The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) has held that the enhanced tax rate of 60% under section 115BBE of the Income Tax Act is not applicable to cash deposits during demonetisation.

The bench of Dr. B. R. R.Kumar (Vice President) and Senthil Kumar (Judicial Member) has observed that cash deposits made in bank accounts during demonetisation were taxed at an enhanced rate of 60% under section 115BBE (effectively 77.25% with surcharge & cess). The amendment under section 115BBE enhancing tax rate from 30% to 60% was made vide Taxation Laws (Second Amendment) Act, 2016 which came into force on 15.12.2016 post demonetisation and hence, the amendment cannot be applied to cash deposits made during demonetisation period. The amendment was made applicable w.e.f. 01.04.2017 and hence, the same is applicable prospectively for transactions on or after 01.04.2017. 

The appellant/assessee filed return of income on 10.11.2017 declaring total income of Rs.2,09,270. The case has been taken up for complete scrutiny by the revenue authorities and addition of Rs.68,50,000 has been made on account of cash deposits in bank account.

The appellant contended that cash flow statement from the year 2012-13 to 2015-16 to substantiate the cash deposits made during the demonetization period and argued that there has been a closing cash balance of Rs.1,82,11,228 which has been deposited during the Financial Year (FY) 2016-2017.

The assessee submitted that there has been cash withdrawal from the bank for FY 2012-13 to the tune of Rs.3.94 crores and hence no addition on account of cash deposits cannot be made considering the fact that the assessee had continuously held cash in hand from the FY 2012-13 which has been utilized to deposit cash in the year 2016-17.

The department contended that cash in hand for the year 2012-13 cannot be considered to have been deposited in the year 2016-17. By any means of logic it cannot be accepted that the assessee had cash for a period of 4 years lying with him idle and without depositing in the bank account even though the assessee has been continuously having transaction in the bank account and withdrawing cash for the remaining period of 4 years while at the same time keeping in hand cash of Rs.1.82 crores, the assessee continued to withdraw the cash of Rs.14 lakhs in FY 2013-14 and Rs.23 lakhs in FY 2014-15.

The tribunal held that the entire cash deposits also cannot be considered as undisclosed income keeping in view the earning of income to the tune of Rs.1.8 crores by the assessee and it is also a fact that the assessee had agricultural income to the tune of Rs.10 lakhs. The assessee has also received cash as part of sale consideration pertaining to the agricultural land. 

The tribunal allowed the ground of appeal of the assessee on the issue of Section 115BBE of the Income Tax Act.

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Case Details

Case Title: Naranbhai Samatbhai Bharwad Versus ITO

Case No.: I.T.A. No.272/Ahd/2024

Date: 03.01.2025

Counsel For Appellant: Kushal Fofaria

Counsel For Respondent: Waghe Prasad Rao