SATHI MANGAYAMMA,EAST GODAVARI DIST V. INCOME TAX OFFICER, WARD-2, KAKINADA

ITA 119/VIZ/2025

AI Insights

The case involves Sathi Mangayamma, who appealed against the order of the Commissioner of Income-Tax (Appeals) concerning the assessment year 2017-18. The primary issues were the additions made by the Assessing Officer under sections 69A and 144 of the Income Tax Act, 1961, related to unexplained cash deposits during the demonetization period and estimated profits from business receipts. The Tribunal dismissed some grounds of appeal but allowed the application of a lower tax rate on certain unexplained deposits, referencing conflicting High Court decisions on the applicability of the amended Section 115BBE.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 705935 (ITAT-VISAKHAPATNAM)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2017-2018
• Other Referred Cases: National Thermal Power Company Ltd. Vs. CIT, S.M.I.L.E Microfinance Limited Vs. The Assistant Commissioner of Income-tax, Manju Vani Chigurupati Vs. ACIT, Circle 2(1), Vijaywada, Maruthi Babu Rao Jadav Vs. The Assistant Commissioner of Income-tax, Central Circle 1, Kozhikode, K. Subramanian & Ors. Vs. Siemens India Ltd. & Anr.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Additional evidence
• Section: 144; 69C

Judgement Text

"आयकर अपीलीय अधिकरण, विशाखापटणम पीठ में IN THE INCOME TAX APPELLATE TRIBUNAL Visakhapatnam Bench श्री रिीश सूद, माननीय न्याययक सदस्य एिं श्री एस. बालक ृष्णन, माननीय लेखा सदस्य SHRI RAVISH SOOD, HON’BLE JUDICIAL MEMBER AND SHRI BALAKRISHNAN. S, ACCOUNTANT MEMBER, I.T.A. No.119/Viz/2025 (निर्धारण वर्ा/ Assessment Year : 2017-18) Sathi Mangayamma, G. Mamidada, East Godavari District. PAN : DKQPS0143M. Vs. The Income Tax Officer, Ward – 2, Kakinada. (अपीलधर्थी/ Appellant) (प्रत्यर्थी/ Respondent) करदाता का प्रतततितित्व/ Assessee Represented by : Shri GVN Hari, Advocate राजस्व का प्रतततितित्व/ Department Represented by : Dr. Satyasai Rath, CIT(DR) सुिवाई समाप्त होिे की ततति/ Date of Conclusion of Hearing : 23.06.2025 घोषणा की तारीख/ Date of Pronouncement : 30.06.2025 O R D E R प्रतत रवीश सूद, जे.एम./PER RAVISH SOOD, J.M. The present appeal filed by the assessee arises from the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 11.12.2024, which in turn arises from the order passed by the Assessing Officer (for short “A.O.”) u/s 144 of the Income Tax Act, 1961 (for short, “the Act”), dated 2 ITA No.119/Viz/2025 Sathi Mangayamma 16.12.2019 for A.Y. 2017-18. The assessee has assailed the impugned order on the following grounds of appeal before us : “1. The order of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and also the law applicable to the facts of the case. 2. The learned Commissioner of Income Tax (Appeals) is not justified in sustaining the addition of Rs.17,27,120 made by the assessing officer by estimating profit computed @ 8% of the total deposits Rs.2,15,89,000 excluding the cash deposits during demonetization period. 3. The learned Commissioner of Income Tax (Appeals) is not justified in sustaining the addition of Rs.20,00,500 made by the assessing officer u/s 69A of the Act towards unexplained cash deposits in the bank account during demonetization period. 4. The learned CIT(A) erred in observing that the appellant adduced additional evidence.” 2. Apart from that the assessee has raised an additional ground of appeal which reads as under : “The A.O. is not justified in levying tax at increased rate of 60% u/s 115BBE of the Act in as much as the amended provisions of Section 115BBE of the Act are applicable only from A.Y. 2018-19 onwards.” 3. As the assessee by raising the aforesaid additional ground of appeal has sought our indulgence for adjudicating a legal issue which would not require looking any further beyond the facts available on record, therefore, we have no hesitation in admitting the same. Our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the case of National Thermal Power Company Ltd. Vs. CIT (1998) 229 ITR 383 (SC). 