2025 (2) TMI 938 - AT - Income Tax

Addition u/s 69A - Unexplained cash deposits in bank account - Assessee argued source of cash deposit is out of cash withdrawn on earlier dates from bank accounts and savings - HELD THAT - No hesitation in holding that the assessee has shown the sources of earlier withdrawal. By noting the fact that an amount of Rs. 84, 944/- is cash out of earlier income or saving. We finally conclude that an amount in respect of which addition is made under section 69A is successfully explained and proved too. We therefore hold that such addition is incorrectly made by lower authorities by treating the same as unexplained within the meaning of Section 69A of the Act. Appeal of the assessee is allowed.

ISSUES PRESENTED and CONSIDERED

The primary issues considered in this appeal before the Income Tax Appellate Tribunal (ITAT) were:

Whether the cash deposits made by the assessee during the demonetization period were unexplained and thus liable to be added to the taxable income under Section 69A of the Income Tax Act, 1961.
Whether the imposition of a higher tax rate under Section 115BBE of the Income Tax Act, 1961, was justified.

ISSUE-WISE DETAILED ANALYSIS

1. Cash Deposits during Demonetization Period

Relevant Legal Framework and Precedents: Section 69A of the Income Tax Act, 1961, allows for the addition of unexplained money, bullion, jewellery, or other valuable articles to the income of the assessee. The burden of proof lies on the assessee to explain the source of such deposits.
Court's Interpretation and Reasoning: The Tribunal examined whether the assessee had satisfactorily explained the source of cash deposits amounting to Rs. 10,46,500/- during the demonetization period.
Key Evidence and Findings: The assessee provided bank statements demonstrating cash withdrawals prior to the demonetization period. The Tribunal noted withdrawals totaling Rs. 9,61,556/- from two banks and additional savings of Rs. 84,944/-, cumulatively matching the deposited amount.
Application of Law to Facts: The Tribunal found that the assessee had successfully demonstrated the source of the cash deposits through earlier bank withdrawals and savings. The Tribunal emphasized that the burden of proof was met by the assessee.
Treatment of Competing Arguments: The Revenue argued that the deposits were unexplained and should be added under Section 69A. However, the Tribunal found the assessee's explanation plausible and supported by documentary evidence.
Conclusions: The Tribunal concluded that the addition under Section 69A was unjustified as the assessee had adequately explained the source of cash deposits.

2. Imposition of Higher Tax Rate under Section 115BBE

Relevant Legal Framework and Precedents: Section 115BBE of the Income Tax Act, 1961, prescribes a higher tax rate for income assessed under certain sections, including Section 69A. The amendment increasing the tax rate to 60% was effective from 15/12/2016.
Court's Interpretation and Reasoning: The Tribunal considered the applicability of the higher tax rate, given the timing of the deposits and the amendment.
Key Evidence and Findings: The deposits were made before the effective date of the amendment, and the Tribunal noted that the higher rate should not apply retroactively.
Application of Law to Facts: The Tribunal found that since the deposits occurred before the amendment's effective date, the pre-amendment tax rate should apply.
Treatment of Competing Arguments: The Revenue's position that the higher rate was applicable was rejected by the Tribunal, which relied on the principle that amendments should not apply retroactively unless explicitly stated.
Conclusions: The Tribunal concluded that the imposition of the higher tax rate under Section 115BBE was not applicable to the assessee's case.

SIGNIFICANT HOLDINGS

The Tribunal held that the assessee had satisfactorily explained the source of cash deposits during the demonetization period, thereby negating the applicability of Section 69A for unexplained income.
The Tribunal emphasized that the burden of proof was on the assessee, who had met this burden by providing credible evidence of prior withdrawals and savings.
The Tribunal concluded that the imposition of the higher tax rate under Section 115BBE was unjustified, as the deposits were made before the amendment's effective date.
The Tribunal set aside the impugned order and allowed the appeal, effectively removing the additions made by the lower authorities under Section 69A and the higher tax rate under Section 115BBE.

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