satisfactorily explained the source by linking the deposits to cash earlier surrendered and disclosed during survey proceedings and reiterated in a statement under s.131; mere suspicion about the time-gap between disclosure and deposit could not justify an addition without rejecting the explanation on investigation or calling for corroborative evidence. Accordingly, the s.69A addition was deleted. On tax rate, the Tribunal applied the HC view that s.115BBE operates prospectively and therefore could not be invoked for the year in question; the assessee's challenge to s.115BBE was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether cash deposits made during the demonetization period were liable to be treated as unexplained money under section 69A, where the assessee explained the source as cash arising from income earlier surrendered during survey proceedings and accepted in an earlier assessment year, and the addition was primarily supported by an inference that such large cash could not reasonably be held for a long period.

(ii) Whether tax under section 115BBE could be invoked on such addition for the relevant assessment year, in view of the Court's acceptance of the position that section 115BBE operated prospectively.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Addition under section 69A for demonetization cash deposits explained by earlier surrendered income

Legal framework: The Tribunal examined the assessment framed by treating demonetization-period cash deposits as unexplained money under section 69A, after rejecting the assessee's explanation of source.

Interpretation and reasoning: The Tribunal found, on the record, that (a) there was an earlier surrender of income during survey proceedings in a prior year; (b) the assessee's case was that such surrendered amount was received/available in cash and a part of it was later deposited during demonetization; and (c) the rejection by the authorities was substantially based on the premise that it was not acceptable or probable to keep such huge cash in hand for a long period. The Tribunal applied the principle that once the assessee discloses a plausible source of cash, the revenue cannot reject the explanation merely on surmise as to human conduct (i.e., disbelief based only on the time gap or perceived improbability of holding cash), without bringing material to show that the cash was not available or had been utilized elsewhere. It also relied on the reasoning that when disclosure/surrender has been accepted earlier, the revenue must establish with evidence that the amount was invested/spent so as to negate availability for subsequent deposit, rather than disallowing the explanation solely due to delay in deposit.

Conclusion: The Tribunal held that the addition could not be sustained merely because the deposits were made after a period of time from the earlier surrender and because of an assumption that such cash would not be held for long. The cash deposits stood explained on the facts accepted by the Tribunal, and the addition under section 69A was deleted.

Issue (ii): Applicability of section 115BBE

Legal framework: The Tribunal considered whether section 115BBE could be applied to tax the amount treated as unexplained.

Interpretation and reasoning: The Tribunal accepted the proposition, as applied in its reasoning, that section 115BBE was applicable prospectively (as per the authority it followed). On that basis, it held that section 115BBE could not be invoked for the relevant assessment year.

Conclusion: Invocation of section 115BBE was held to be unsustainable for the year in question, and the assessee's ground on this aspect was allowed.

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