3 ITA No.119/Viz/2025 Sathi Mangayamma 4. Succinctly stated, the assessee had filed her return of income for A.Y. 2017-18 on 29.10.2017, declaring an income of Rs.3,40,200/-. Subsequently, the case of the assessee was selected for scrutiny assessment for verifying the cash deposits made in her bank account during the year. 5. During the course of assessment proceedings, the A.O. observed that in the subject year there were total credits of Rs.2,35,89,500/- in the bank account No.02491100000061 of the assessee with Andhra Bank, Branch: Gollala Mamidada, viz., (i). Cash deposits: Rs.2,18,49,500/-; and (ii). Online credits: Rs.17,40,000/-. Out of the total credits of Rs.2,35,89,500/-, there were cash deposits of Rs.20,00,500/- made by the assessee in her aforesaid bank account during the demonetization period. As the assessee despite sufficient opportunities failed to respond to the notices issued by the A.O., therefore, the latter was constrained to proceed with and frame the assessment to the best of his judgment u/s 144 of the Act. 6. As the assessee had failed to come forth with any explanation regarding the aforesaid credits of Rs.2,35,89,500/-, therefore, the A.O., taking cognizance of the fact that she was during the subject year carrying on business as a sole proprietor of a concern, viz. M/s. Aditya Agencies, and had transferred money from the subject bank account to 4 ITA No.119/Viz/2025 Sathi Mangayamma certain business entities i.e. (i) M/s. Sarvaraya Sugars; (ii) Godavari Transport; and (iii) Sree Dhanalakshmi General Stores, therefore, held a conviction that the credits in her bank account (excluding the cash deposited during the demonetization period) of Rs.2,15,89,000/- were her business receipts. The A.O. computed the income element on the aforesaid business receipts of Rs. 2,15,89,000/- @ 8% i.e. at Rs.17,27,120/-. At the same time, as the assessee had failed to come forth with any explanation about the cash deposits of Rs.20,00,500/- made in her bank account during the demonetization period, therefore, the A.O. held the same as having been sourced out of her unexplained money u/s 69A of the Act. Accordingly, the A.O. vide his order u/s 144 of the Act, dated 16.12.2009 determined the income of the assessee at Rs.37,27,620/-. 7. Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without success. 8. The assessee, being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. 9. We have heard the learned Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements 5 ITA No.119/Viz/2025 Sathi Mangayamma that have been pressed into service by the Ld. AR to drive home his contentions. 10. Shri GVN Hari, Advocate, the learned Authorized Representative (for short “ld.AR”) for the assessee, at the threshold of hearing of the appeal, submitted that as per instructions he does not seek to press the ground of appeal No.2. Considering the concession of the Ld.AR the Ground of Appeal No.2 is dismissed as not pressed. 11. Apropos the cash deposits of Rs.20 lacs (approx.) made by the assessee in her aforementioned bank account during the demonetization period, the Ld.AR had come forth with three contentions viz., (i) that the subject cash deposits were sourced out of cash in hand available with the assessee during the pre-demonetization period i.e. on 08.11.2016; (ii) that the said cash deposits were sourced out of the assessee’s business receipts i.e. sale of soft drinks during the demonetization period i.e. 09.11.2016 to 31.12.2016; and (iii) that now when the A.O. had held the pre/post demonetization credits in the bank account of the assessee as her business receipts and determined the profit/income element @ of 8%, therefore, there was no justification for him to have adopted an inconsistent approach and held the entire amount of cash deposits of ₹ 20 lacs (supra) made in the said bank 6 ITA No.119/Viz/2025 Sathi Mangayamma account during the demonetization period as the assessee's unexplained money u/s 69A of the Act. 12. Apropos the Ld. AR's claim that the subject cash deposits of ₹ 20 lacs (supra) were sourced out of the cash available with the assessee during the pre-demonetization period i.e. on 08/11/2016 (supra), we find no substance in the same. We say so, for the reason that the assessee had failed to place on record any material to substantiate her aforesaid claim of availability of cash in hand on 08/11/2016 which would have sourced the subject cash deposits (SBN’s) made in her bank account during the demonetization period. Neither the assessee had led any material/evidence to substantiate her aforesaid claim before the lower authorities nor supported her said claim based on any material before us. We thus, in terms of our aforesaid observations, are unable to accept the aforesaid unsubstantiated claim of the assessee that the cash deposits of ₹ 20 lacs (supra) made in her bank account during the demonetization period was sourced out of the cash in hand that was available with her on 08/11/2016. 