Top Stories Increased Tax Rate of 60% u/s 115BBE not applicable to Cash Deposits during 2016 Demonetization, prospectively from April 2017: ITAT [Read Order] Considering Section 115BBE’s amendment applies prospectively, ITAT ruled that a 60% tax rate is inapplicable to 2016 demonetization deposits By Kavi Priya – On January 6, 2025 8:33 pm – 2 mins read

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) ruled that the increased tax rate of 60% under Section 115BBE of the Income Tax Act does not apply to cash deposits made during the 2016 demonetization period and is only applicable prospectively from April 1, 2017. Naranbhai Samatbhai Bharwad, represented by his legal heir, the assessee challenged an addition of Rs. 68.50 lakhs made by the Income Tax Department as unexplained cash deposits under Section 69A of the Income Tax Act during the assessment year 2017-18. Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here The deposits were taxed at the enhanced rate of 60% under Section 115BBE effective tax rate of 77.25% with surcharge and cess introduced through the Taxation Laws (Second Amendment) Act, 2016.

The assessee’s counsel argued that the amendment enhancing the tax rate came into effect on December 15, 2016, and was applicable prospectively from April 1, 2017, for transactions occurring after that date. The assessee’s counsel argued that the deposits made during the demonetization period (November 8 to December 30, 2016) could not be taxed at a higher rate and submitted a cash flow statement from FY 2012-13 to FY 2015-16 to substantiate the source of the deposits. The revenue argued that the enhanced tax rate under Section 115BBE was applicable for the entire FY 2016-17 including the demonetization period, and questioned the plausibility of the assessee’s claims about cash reserves being held for years before being deposited. Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The tribunal comprising Dr. B.R.R. Kumar ( Vice President ) and T.R. Senthil Kumar ( Judicial Member ) observed inconsistencies in the assessee’s cash flow explanation but also acknowledged legitimate income sources such as rental income, partnership profits, agricultural income, and sale proceeds from agricultural land. After analyzing the evidence, the tribunal held that Rs. 30 lakhs of the deposits could be reasonably explained with the remaining Rs. 38.50 lakhs treated as unexplained income. The tribunal relied on the Madras High Court ruling in the case of S.M.I.L.E Microfinance Ltd. vs. ACIT, which held that the enhanced tax rate under Section 115BBE of the Income Tax Act was applicable only from April 1, 2017, and could not be applied retrospectively to transactions during the demonetization period. The tribunal ordered to application of the previous 30% rate instead and partially allowed the appeal.