Delhi High Court Admits Appeal On Taxability Of Demonetisation-Era Cash Deposits

The Delhi High Court has admitted the Income Tax Department's appeal against an ITAT order deleting additions to income based on an assessee's cash deposits made during the demonetisation period.

A Division Bench of Justices Dinesh Mehta and Rajneesh Kumar Gupta agreed to examine whether the Tribunal rightly deleted the addition under Section 69A of the Income Tax Act, relating to cash deposits made during the demonetisation period, despite the Revenue's contention that the deposits were disproportionate to cash sales in the corresponding period of earlier years.

The appeal arises from an ITAT decision which upheld the relief granted by the Commissioner of Income Tax (Appeals) to assessee Satish Kumar for Assessment Year 2017-18.

The dispute relates to cash deposits of ₹4.93 crore made during the demonetisation period.

The Assessing Officer had treated ₹4.44 crore as unexplained cash credits and made an addition under the Income Tax Act, holding that the assessee, engaged in the business of trading ghee and oil, had failed to satisfactorily explain the source of the deposits.

The CIT(A), whose order was affirmed by the ITAT, found that there was no abnormal increase in cash deposits during the demonetisation period compared to earlier years, that the assessee's books of account were audited and no defects had been pointed out, and that the deposits represented recorded business receipts.

The appellate authority further held that even if acceptance of specified bank notes after November 8, 2016 violated RBI notifications, such violation by itself would not justify treating the deposits as unexplained income under the Income Tax Act.

Challenging the ITAT's decision, the Revenue contended before the High Court that the Tribunal had erred in deleting the addition and in holding that the enhanced tax under Section 115BBE could not be applied to transactions undertaken before December 15, 2016.

Section 115BBE sets a flat 60% tax rate on unexplained or hidden income, plus a 25% surcharge and a 4% cess, with no deductions or loss adjustments allowed.

Notice has been issued to the respondent, returnable on October 6.

For Appellant: Abhishek Maratha, SSC with Apoorv Agarwal,  Viplav Acharya, JSCs.