13. Apropos, the Ld. AR's claim that the cash deposits of Rs. 20 lacs (supra) made in SBNs by the assessee in her bank account during the demonetization period were sourced out of the business sale proceeds that were collected by her during the said period, we are unable to 7 ITA No.119/Viz/2025 Sathi Mangayamma accept the same. We say so, for the reason that nobody could legally carry out sales and receive demonetized currency (old Rs. 500 and Rs. 1,000 notes) after the demonetization was announced by the Government of India on November 8, 2016. The Government's notification explicitly stated that the old Rs. 500 and Rs. 1,000 notes ceased to be legal tender from the midnight of November 8, 2016 and thus, they were no longer valid for any transaction, including sales by businesses. Although the general public and businesses could deposit the demonetised currency into their bank accounts or exchange them at banks and post offices, but this was for the purpose of removing them from circulation and getting new currency and not for continuing using them for regular transactions. Although, the Government did provide very limited exceptions for a short period (initially 72 hours, later extended for some services) where the demonetised currency would be accepted but these were primarily for essential services like government hospitals, railway bookings, air bookings, government bus stands, chemists, and certain public utilities, but the general businesses did not fall under these exemptions for their routine sales. We thus, are of the firm conviction that as the assessee before us was not carrying on a business which was covered under the exceptions provided by the Government, therefore, the claim of the Ld. AR that the subject cash deposits (in SBN’s) made in the assessee’s bank account during the 8 ITA No.119/Viz/2025 Sathi Mangayamma demonetization period were sourced out of the sale proceeds of her business that she had collected during the demonetization period being devoid and bereft of any substance does not merit acceptance. 14. We thus, in terms of our aforesaid deliberations are unable to subscribe to the aforesaid incomprehensible claim of the assessee that the cash deposits of Rs.20 lacs (supra) made in SBN’s in her bank account were sourced out of the business sale proceeds that were collected by her during the demonetization period itself. Accordingly, we find no infirmity in the view taken by the A.O. who by rightly not treating the cash deposits of Rs.20 lacs (SBNs) made by the assessee in her bank account during the demonetization period as the sale proceeds of her business, had rightly refrained from confining the addition at 8% of the said amount unlike the balance credits in the bank account for the remaining year. 15. We thus in terms of our aforesaid observations, find no infirmity in the view taken by the A.O., who in the absence of any explanation regarding the source of cash deposits of Rs.20 lacs (SBNs) made by the assessee in her bank account during the demonetization period had rightly held that the same was sourced from her unexplained money u/s 69A of the Act. The Ground of Appeal No.3 is dismissed. 9 ITA No.119/Viz/2025 Sathi Mangayamma 16. We shall now deal with the Ld. AR's claim that the A.O. had erred in levying tax as per the special rates contemplated u/s 115BBE of the Act i.e. @60% The Ld.AR submitted that as the amended provisions of Section 115BBE had been made applicable only from A.Y. 2018-19 and onwards, therefore, there was no justification for the A.O. to have applied the same to the addition made in the hands of the assessee for the year under consideration i.e. A.Y. 2017-18. The Ld. AR to support his aforesaid contention relied on the judgment of the Hon’ble High Court of Madras in the case of S.M.I.L.E Microfinance Limited Vs. The Assistant Commissioner of Income-tax, WP (MD) No. 2078 of 2020, dated 19.11.2024 and the order of the Tribunal in the case of Manju Vani Chigurupati Vs. ACIT, Circle 2(1), Vijaywada, ITA No. 363/Viz/2024, dated 07.03.2025. 