Partial addition for unexplained cash deposit sustained, but special tax rate under section 115BBE held inapplicable for the year.

Cash deposit of Rs. 25,00,000 during demonetisation was only partly treated as unexplained under section 69 because the assessee's overall cash flow and business receipts were not fully accepted as a complete explanation for the specific HDFC Bank deposit; the addition was restricted to 50% and the balance deleted. The sustained amount was then held not chargeable under the enhanced tax rate of section 115BBE for Assessment Year 2017-18, and was directed to be taxed at the normal rate instead. The assessee therefore obtained partial relief, with the addition cut down and the special rate inapplicable.

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Issues: (i) Whether the cash deposit of Rs. 25,00,000 in HDFC Bank during the demonetization period was liable to be treated as unexplained investment under section 69. (ii) Whether the amount sustained could be subjected to tax under section 115BBE for Assessment Year 2017-18.

Issue (i): Whether the cash deposit of Rs. 25,00,000 in HDFC Bank during the demonetization period was liable to be treated as unexplained investment under section 69.

Analysis: The cash availability in the books and the business activity were not in dispute, but the explanation for the specific HDFC deposit was not fully satisfactory. The record showed a large cash balance and substantial deposits in another bank account, yet the explanation did not clearly establish that the entire amount deposited in HDFC Bank was fully explained in the manner claimed. At the same time, the material did not justify sustaining the entire addition, since the deposit formed part of the overall cash flow and business receipts.

Conclusion: The addition was not sustainable in full, and only 50% of the deposit was upheld; the balance 50% was directed to be deleted, resulting in partial relief to the assessee.

Issue (ii): Whether the amount sustained could be subjected to tax under section 115BBE for Assessment Year 2017-18.

Analysis: The rate of tax under section 115BBE was examined in the context of the assessment year involved. The applicable legal position was taken to be that the enhanced manner of taxation under that provision did not apply to Assessment Year 2017-18, and the sustained addition was therefore required to be taxed in the ordinary manner applicable to the assessee.

Conclusion: The sustained addition was directed to be taxed at the normal rate and not under section 115BBE for Assessment Year 2017-18.

Final Conclusion: The assessee obtained partial relief because the impugned addition was cut down by half, while the balance was maintained and directed to be taxed under the ordinary provisions rather than the special deeming rate.

Ratio Decidendi: Where a cash deposit is only partly left unexplained on the facts, the addition may be restricted to the unexplained portion, and the special tax rate under section 115BBE cannot be applied to Assessment Year 2017-18 in the manner sought by the Revenue.

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