BALASUBRAMANIAM VENKITACHALAM,TIRUPUR V. ITO, WARD-1(2), TIRUPUR

ITA 827/CHNY/2025

AI Insights

The case involves an appeal by Balasubramaniam Venkitachalam against the order of the Commissioner of Income Tax (Appeals), which confirmed the addition of Rs. 10,65,500 as unexplained cash deposits during the demonetization period. The assessee argued that these deposits were from cash sales of his bakery business, which was not initially recognized in his tax returns. The Tribunal found merit in the assessee's argument to some extent, reducing the addition to Rs. 5,00,000. Furthermore, the Tribunal ruled that section 115BBE, which imposes a higher tax rate on unexplained income, was not applicable to the transactions in question as they occurred before April 1, 2017, based on the Madras High Court's decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 632989 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2017-2018
• Other Referred Cases: S.M.I.L.E Microfinance Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANITHA
• Assessee Lawyers: S. SRIDHAR; ERODE
• Keywords: Set aside; Business income; Revised return

Judgement Text

"आयकर अपीलीय अधिकरण, ’सी’ न्यायपीठ, चेन्नई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH: CHENNAI श्री यस यस विश्वनेत्र रवि, न्यावयक सदस्य एवं श्री अविताभ शुक्ला, लेखा सदस्य क े समक्ष BEFORE SHRI SS VISWANETHRA RAVI, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.827/Chny/2025 Assessment Years: 2017-18 Balasubramaniam Venkitachalam, No.38/34-P.V.G Nagar, Valayankadu Extention, Samundipuram, Tiruppur, Tamil Nadu-641 603. [PAN: ADWPB0330R] Income Tax Officer, Ward-1(2), Tiruppur. (अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलार्थी की ओर से/ Assessee by : Shri S.Sridhar, Advocate(Erode) प्रत्यर्थी की ओर से /Revenue by : Ms.Anitha, Addl.CIT सुनवाई की तारीख/Date of Hearing : 04.06.2025 घोषणा की तारीख /Date of Pronouncement : 13.06.2025 आदेश / O R D E R PER AMITABH SHUKLA, A.M : This appeal is filed by the assessee against the order bearing DIN & Order No.ITBA / APL / S / 250 / 2024-25 / 1072277158(1) dated 17.01.2025 of the Learned Commissioner of Income Tax [herein after “CIT(A), Addl/JCIT(A)-2 Visakhapatnam for the assessment year 2017- 18. The reference to the word “Act” in this order hereinafter shall mean the Income Tax Act, 1961 as amended from time to time. 2.0 The only issue in this appeal is regarding the addition of Rs.10, 65,500/- made by the Ld.AO on account of unexplained cash deposits, ITA No.827/Chny/2025 Page - 2 - of 6 during the demonetization period, and its confirmation by the Ld. CIT(A). The Ld. Counsel submitted that it had submitted before the Ld.AO that the impugned cash deposits represent cash sales from the business of running a bakery. From the bank accounts maintained with Bank of Baroda and HDFC Bank, total cash deposits of Rs. 20,65,500/- was noted. Upon perusal of the return of income, the Ld.AO had noted that the assessee has not offered any income under the head business. The Ld.AO accordingly, gave relief of Rs.10 lakhs to the assessee and added Rs.10,65,500/- u/s 69A. While making the impugned addition, the Ld.AO also invoked provisions of 115BBE. The Ld. CIT(A) confirmed the order of the Ld.AO. It was stated that the decision is based upon erroneous understanding of the provisions of the Act and that the same be set aside. 3.0 Per contra, the Ld.DR placed reliance upon the order of lower authorities. 4.0 We have heard rival submissions in the light of material available on records. It is the case of the assessee that it was explained to the Ld.CIT(A) that his accountant with the aid of some TRP, erroneously showed business income as income from other sources. Before the Ld.CIT(A) details comprising financial statements to this effect were filed. The Ld.CIT(A) however concluded that because the assessee has failed to offer any revised return the new hypothesis cannot be accepted. The assessee has filed all the submissions and documents made before lower ITA No.827/Chny/2025 Page - 3 - of 6 authorities to indicate that it was engaged in bakery business. It is noted that the assessee has filed amended details for the present year i.e. AY-2017-18 as well as details including assessment order for AY- 2016-17. Perusal of assessment order for AY-2016-17 alludes that assessee was engaged in the business of bakery. We have however also noted that the assessee has not been able to provide any demonstrative evidence to indicate the impugned mistake of showing business income as income from other sources. Be that as it may be, in the interest of justice, we deem it appropriate to restrict the addition on account of unexplained cash deposits to Rs.5 lakhs. Accordingly, we set aside the order of lower authorities and direct the Ld.AO to restrict the addition to Rs. 5 lakhs only. The assessee accordingly gets relief of Rs.5.65 lakhs. Accordingly, the ground of appeal raised by the assessee on this issue is partly allowed. 