ITAT Deletes Addition on Bitcoin Bank Deposits, Grants Relief to Student

The assessee, a student at the relevant time, faced an addition of Rs. 13.18 lakh for unexplained deposits in his bank account for AY 2018–19. He explained that his account was used by another person to carry out Bitcoin transactions. According to him, about Rs. 12.09 lakh was deposited and immediately used for purchasing cryptocurrency, and the funds were later returned. He stated that he only earned a small commission of Rs. 25,000 for allowing use of his account. He also claimed that, being young and inexperienced, he was unaware of the legal implications and had permitted this only once. Separately, a penalty was imposed for not responding to notices, which he attributed to lack of awareness and fear.

Central Issue: Whether bank deposits linked to third-party crypto transactions can be treated as unexplained income, and whether penalty for non-compliance is justified.

Tribunal’s Ruling: The Tribunal ruled in favour of the assessee and deleted both the addition and penalty. On the addition, it found the explanation reasonable and supported by bank records showing deposits, immediate use for crypto transactions, and subsequent return of funds. Considering the facts and limited role of the assessee, the addition was held to be unsustainable. On penalty, the Tribunal took a practical view, noting that the non-compliance was not intentional but due to ignorance and lack of understanding. Given the assessee’s age and overall conduct, the penalty was also deleted.

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