2022 (11) TMI 469 - AT - Income Tax

Unexplained Cash deposit during demonetization - Counsel submitted before us that amount deposited in the bank account represents past withdrawal as well as past savings - HELD THAT - As per Press Release dated 18.11.2016 and Guidelines for Verification of Cash deposit during demonetization to the AO vide Instruction No. 3/2017 F.NO. 225/100/2017/ITA-II dated 21.2.2017 and annexure thereof issued under section 119 of Income Tax Act,it is vivid that In the case of taxpayers above 70 years of age, the limit is Rs. 5.0 Lakh per person and for other person the limit is Rs.2.50 lakh per person. The source of such amount can be either household savings/ savings from past income or amounts claimed to have been received from any of the sources mentioned in Paras 2 to 6 of the CBDT circular. Amounts above this cut-off may require verification to ascertain whether the same is explained or not. Considering the above CBDT Circular, we are of the view that in assessee s case under consideration, the assessee and his wife is having only one saving bank account wherein both deposits their past savings, therefore assessee should be allowed a blanket exemption of Rs. 5,00,000/- in view of instructions of CBDT, as the wife of the assessee did not have any other operational bank account and hence she has deposited her household savings in the same bank account of Axis bank where she is also a nominee - CBDT Instructions also clearly states that only the amount above the cut-off may require verification. Therefore, assessee is entitled to claim a blanket exemption of Rs. 5,00,000/- (Rs.2,50,000/- assessee himself and Rs.2,50,000/- for wife) in view of instructions of CBDT. Assessee is regular in filing his Return of Income for more than nine years and has already shown his books of accounts and submitted the same to the Assessing Officer to show that he has sufficient cash balance to justify cash deposit during demonetization and hence no adverse view should be drawn in absence of any finding that the cash withdrawn is used for any unaccounted income or any unaccounted asset. Demonetization was a compulsion event and hence it has to be viewed differently from normal cash deposits. We also note that submission was furnished by the assessee to assessing officer, during assessment proceedings, with supporting evidence and no defect could be pointed out in these evidences maintained by the assessee. We therefore, taking into account all these peculiar facts and circumstances, delete the balance amount. Appeal of assessee allowed.

Summary

Issues Involved:
1. Addition of Rs. 10,20,000/- under Section 68 of the Income Tax Act, 1961 due to alleged unexplained cash credits.
2. Taxing the income under Section 115BBE at 77.25% instead of 35.54%.

Issue-wise Detailed Analysis:

Issue 1: Addition of Rs. 10,20,000/- under Section 68 of the Income Tax Act, 1961
The assessee filed a return of income declaring Rs. 3,09,870/- for AY 2017-18. The case was selected for scrutiny due to large cash deposits during the demonetization period. The assessee deposited Rs. 10,20,000/- in old denomination notes between 09.11.2016 and 31.12.2016. The assessee claimed these deposits were from past savings, withdrawals, and his wife's savings. However, the Assessing Officer (AO) rejected this explanation due to lack of documentary proof and added the amount as unexplained cash credits.

The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the AO's decision. The assessee then appealed to the ITAT, arguing that the deposits were from legitimate sources, including past savings and withdrawals, and that his wife also contributed her savings to the same bank account.

The ITAT considered the CBDT's instructions and guidelines for verification of cash deposits during demonetization, which provide a blanket exemption of Rs. 2,50,000/- per person. The ITAT noted that the assessee and his wife used the same bank account, and his wife had no other operational bank account. Therefore, the assessee was entitled to a blanket exemption of Rs. 5,00,000/- (Rs. 2,50,000/- for himself and Rs. 2,50,000/- for his wife).

For the remaining Rs. 5,20,000/-, the ITAT examined the assessee's past income, regular filing of returns, and cash withdrawals. The assessee had gross income of Rs. 21,67,215/- over the past nine years and cash withdrawals of Rs. 9,35,000/- in the immediate three years, which were sufficient to cover the remaining amount. The ITAT found that the AO did not provide evidence that the cash withdrawals were used for unaccounted expenses. The ITAT concluded that the assessee had sufficient cash balance to justify the deposits and deleted the addition of Rs. 5,20,000/-.

Issue 2: Taxing the income under Section 115BBE at 77.25% instead of 35.54%
Since the ITAT deleted the entire addition of Rs. 10,20,000/-, the issue of taxing the income under Section 115BBE became infructuous and did not require adjudication.

Conclusion:
The ITAT allowed the appeal filed by the assessee, deleting the addition of Rs. 10,20,000/- and rendering the issue of higher tax rate under Section 115BBE moot. The judgment emphasized that the decision should not be treated as a precedent for other assessment years. The order was pronounced on 18/10/2022.