5.0 The next issue raised by the assessee through grounds of appeal no.6 is regarding invocation of section 115BBE in its case. The Ld. Counsel for the assessee argued that in terms of a decision of Hon’ble Madras High Court in the case of S.M.I.L.E Microfinance Ltd, provisions of section 115BBE would not be applicable in this case. 6.0 The Ld. DR argued in favour of the order of lower authorities. ITA No.827/Chny/2025 Page - 4 - of 6 7.0 We have heard rival submissions in the light of material available on records. We are of the considered opinion that provisions of section 115BBE would not be applicable in this case. In this regard respectful reliance is placed upon the decision of Hon’ble madras High Court from its judgement dated 19/11/2024 qua W.P (MD) NO. 2078 Of 2020 & W.M.P (MD) NO. 1742 Of 2020 I n the case of S.M.I.L.E Microfinance Ltd, holding that:- “………16. The next contention raised by the Learned Senior Counsel is that the under section 115BBE the rate of tax imposed is increased from 30% to 60% and the same is applicable with effect from 01.04.2017 onwards as per the amendment. Therefore, the same is applicable to any transaction from 01.04.2017 onwards and nor prior to any transactions prior to 01.04.2017. Since in the present case all alleged transactions are for the period from 08.11.2016 to 30.12.2016, hence the erstwhile rate of tax 30% only is applicable. But the contention of the revenue is that the amendment was with effect from 01.04.2017 and hence the same is applicable for the financial year 2016-2017 and the assessment year 2017-2018. Further the amendment to section 115BBE is directly 15 of 26 https://www.mhc.tn.gov.in/judis related to demonetization which would be evident from objects and reasons for such amendment. In order to consider the same, the objects and reasons of Taxation Laws (Second Amendment) Bill 2016 is extracted hereunder: Press Information Bureau Government of India Ministry of Finance 28-November- 2016 15:56 IST Taxation Laws (Second Amendment) Bill, 2016 introduced in Lok Sabha; A scheme namely, ‘Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016’ (PMGKY) proposed in the Bill. Evasion of taxes deprives the nation of critical resources which could enable the Government to undertake anti-poverty and development programmes. It also puts a disproportionate burden on the honest taxpayers who have to bear the brunt of higher taxes to make up for the revenue leakage. As a step forward to curb black money, bank notes of existing series of denomination of the value of Rs.500 and Rs. 1000 [Specified Bank Notes(SBN)] have been recently withdrawn the Reserve Bank of India. Concerns have been raised that some of the existing provisions of the Income- tax Act, 1961 (the Act) can possibly be used for concealing black money. The Taxation Laws (Second Amendment) Bill, 2016 (‘the Bill’) has been introduced in the ITA No.827/Chny/2025 Page - 5 - of 6 Parliament to amend the provisions of the Act to ensure that defaulting assessees are subjected to tax at a higher rate and stringent penalty provision. Further, in the wake of declaring specified bank notes “as not legal tender”, there have been suggestions from experts that instead of allowing people to find illegal ways of converting their black money into black again, the Government should give them an opportunity to pay taxes with heavy penalty and allow them to come clean so 16 of 26 https://www.mhc.tn.gov.in/judis that not only the Government gets additional revenue for undertaking activities for the welfare of the poor but also the remaining part of the declared income legitimately comes into the formal economy. In this backdrop, an alternative Scheme namely, ‘Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016’ (PMGKY) has been proposed in the Bill. The declarant under this regime shall be required to pay tax @ 30% of the undisclosed income, and penalty @10% of the undisclosed income. Further, a surcharge to be called ‘Pradhan Mantri Garib Kalyan Cess’ @33% of tax is also proposed to be levied. In addition to tax, surcharge and penalty (totaling to approximately 50%), the declarant shall have to deposit 25% of undisclosed income in a Deposit Scheme to be notified by the RBI under the ‘Pradhan Mantri Garib Kalyan Deposit Scheme, 2016’. This amount is proposed to be utilised for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc., so that there is justice and equality………………………………………………………………………………………… …………………………………………………………………………………………………… ……. 17. In the aforesaid objects and reasons nowhere it is stated that due to “demonetization” the unaccounted money ought to be charged 60% rate of tax. It only states that step had been taken to curb black money by withdrawing Specified Bank Notes of denomination of Rs.500 and Rs.1000. And also states the people may find illegal ways of converting their black money into black again, hence as per experts advice heavy penalty ought to be levied. From the language of the object “that instead of allowing people to find illegal ways of converting their black money into black again”, it is evident that the government is intended to impose the same for future transactions. Especially the use of word “again” in the object would clearly indicate it is for future transactions i.e. from 01.04.2017. Therefore this Court is of the considered opinion that the revenue is empowered to impose 60% rate of tax for the transactions from 01.04.2017 onwards and not prior to the said cut-off date. And for prior transaction the revenue is empowered to impose only 30% rate of tax….”. 7.1 Thus, Hon’ble high court has held that section115BBE would be applicable for transactions undertaken w.e.f. 1/4/2017 and not of earlier ITA No.827/Chny/2025 Page - 6 - of 6 period. In the present case undisputedly transaction were undertaken in FY 2016-17 and hence section115BBE could not have been invoked in this case. The orders of lower authorities on the issue is therefore set aside and the Ld.AO is directed to recompute the income without applying provisions of section 115BBE. Accordingly, the ground of appeal raised by the assessee are allowed. 8.0 In the result, the appeal of the assessee is partly allowed Order pronounced on 13th , June-2025 at Chennai. Sd/- (यस यस धवश्वनेत्र रधव) (SS VISWANETHRA RAVI) न्याधयक सदस्य / Judicial Member Sd/- (अधमताभ शुक्ला) (AMITABH SHUKLA) लेखा सदस्य /Accountant Member चेन्नई/Chennai, धदनांक/Dated: 13th , June-2025. KB/- आदेश की प्रतितिति अग्रेतिि/Copy to: 1. अिीिार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकर आयुक्त/CIT - Coimbatore 4. तिभागीय प्रतितिति/DR 5. गार्ड फाईि/GF "