Cash deposits during demonitisation period partial disallowance converted to a Rs.3 lakh addition taxed at normal rates per precedent

Decision addresses taxability of cash deposits during the demonetisation period where most explanations were accepted but certain opening balance and receipts from acquaintances were disallowed; the tribunal accepted that past savings and some receipts could be partially credited and estimated a lump sum addition of Rs.3,00,000 which is to be taxed at normal rates. The tribunal applied precedent limiting revenues power to impose enhanced tax rates to transactions from the specified cut-off date onward, with a lower special rate applicable to earlier transactions, directing the assessing officer to apply normal taxation to the sustained addition.

---

---

Issues: Whether the addition made on account of unexplained cash deposits and the application of a higher special rate of tax on such addition are sustainable, and if so to what extent/quantum.

Analysis: The assessee, a senior citizen, had substantial cash deposits during the demonetisation period; substantial explanations were accepted except for certain opening cash balance and receipts from acquaintances, leading to an addition by the revenue. Considering the assessee's background and partial acceptability of declared sources, a lump-sum adjustment was estimated. Reliance was placed on a recent High Court decision holding that the legislative amendment imposing a higher special rate for undisclosed income takes effect from 01-04-2017; transactions prior to that date are not subject to the higher rate and are to be taxed at normal rates.

Conclusion: The sustained addition is reduced to a lump sum of Rs.3,00,000 which shall be taxed at normal rates; appeal is partly allowed in favour of the assessee.

Ratio Decidendi: The amendment introducing a higher special rate for undisclosed income operates prospectively from 01-04-2017, and transactions prior to that cut-off are taxable at normal rates.

---