17. We have thoughtfully considered the aforesaid claim of the Ld. AR in the backdrop of the judicial pronouncements relied upon by him. Before proceeding any further, we may herein observe that Section 115BBE of the Act was substituted by the Taxation Laws (Second Amendment) Act, 2016 w.e.f. 01.04.2017. Prior to the substitution, sub- section (1) of Section 115BBE read as under: “(1) Where the total income of an assessee— (a) includes any income referred to in section 68, 69, 69A, 69B, 69C or 69D and reflected in the return of income furnished 10 ITA No.119/Viz/2025 Sathi Mangayamma under section 139; or (b) determined by the assessing officer includes any income referred to in section 68, 69, 69A, 69B, 69C or 69D, if such income is not covered under clause (a), the income-tax payable shall be the aggregate of— (i) the amount of income-tax calculated on the income referred to in clause (a) and (b), at the rate of thirty per cent.; and (ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).” Thereafter, the legislature in all its wisdom had vide the Taxation Laws (Second Amendment) Act, 2016 w.e.f. 01.04.2017 substituted the earlier provision which thereafter read as under: “(1) Where the total income of an assessee— (a) includes any income referred to in section 68, 69, 69A, 69B, 69C or 69D and reflected in the return of income furnished under section 139; or (b) determined by the Assessing Officer includes any income referred to in section 68, 69, 69A, 69B, 69C or 69D, if such income is not covered under clause (a), the income-tax payable shall be the aggregate of— (i) the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent; and (ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).” 18. We find that on the issue of the year of applicability of the post- amended Section 115BBE(1) of the Act, i.e. as had been made available 11 ITA No.119/Viz/2025 Sathi Mangayamma on the statute vide the Taxation Laws (Second Amendment) Act, 2016 w.e.f. 01.04.2017 there are conflicting views of the non-jurisdictional High Courts. On the one hand the Hon’ble High Court of Kerala in the case of Maruthi Babu Rao Jadav Vs. The Assistant Commissioner of Income-tax, Central Circle 1, Kozhikode, WA No. 984 of 2019, dated 23.09.2020 while dealing with the issue as to whether or not the enhanced rate of tax liability contemplated in the post-amended Section 115BBE of the Act as made available on the statute vide the Taxation Laws (Second Amendment) Act, 2016, dated 15.12.2016 w.e.f. 01.04.2017 will apply to Assessment Year 2017-18, has answered in the affirmative; but on the other hand the Hon’ble High Court of Madras in the case of S.M.I.L.E Microfinance Limited Vs. The Assistant Commissioner of Income-tax, WP (MD) No. 2078 of 2020, dated 19.11.2024, has after referring to the Taxation Laws (Second Amendment) Bill, 2016, inter alia, concluded 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. It was further observed by the High Court that for the prior transactions the revenue is empowered to impose only 30% rate of tax. 19. Considering the aforesaid conflicting views of the non-non- jurisdictional High Courts, we are guided by the judgment of the 12 ITA No.119/Viz/2025 Sathi Mangayamma Hon’ble High Court of Bombay in the case of K. Subramanian & Ors. Vs. Siemens India Ltd. & Anr. (1985) 156 ITR 11 (Bombay) that in case of conflicting views of the non-jurisdictional High Courts the view that was favorable to the assessee and not against him is to be adopted. We thus, based on the aforesaid position of law respectfully follow the view taken by the Hon’ble High Court of Madras in the case of S.M.I.L.E Microfinance Limited Vs. The Assistant Commissioner of Income-tax (supra), and direct the AO to determine the tax liability on the addition of Rs. 20 lac (supra) made in the hands of the assessee u/s 69A of the Act by applying the tax rate of 30% as was contemplated in the pre- amended Section 115BBE of the Act. The additional ground of appeal is allowed in terms of our aforesaid observations. 20. The Grounds of appeal no(s) 1, 4 & 5 being general are dismissed as not pressed. 21. Resultantly, the appeal filed by the assessee is partly allowed in terms of our aforesaid observations. Order pronounced in the Open Court on 30th June, 2025. Sd/- (एस. बालक ृष्णन) (S. BALAKRISHNAN) लेखध सदस्य/ACCOUNTANT MEMBER Sd/- (रिीश सूद) (RAVISH SOOD) न्यधनिक सदस्य/JUDICIAL MEMBER 13 ITA No.119/Viz/2025 Sathi Mangayamma Hyderabad, dated 30.06.2025. TYNM/sps आदेशकी प्रतततिति अग्रेतषत/ Copy of the order forwarded to:- 1. तिर्ााररती/The Assessee : Sathi Mangayamma, R/o.D.No.7-7-2, Near GRSA Club, Ramachandra Puram, G. Mamidada, East Godavari District. 2. राजस्व/ The Revenue : The Income Tax Officer, Ward – 2, Kakinada. 3. The Principal Commissioner of Income Tax, Visakhapatnam 4. तवभागीयप्रतततितर्, आयकर अिीिीय अतर्करण, / DR, ITAT, Visakhapatnam. 5. गार्ाफ़ाईि / Guard file आदेशािुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam "