2026 (3) TMI 1559 - AT - Income Tax

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 ... Unexplained investment u/s 69 - Demonetisation cash deposits - Applicability of section 115BBE - addition in respect of cash deposited in the HDFC Bank account during the demonetisation period - HELD THAT: - The Tribunal found that there was no dispute as to the assessee's jewellery business or the existence of cash in hand on the date of demonetisation. It noted that the Assessing Officer himself accepted substantial cash in hand and also accepted deposit of a much larger amount in the Bank of Baroda account, while doubting only the deposit in the HDFC Bank account because of its transfer to the assessee's own other bank account. Tribunal held that the assessee had not clearly explained certain discrepancies, particularly whether the entire cash in hand was in the form of specified bank notes and how the impugned deposit was to be reconciled once the accepted deposits had already substantially exhausted the available cash. On that basis, and to avoid possible revenue leakage, only 50% of the impugned cash deposit was sustained and the balance was directed to be deleted. [Paras 8, 9] The addition was restricted to 50% of the cash deposit in the HDFC Bank account, with relief granted for the remaining 50%. Applicability of section 115BBE - HELD THAT: - Applying SMILE Micro Finance Limited [2024 (11) TMI 1444 - MADRAS HIGH COURT] Tribunal held that section 115BBE was not applicable for A.Y. 2017-18 and applied only for subsequent assessment years. The legal principle adopted was that, for the year under appeal, an addition sustained on this count had to be taxed at the normal rate applicable to the assessee and not under the special rate contemplated by section 115BBE. [Paras 10] The Assessing Officer was directed to tax the sustained addition at the normal rate applicable to the assessee. Final Conclusion: The appeal was partly allowed. The addition on account of cash deposited in the HDFC Bank account during demonetisation was sustained only to the extent of 50%, and the balance was deleted; the amount so sustained was directed to be taxed at the normal rate and not u/s 115BBE for A.Y. 2017-18. 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.